Rent vs. Buy: 10 Things You Need to Know
Buying a compact machine is a big commitment. There are several factors to help you decide whether buying or renting a machine makes the most sense, including jobsite needs, attachment versatility and — of course — capital resources.
- Look at the scope of work for your project. Are the length of the contract and the volume of work large enough to support a machine purchase? Or is the need for a machine based on a short-term project?
- Ask yourself: Are you doing more rework and remodeling projects since the recession? If so, consider buying a compact machine that has a smaller footprint to get into tight areas. But if you do minimal remodeling projects and only need a compact machine a few times a year, then rental may be your best option.
- Evaluate terrain and soil conditions — they may provide the most compelling reason to rent or own. If you typically work on one type of terrain but won a bid for a project in different terrain, then consider renting a piece of equipment that works most efficiently in that soil type. For example, a construction company that regularly does dirt work and owns a compact track loader should rent a skid-steer loader if it has have a project on a solid surface.
- Track machine usage and demand. Although projects are varied and less predictable in some construction applications, tracking a machine’s usage and demand at multiple jobsites could help support buying a machine to meet your long-term needs.
One of the greatest advantages of attachments is their ability to increase use of existing machines without requiring a large cash investment.
- Focus on tools that will provide the best return on investment in the shortest time frame at the least possible cost. If you already own a skid-steer loader, compact track loader or a compact excavator, then a new attachment should position your operation to offer new services. Renting an attachment for one or all of those machines can improve project control and allow you to find new revenue sources.
- Consider delivery costs and scheduling hassles. If you rent the same attachment several times, you may find that it does not financially make sense to have the rental company deliver it to your jobsite, especially if the site is hard to access or scheduling makes it hard to get on time. In this case, you may be better off to purchase it.
- Remember, timing is everything. Determining the right time to rent or to buy is a business decision — one that is based on overall equipment needs, cash flow, cash reserves and the availability of financing from manufacturers or conventional lending institutions.
- Explore new financing options. Capital is not as easy to secure as it was before the recession — projects are smaller and still not as plentiful as before when contractors were more risk-tolerant. These conditions allow you to test the purchasing waters with new financing options. There’s growing interest in rent-to-purchase option (RPO) agreements that allow you to put some of your rental fee toward purchasing a machine or attachment, or return it at the end of the rental period.
Rental Rate vs. Purchase Cost
- Consider cost of ownership. Purchasing a machine carries a greater commitment that typically includes insurance, taxes, licenses, registration, maintenance, operating expenses and transportation fees. Depending on your finances, it may be difficult to justify this total cost of ownership compared to a flat monthly rental rate for a machine that is delivered to a jobsite.
- Be aware of tax implications. Always consult your financial advisor or tax professional to determine if a purchase is a smart decision. While you can deduct rental payments as a business expense on tax returns, there could be tax incentives for purchases, such as advanced depreciation.
The decision to buy or rent is entirely dependent upon your company’s situation. Take the time necessary to fully evaluate all of the factors. There are times when ownership is the best solution for your company, and other times when it clearly makes more sense to rent. The final decision comes down to being able to complete the work you’re performing in the most efficient and affordable manner possible.