Buying Used Machinery is a Better Value than Renting
Renting is growing among contractors worldwide, and for good reasons — the increasing costs of buying new machinery, as well as the economic uncertainty for many sectors of the construction industry, is creating a challenging environment for contractors to navigate. By turning to rental, contractors only pay for equipment when they are using it and do not have to pay for idle machines when they aren’t working. Sounds like a pretty good deal — right?
Well, the truth is that flexibility comes at a price that may or may not save you money over time. In many instances, buying used machinery will keep your equipment investment low, giving you higher returns.
Debunking the Old Rental Rule-of-Thumb
The general rule of thumb rental representatives and manufacturers tell contractors is that if they do not plan on utilizing a machine 65 to 80 percent of the time, they are better off renting. And while that rule may be valid when comparing the costs of renting versus buying a new machine, it does not apply when you look at the value of used equipment.
The value of most equipment drops 20-40 percent in its first year of operation. So instead of paying full price for a new machine, you can expect to pay significantly less for a machine that’s still under warranty and is reliable.
After the first year, machine values flatten out and remains steady for many years to come. If you properly maintained your equipment, you’ll have a valuable business asset that you can sell or trade-in on your next machine — something you don’t get when you choose to rent.
As you can see, you don’t have to utilize a machine 80 percent of the time to still come out ahead when you buy used machinery.
Get Exactly What You Want
Rental stores stock equipment that has the widest appeal to its customer base. That means you won’t likely find large, job-specific machines in rental fleets or machines with a lot of extra options. So, if you need a dozer with a set of wide floatation tracks on it to work a wet job, chances are you’ll be out of luck when you call around to local rental stores. More than likely, you’ll also be left waiting for more than a month if you try to buy a new wide track dozer.
Your best bet — shopping for used a used machine. You’ll have plenty of options to choose from, and there is no waiting. After you’re done with the project, you can decide if you need the extra flotation in the future or resell it and get a large portion of your investment back.
Lower Monthly Expense
Buying new machinery can tie up a lot of operating capital, which is another reason renting is growing in popularity. Renting doesn’t require a down payment — you’re only on the hook for the rental fees. However, when you buy used machinery, you don’t have to come up with as large of a down payment for a financed purchase, and your monthly payments will be substantially lower.
Depending on how much you’re paying in rental fees every month, financing a used equipment purchase may be able to reduce monthly equipment expenses, and at some point, you’ll be done making payments on your purchase all together.
The cost of renting can be written off on your taxes. However, you may be able to lower your tax obligations more through asset depreciation of a used machine. You’ll also be able to write off insurance, equipment taxes, repair and service expenses and transportation costs. Consult a tax advisor to help you compare the saving of buying used machinery versus renting.
New Rule for Renting
Fleet management is an important part of every contractor’s business. Balancing equipment acquisition costs with utilization rates helps save money, but it’s time to stop comparing the costs of renting with the price of new machinery. Purchasing quality used equipment gives you reliable machinery at the best price — saving you money now and in the future.
So, the new rule for renting should be — rent machines that you don’t utilize more than 20 to 30 percent of the time. For everything else, consider buying used equipment.