For Phoenix Contractors and Equipment Rentals - When to buy or rent heavy equipment – five factors to consider.
You’ve decided it’s time you need some heavy equipment or trucks. Maybe you’ve got some big contracts coming down the pipe, you’re growing or expanding your company’s capabilities, or you just need to replace your current heavy equipment. So how do you decide when to buy equipment and trucks and when to rent what you need?
With pros and cons to both renting and buying, it pays to evaluate your company’s current situation and capabilities (financial and otherwise), your future plans, and carefully consider which method of acquiring equipment will be most advantageous to your business – and which is also simply going to make your life easier. Certainly, initial cost is a major factor in the decision process, but it’s not the only one – there are several things to consider when it’s time to gear up – usage, availability and more.
Here’s an overview of some of the things you should bear in mind before deciding when to buy and when to rent equipment.
1. Current financial situation
This seems like the most obvious factor to consider – do you currently have the capital to buy or is renting a better option for now? But you should look beyond your current situation and project your costs over several months or years. Although buying may be a larger one-time financial outlay, the cost of renting can add up quickly, and over a long period of time can end up costing you more – especially if the equipment isn’t being used for the entire rental period. And don’t forget: when you own, you can see a return on your investment when you sell. (Use the handy cost calculator below to find out which option is best for your current situation.)
You can reduce the initial financial impact of buying a piece of equipment in many different ways:
Buy good quality used equipment – when you rent, you are often paying for the newest equipment with the latest technology; purchasing well-maintained used equipment can be cheaper than buying new equipment and may be more cost-effective than renting over the long term
Finance your equipment purchase – give your company some extra financial breathing room by financing your equipment purchases and keeping your capital to run your business; with financing rates as low as 5.99%, your payments could even be lower than rental payments
2. Cost of ownership vs cost of renting
It’s also important to estimate the cost of equipment ownership versus the cost of renting equipment. With ownership comes maintenance and operating costs, insurance and other fees such as government licensing, and those costs obviously vary from machine to machine. Renting is generally an inclusive cost, but given that a rental company has to turn a profit, you should consider that your rental fees will include the purchase price and the cost of ownership, both marked up. You will probably have to pay to transport the equipment to and from the rental store as well, over and over.
Fuel is a cost that is common to both owning and renting and needs to be considered for both. Roughly, one-third of your total expenses will be for the cost of fuel.1
Talk to your financial advisor about the possible tax implications (or advantages) of buying or renting equipment for your business. Tip for U.S. equipment owners: you may be able to avoid paying capital gains tax when you sell and buy equipment for your business. Learn about 1031 Like-Kind Exchanges here.
3. Length of project or job frequency
Of all the things to consider, project length or the frequency of jobs on the calendar could be the deciding factor in whether you rent or buy equipment. If it’s a short term job, or you need a specialized piece of equipment for a one-off job, then renting may make more sense. The risk, of course, is that if the machine isn’t being used for the entire time it’s rented due to changes in the project schedule or unforeseen hold ups, then you’re spending money on a machine that’s sitting and waiting, not making you money.
If you’re working on a long project, or if you’ve got several jobs on the horizon, then buying probably makes better sense given that rental costs add up quickly the longer a job goes on. And a multi-purpose piece of equipment (loaders, excavators, skid steers, forklifts, trucks etc.) that can be used for various projects is a great asset on any jobsite.
4. Equipment availability & usage
The big advantage of owing your own equipment is that it’s available to you 24/7 – “if you own it, you control it”, as the saying goes. You can react to unexpected changes in projects or project schedules, take on jobs at a moment’s notice and complete projects with less downtime.
Before you decide whether to rent or buy, you should weigh the potential risk of a rental company not having the machine you need when you need it. Owning can be a plus to potential clients too, who see it and know you’re not only equipped to take on their job, but are a going concern and a stable, trustworthy business.
5. Fleet management and inventory control
Managing your equipment is also something to consider. If you have the skills and the time, you can save money over the long haul by buying some or all of your equipment and taking care of insurance, maintenance, etc yourself; if you don’t, you may want to pay a little extra to rent. You’ll know where it is, who’s running it, and you can schedule jobs and equipment accordingly.
For shorter term jobs, you may want to consider renting, but buying gives you added flexibility. Let’s say you project that you’ll need a piece of equipment for three months. If the job extends for another two months, you have the machine at your disposal. If the job ends and you decide you don’t need it, we can help, you sell it again at another upcoming auction and recoup some of your investment. The frequency of our unreserved auctions in different locations gives you a great ability to control your inventory, and even profit from equipment you don’t need anymore.
Pros and cons: buying versus renting equipment and trucks
✔ Lower initial investment
✔ Access to a broader range of equipment at all times
✔ Latest equipment usually offered
✔ Maintenance, insurance etc. handled by another party
✔ Cheaper over the long term
✔ Get a return on your investment when you no longer need the equipment
✔ More flexible—equipment available whenever you need it
✔ Less downtime
✔ Possible tax advantages
Cost calculator: buying versus renting equipment or trucks
First, determine what you need to buy or rent, then create your free account and check auction results to get a sense of the price of used equipment. Check with your local rental store to determine rental and delivery costs.
Next, figure out your expected period of use (in years, months or days) and the amount of use the equipment will get (expected hours of use).
Cost to rent equipment
Cost to own equipment
Rental rate (per year/month/day) x rental period (number of years/months/days) + pickup/delivery charge = total rental cost
Purchase cost + delivery, maintenance, insurance (ownership costs) - resale value = total ownership cost
Total rental cost / rental period = rental cost per year/month/day
Total ownership cost / ownership period = ownership cost per year/month/day
Total rental cost / expected hours of use = rental cost per hour of use
Total ownership cost / expected hours of use = ownership cost per hour of use
Not sure what costs to expect? An excellent tool you can use is the United States Army Corps of Engineer’s Construction Equipment Ownership and Operating Expense Schedule (ACOE) Equipment Schedule. It’s broken down into schedules for different regions of the U.S., but is a great resource for heavy equipment owners and operators everywhere who want to estimate costs.
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