January 31

Leasing versus Buying Equipment: Which is Better

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Last Updated on April 18, 2022

Gearing up for that next big project or upcoming contract brings about a familiar question of which is better: leasing versus buying equipment. Leasing is temporary, while buying is more permanent. However, depending on your budget, the project’s duration, equipment requirements, and future projects, the former could be better. Deciding between the two is best answered through careful consideration of the tasks at hand.

And just because one worked last time doesn’t mean it’s best now. Carefully weighing key components in the leasing versus buying debate yields a more cost-effective and successful result.

So before making a decision, it’s helpful to go back to the old practice of jotting down pros and cons. Let’s take a look at the difference between leasing and buying to give you a full picture of what we mean.

Leasing versus Buying - leasing pros and cons

Leasing

One way to secure heavy equipment for a project is by leasing. This is an option if there’s something you need but don’t have, and wish to return after extended period of time. Some companies lease equipment for durations stretching between: 12 months to 60 months.

The specified time frame is what makes leasing different from renting.

Renting

If you’re new to the world of heavy equipment, renting and leasing may sound the same (like with an apartment). While similar, they are not. Renting is a shorter version of leasing. How short? Plan on renting heavy equipment if you’re working on projects that will take less than a leasing rate to complete. Think, a few days, a few weeks, maybe a few months.

Leasing versus Buying - buying pros and cons

Buying

If renting gives you equipment for the least amount of time, buying gives you the most. This is also the option to pick if you consistently use a certain type of machinery. Why keep going through the process of renting or leasing? Buying makes you the owner, and eliminates that hassle. But should you buy new or used equipment?

Buying New

Initially, buying new equipment will prove to be more expensive than used. However, after a series of successful projects you can earn that money back and more. New equipment is less likely to break down too.

Buying Used

However, buying used equipment is sometimes smarter. New doesn’t mean free of issues and new equipment that malfunctions adds up to a hefty price tag. You can instead buy used equipment that’s in good condition and therefore durable. You’ll save money on the initial purchase and still make a profit through work. 

At a glance, buying may sound superior to leasing. After all, owning sounds more pleasant than renting. However, the time you spend using equipment is only one important factor. The cost is another, along with equipment needs and taxes. Let’s take a closer look at these last three.

Leasing versus Buying - snow tractor image

The Cost

Considering the monetary implications is an important element in leasing versus buying. The question is, which is the better deal for you, financially speaking? 

In the world of construction equipment, owning is becoming more costly than renting. This becomes truer as transportation, maintenance and operating costs, taxes, and insurance fees begin to add up. Is your business ready to handle those kinds of financial, long-term investments? While these vary among different types of equipment, leasing is generally an inclusive cost and will include the price of ownership and any fees the rental incurs.

Leasing offers several conveniences to alleviate some of the financial strain that comes with ownership. There is no need to invest in expensive insurance or worry about covering 100% of repairs and maintenance costs. Moreover, you don’t have to consider upgrading when the latest model comes out. 

On the other hand, buying the equipment may be the more cost-effective choice in the end. Almost always, those who own a piece of equipment will see a return on their investment when selling. In the case of buying, it is important to research and compare the latest models, as some hold their value longer than others. 

A good compromise to consider is purchasing well-maintained used equipment. This can end up being cheaper than leasing in the long run, and is not as expensive as buying brand new equipment. 

Leasing versus Buying - tractor plow image

Equipment Needs

The project length and frequency of jobs should play a big role in your rent vs. buy debate. If a job is short-term or requires a specialized type of equipment, renting or leasing naturally makes the most sense. 

Generally, if the equipment required will not be used at least 60% of the time throughout all of your projects, renting is a better option.

Conversely, if a project is long-term or will demand several recurring jobs, buying may be the more sensible solution. Owning a piece of equipment outright helps you avoid any increasing rental costs as the project continues, unforeseen hold ups, or machine unavailability. 

When mapping out the pros and cons according to equipment needs, carefully consider who will have access and be operating that piece of machinery. It’s possible that a certain piece of equipment can replace one or two workers on a job. That makes the expense of buying worth even more in the long run.

Leasing versus Buying - compact tractor image

Taxes

Buying a piece of equipment is a capital expense that must be considered when filing taxes. The equipment’s expense during the year it was purchased, can also be deductible from taxes. Moreover, renting costs can be deducted annually as a business expense. In fact, renting equipment adds a tax incentive as there are no associated property taxes or licensing fees.

The Hiring Incentives to Restore Employment Act (HIRE Act of 2010) also allows businesses a Section 179 write-off for equipment that is leased or financed. According to Section179.org, “The obvious advantage to leasing or financing equipment and then taking the Section 179 deduction is that you can deduct the full amount of the equipment, without paying the full amount this year. The amount you save in taxes can actually exceed the payments, making this a bottom-line friendly deduction.”

Talk with your accountant about the potential tax benefits or repercussions of purchasing heavy equipment for your business. Review your tax returns from the previous few years and see what kind of difference a machinery purchase could make. Remember to think long-term. A tax break this year may not be worth the expense in the coming future.

Leasing vs Buying Venn Diagram

Leasing versus Buying Equipment: Verdict

Money is the name of the game when it comes to big business decisions. In order to properly plan ahead, try using a cost calculator for a better look at the numbers. Seeing the costs broken down between leasing or buying will help rule out the other option. 

Many contractors overlook the total cost of equipment management. If there is a project or job that needs to happen 300 miles away, the costs of the transport truck, the driver, loading and unloading time, and transport fuel should be included in the budget. 

Once at the jobsite, it may be necessary to hire someone to maintain and fuel the equipment.

By calculating the costs during the research process, and including all possible expenses, you’ll be better informed when making your final decision. 

Assessing these top factors will provide further insight into whether leasing or buying equipment is the best option for your business. It’s important to consider these things for the long-term, even if the upcoming job or project is short. By drafting a pros and cons list in detail, your immediate needs will be apparent and you’ll have a big picture to help you decide: lease or buy, rent or lease, buy old or buy new.

With all this in mind, here’s a reference table for you to use in your decision-making process. Taking the time to figure out things now can save you from strain later. Once you’ve done that, you’re well on your way to picking out heavy equipment for the next project.


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