April 19, 2021
Both buying and renting construction machinery can make sense, but the best choice depends on your specific needs and profile. We have created a guide to help you decide.
Many people often wonder whether it is better to buy or rent construction equipment like excavators, trucks, wheel loaders, crawler dozers and more. The simple answer is "it depends" because each situation is different. We have created a list of items for you to review and consider, and then apply these factors to your own profile.
One of the most important factors when deciding to rent or buy is how much you will use the machine. Generally speaking, if you plan on using the machine a lot then you should buy. If you will use it sparingly then it probably makes more sense to rent. For instance, a general rule of thumb for construction excavators is if you plan on using it for at least 175 hours per year then you should buy instead of rent.
Some types of equipment, such as cranes, are very expensive and tend to be used infrequently. That is why renting cranes tends to be more common.
If you are unsure whether you want to rent or buy, and you want to use the equipment before committing to a purchase, your best route might be a Rent to Purchase Option ("RPO"). This is a way for you to rent the equipment while applying a large part of the payment toward building equity in the equipment. You then have the option to purchase the equipment and you can apply the built-up equity toward the purchase.
If you plan on using your equipment frequently then it likely makes more financial sense to buy instead of rent. Generally speaking, if you plan on using your machine for at least 175 hours each year you should take a serious look at buying.
When you rent equipment most of the service and maintenance are done by the rental company. You focus only on getting the job done. When you own the equipment you handle the service and maintenance.
If your company has a staff of service people dedicated to maintenance then it can provide real cost savings when doing everything in-house. This of course adds to your annual operating costs.
Renting from a company with a larger fleet often provides you with the assurance that you can get a quick replacement unit on-site if your machine goes down and needs to be serviced for a prolonged time. If you own the machine you may be faced with a job delay or you may need to rush to find a replacement unit last minute.
When you own equipment you should be cognizant of your warranty. While your equipment is under warranty you must follow manufacturer specifications to keep the warranty in good standing.
Heavy equipment, such as trucks, excavators, track loaders, crawler dozers, etc. can be expensive to move to and from your job site. Some companies own their own semi-trucks and 18 wheelers to transport their equipment - when this is the case then the incremental cost to transport machinery tends to be lower.
Typically when you rent the equipment you will be charged a transportation cost set by the rental company. You may not always have a choice on which transportation company to choose, so this can impact the rate you will pay. When you own your equipment you have more options to choose transportation methods.
Storage is also another cost that you should factor into your equation. Often construction equipment is stored in a yard during slower seasons such as the winter. Some machinery owners prefer to store equipment indoors to protect it from the harsh elements — indoor storage comes with extra costs for the structure, insurance, etc.
Used machinery values fluctuate with the economy and commodity prices. When economic times are good then typically buyers can afford to pay more — as a result, used prices tend to be strong. When the economy enters a recession demand for equipment is lower and used prices tend to be softer.
No one has a crystal ball to foretell economic conditions, but as an equipment buyer, you can be sure that the economy will have its ups and downs. Owning equipment means you are exposed to economic fluctuations if you ever want to sell down the road.
Commodity prices can also have an impact on machinery costs because inputs such as steel will change the manufacturing cost. When steel prices rise then it typically leads to stronger new and used equipment prices, and when steel prices fall then it corresponds with weaker new and used equipment prices.
When you buy equipment with a loan you need a bank, financial institution, or manufacturers to provide the loan. Your credit profile and other factors will determine a bank's willingness to extend your credit, as well as the loan terms (interest rate, repayment term, etc).
It is very common for construction manufacturers such as Caterpillar, John Deere, Case, Komatsu, Volvo Construction Equipment, Bobcat, JCB, Kubota and others to offer special financing packages and promotions.
It is important to note that lenders' willingness to extend credit changes with the economy. Just because credit is available today does not guarantee it will be available tomorrow.