The Equipment Debate: Rent vs. Buy - Municibid Blog

rent or buy equipment

Gearing up for the next big project or upcoming contract job brings about a familiar question: should you rent or should you buy your equipment? Deciding whether to rent or buy is best answered through careful consideration of the tasks at hand.

Unsurprisingly, there are several factors that contribute to this decision and may differ according to each scenario. Carefully weighing key components of the renting and buying debate yields a more cost-effective and successful result.

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Before making a decision, it’s helpful to go back to the old practice of jotting down a pros and cons list. Try including the following factors when making your choice.

The Cost

Considering the monetary implications is an important element in renting vs. buying. Which is the better deal for you, financially speaking?

In the world of construction equipment, owning is becoming more costly than renting 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, renting is generally an inclusive cost and will include the price of ownership and any fees the rental incurs.

Renting 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 may hold their value more so than others.

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

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 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 will help you avoid potential for 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, making the expense of buying worth even more in the long run.

Taxes

Buying a piece of equipment is a capital expense that must be considered when filing taxes. The equipment’s expenses during the year it was purchased may not be deductible from taxes, whereas 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 possible repercussions of purchasing heavy equipment for your business. Look over your tax returns for 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 years.

Calculating the Costs

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

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 renting 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: rent or buy.

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