When to Buy vs. Rent vs. Lease Construction Equipment

When to Buy vs. Rent vs. Lease Construction Equipment:

The decision whether to buy a brand-new construction equipment is not easy. The process need to thought of with care, and the whole bottom line should be considered.

Some construction firms purchase and keep a big fleet of equipment, while others prefer to lease those equipment and may be purchase them at the end of lease agreement. Also, other companies like to rent the machine they need only at the time they require it.

Generally speaking, such a decision of Buy vs. Rent vs. Lease can be stressful and overwhelming. Of course, all contractors would like to own a diverse packages of construction equipment but only a few are ready to deal with the possible financial repercussions.  

Before getting into which is the best option for you? we want to mention that there is really no right or wrong answer — it just depends on your unique situation. To assist you better understand the available options, we have gathered some advantages and disadvantages of renting, leasing and buying your next new or used equipment.

Renting of Construction Equipment

Renting is usually preferred for shorter term requirements (months or weeks). Renting gives the most flexibility, providing you with the option to only pay for the equipment you need for a limited duration. This option usually is good for smaller companies — especially subcontractors — that don’t have enough resources to keep and maintain a fleet of equipment. Of course, this is not to say that renting can not be beneficial for larger construction firms; it is beneficial under the right conditions.

Pros:

• Most flexible in terms of payments (month-to-month or biweekly)
• Less capital requirements
• No need to worry about transportation costs as most rental agencies will bring the equipment to your jobsite and pick it up after you have finished using it
• You can rent the current model year of equipment.
• Pay just for use and time you require the equipment 
• You are not accountable for maintenance

Cons:

• Possible use restrictions
• Renting cost is usually higher than a lease or loan payment
• Higher long-term cost if you rented the machine for long time
• You may find the device you need; someone else may have rented it
• Some specialized equipment may not be available when you need it

Purchasing Construction Equipment

In construction, there is a general notion about buying equipment. If you do not use the machine more than 60-70% of time, rent. If your usage is beyond that, consider buying or leasing. Think long-term: if you think renting costs will exceed the cost of owing, then it is your time to purchase your brand-new equipment. 

Of course, owning your construction equipment makes you able to determine how/when the equipment is used. In addition, you will become responsible for its maintenance and upkeep. Owning equipment makes your operators very familiar with it since they will be using it very often and will not frequently switch among various versions of equipment. This leads to higher productivity.

Pros:

• Equipment ownership and building equity
• More economical for longer term needs compared to renting
• Equipment is available for use whenever you need it
• You will be proud that you own

Cons:

• May be cheaper to rent for short-term needs
• The company needs to put in a huge investment initially
• Least flexibility — once you buy it, you own it
• You may need to de-fleet if your work slows down
• The danger of obsolescence

Leasing of Construction Equipment

Leasing incorporates the advantages of both renting and purchasing. The length of the lease varies, but it is usually a year or more. Leasing has a lower upfront cost since there is usually no down payment required, and it also frees up capital and does not tie up credit lines.

The majority of equipment can be leased, but the more advanced a piece of equipment is, the higher the leasing cost becomes. This is due to the fact that the party leasing the equipment does not have a large enough secondary market in which to resell the unit when it is returned. Equipment cost may also be a factor, since more costly equipment requires more money.

Pros:

• Low monthly payments, particularly when compared to renting.
  At the end of the lease period, return the equipment.
• Working capital is not tied up in equipment.
• Select the features you want on your equipment.

Cons:

• You have a fixed term of responsibilities that you must fulfil (e.g., 24-month lease)
• As compared to renting, the commitment time is usually much longer.
• You’ll never be able to develop any equity.
• Contract hours can be difficult to come by.
• There is no guarantee that the equipment will be available when it is required.

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