Construction Equipment Rental: Better to Buy or Lease? (Pros and Cons)

Usually, on a construction site, largest capital outlay is on construction equipment. Depending on the manner in which you acquire the construction equipment, it can either improve your productivity immensely or can be a drain on your cash resources. So, whether you are a business owner or you are a manager on the construction site, you must always assess the current situation and capabilities of your business before deciding to buy any construction equipment. In this article, we have discussed some of the pros and cons of buying equipment vs leasing it.

Buying Equipment

Pros of Buying

  • Buying equipment is much easier since there are no contracts or agreements to be followed. You can decide what equipment you require and buy it. The equipment belongs to you and you can do whatever you want with it.
  • Owning the particular equipment means that it is available to you always, which is quite convenient.
  • You have full control over the kind of equipment you buy, as you are not limited by what is available with the leasing company. If you have any brand or model in mind, then you can purchase just that.
  • Owning the equipment can allow your operators to master the workings of the machinery and learn all its quirks, etc.
  • Owning the equipment entitles you to make any modifications you want to the machine. Owning the equipment also means that you are responsible for its maintenance and in case of any problems, you can ensure that they are resolved immediately. This essentially means that you don’t have to wait for the leasing company to approve the maintenance required or resolve the problem for you.
  • Owning the equipment gives you the complete right to sell it whenever you want to, especially at the end of its use, letting you recover some portion of the cost.
  • If you buy a brand that has high resale value, then more upfront costs can accumulate when you sell or trade-in the equipment.
  • If you pay in cash for the purchase of the equipment, you can avoid the finance charges, service fees, interest expenses, etc. which you will incur when you take a loan.
  • If the equipment you buy is the correct one for your main business, it can help to increase productivity and hence, your revenues.
  • Owning the equipment can help you build equity in your company.

 

Cons of Buying

  • The initial outlay when buying equipment will be much higher as compared to monthly payments which is much lower when you lease the equipment. You may find it more difficult paying for expensive equipment at one go and the high cost of the equipment may deter you from buying the equipment you really want and settle for equipment that is comparatively cheaper.
  • Technology keeps changing all the time, which means that the equipment you invest in today can be technologically behind or obsolete compared to equipment that will be manufactured at a later date. So, as the owner of the equipment, you need to make a decision of whether to continue using the old equipment, try and upgrade it, repair it or sell it.
  • When you own a piece of equipment, you are completely responsible for all the maintenance of the equipment and if there is a need to repair the equipment, it can get too expensive. You can end up owning equipment that cannot be fixed or sold. So, it is a good idea to look for a product warranty for the equipment that can cover the repairs.
  • If the equipment is put to a lot of hard use, the trade-in value can reduce.
  • Irrespective of whether the construction industry or your clients are growing or declining, you will be stuck with the equipment forever.

 

What Is the Best Time to Buy?

  • You should buy equipment only if the capital is available.
  • Buy only in case the machine is extremely vital to your core business and you plan to use it frequently and for a long time. Or, buy if the equipment is very versatile and you can utilize it for several jobs.
  • If you get a low interest rate which makes the purchase of the equipment feasible.

 

Leasing Equipment

The decision to lease construction equipment is a good alternative to purchasing it. Leasing essentially is like a loan and at the end of the lease period, you can return the equipment for a newer model. The equipment is owned by the lessor, who is also responsible for the equipment.

 

Pros of Leasing

  • Usually, leases last for around 3-5 years. So, you don’t need to make a down payment and hence, there is no requirement for cash up front.
  • If the work that you do is mainly with an industry where the latest model of equipment is vital to your business efficiency, then leasing construction equipment will let you do that. By leasing equipment, you can get upgraded to the latest technology much faster and it prevents you from being stuck with old and outdated equipment.
  • Leasing equipment is less expensive because instead of having to pay a single lump sum amount to buy the equipment, you can pay up in installments, which makes it easier for you to budget for the machinery over a long period.
  • Lease payments are much lower than rental or loan payments usually. Also, the sales tax is included in the monthly payment, so there is no need to pay all of it at once. An additional benefit is that the monthly payments can be deducted as operating expenses.
  • When you lease equipment, you don’t have to worry about the transportation, routine maintenance or storage of the machinery.
  • When you lease, you can structure the lease to also include the maintenance of the equipment. And, if you include the maintenance in the lease and there is some breakage or problems due to normal wear and tear of the equipment, this makes the leasing company responsible for the maintenance, which means that the leasing company will bear the maintenance expenses of the particular equipment.
  • Leasing is usually 100% tax deductible under the Section 179 deduction, as an operational expense.
  • Leasing offers greater flexibility because you get more options for the type of equipment needed. With leasing, there is no need to be restricted to one kind or model of equipment and if you find that there is a different kind of equipment that can do the job more efficiently, you can simply change the equipment whenever you want.
  • Leasing does not affect your credit or borrowing power and so, you’ll have more working capital.

Cons of Leasing

  • In the long run, leasing can end up being more expensive as compared to buying and you may end up paying much more than if you had purchased it. So, do consider the length of time that you will be using the equipment before deciding to either lease it or purchase it.
  • Not being the owner of the equipment does not give you any equity, which means that you will not be able to sell the equipment at the end of its useful life and so, there’s no potential to make any money.
  • The term of the lease of the equipment could be much longer than the time you require the machinery for and you could be left with the equipment for a much longer time than it’s needed (in case the contract is very stringent) and this can result in a waste of money and space.
  • The brand or model that you specifically want may be unavailable and this may cause you to settle for whatever is available or wait until what you want is available. And, if you need to change the type of equipment, typically, lease agreements have in-built penalties for this.
  • It may be difficult, as well as expensive to break a long-term lease and usually if you return the equipment earlier than the lease period, you may have to pay penalties.
  • You may still be responsible for the property tax, insurance or/and damage fees for the equipment.

 

What Is the Best Time to Lease?

  • It is a good idea to lease equipment if your working seasons are short or if your workloads are sporadic.
  • It is comparatively cheaper to lease construction equipment if you will be using it only for a single project.
  • Leasing is a good option if you need to save the capital for wages or company growth.

 

Often, when there is a requirement for any kind of heavy equipment for a project, construction businesses analyze the pros and cons of buying the equipment vs leasing. The key step in the process is to determine what equipment will suit your requirements and your budget the best. It is a good idea to consider a mix of buying, renting and leasing equipment on basis of the ongoing jobs and those that are expected in the future. With an optimal mix, you can meet your obligations and set your company budgets more efficiently.

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