By Amanda Wilson
The decision to rent, lease, or buy construction equipment can often be overwhelming. Smaller construction companies can be left behind in the bidding for projects that need expensive and sophisticated equipment. On the other hand, larger companies may be investing too much in buying the equipment that they should rent instead and save.
The cost of maintaining and storing unused equipment on-site is an overhead that can quickly escalate the overall expenses. Then there are additional compliance, audit, and depreciation costs that you need to factor.
This article will help you understand the key indicators that drive the decision to rent, lease or buy construction equipment.
Types of Construction Tools & Equipment
Construction sites require a range of tools and heavy equipment to fulfill the job, all of which can be rented, leased, or purchased. Here are some examples.
Pumps: They are used to pump liquids at construction sites. For example, construction sites need to remove wastewater/ chemicals, fill it in a tank before transporting to another facility for processing. Pumps are also used to empty the pits off rainwater to help construction activity.
Pipes: They come in various diameters, and are used to move liquids such as water and chemicals in industrial units. Construction sites use pipes to deliver concrete from mixing units to the building.
Filtration units: They are used to safely remove particulates and sediments from liquids by physical, biological, or chemical processes. Wastewater management systems use filters to separate sediments from polluted water, which is ultimately sent off-site for purification.
Tanks: Constructionsites use dewatering boxes, frac tanks, and berms for dewatering, groundwater management, stormwater management, environmental remediation, drilling and boring, sediment settling, slurry storage, and other applications.
Other tools and equipment include earthmovers, lighting, lifting cranes (tower crane, truck mounted crane, rough terrain crane, overhead crane, loader crane), lifts (scissor lifts, boom lifts, and warehouse forklifts), and compaction equipment.
Factors That Decide When to Rent or Buy Construction Equipment
You can rent the equipment either from a rental company or a distributor. A rental usually offers services across various locations and may be helpful if you have projects across the country. Distributors, on the other hand, operate within a specific geographical area.
These guidelines will help you make a better choice between renting, leasing, and buying construction equipment.
Analyze How Long You Will Need the Equipment: As a general rule of thumb, you should choose to buy construction equipment only if you need it for more than 60 – 70 percent of the time. In the long term, if it costs more to rent, then you should buy now. Consider how frequently you will need the equipment. Equipment such as loaders, excavators, skid steers, frac tanks, forklifts, trucks etc. are used frequently in projects and should be bought when possible.
Examine Your Current and Future Financials: Buying construction equipment will require a large one-time investment. Renting can appear to be cheaper, but the cost can quickly escalate if you need the equipment for a longer time. Eventually, it may become more expensive than buying the equipment.
Tax Benefits/ Client Billing: Discuss the tax implications with your accounting team. In some businesses, you can get tax benefits if you rent equipment. Rental expenses can also be billed back to your client. But you cannot bill your client the entire one-time cost of purchasing the equipment.
Maintain Strong Capital Borrowing Power: If you plan to take loans, banks will consider your own equipment as a liability. Rental equipment is not considered a liability and can help you maintain healthy balance sheets and higher borrowing power.
Lower Interest Rates: Many construction equipment sellers offer zero-interest loans to buyers for a specified time. In such a case, it may make more sense to buy.
Consider the Depreciation and Resale Value: Just like automobiles, heavy construction equipment also have resale values, depending upon the brand and time.
Fleet Management: Larger construction companies often have their own internal departments or sister companies that solely take care of the transportation, storage, logistics, and servicing of the equipment. If you think you can manage this, it makes sense to buy the equipment. Else you can rent and outsource all of this to the rental service provider.
Benefits of Renting Construction Equipment
As a small business, you can remain competitive in the market only if you are ready to take new projects. With a rental, you can compete with larger companies who own the equipment. Other major benefits of renting construction equipment are:
Test the Technology Before Buying: Renting the up-to-date technology from a service provider can give you firsthand experience of the equipment’s capabilities, maintenance costs, and job site efficiencies. This can help you decide if you want to purchase it at a later date.
Manage Transportation Costs: If your company is based in LA and you get a construction contract on the east coast, it can add on to the transportation cost which includes transporting the equipment, fuel, driver fee, and paychecks of crew members to maintain the equipment.
Avoid Maintenance and Storage Costs: You cannot leave the equipment unattended under rain, snow, wind, or sun. Doing so will depreciate the equipment and render it useless. You need large indoor spaces to store the equipment when it is not in use which requires additional cost. Avoid this cost by renting the equipment, in which case you can return it once the job is complete.
Pursue New Opportunities: If you plan to foray into specialized construction business or into other businesses such as agriculture or road-construction, you can easily rent the necessary equipment. Buying equipment for each new project may not be feasible, and may prevent your business from expanding.
Benefits of Buying Construction Equipment
Even though renting seems lucrative upfront, but it may not be so always. Some of the factors that advocate buying equipment are:
Cost Escalations Due to Unavailability of Equipment: Rental equipment may not always be available 24/7. Do you foresee any major disruptions in the job because of this? If yes, it is better to purchase the equipment. For example, if you think your slurry storage trucks will remain idle without generators and pumps, which may not be readily available on rent, it makes sense to buy.
Used Construction Equipment: Companies are now providing used construction equipment at considerably lesser costs, and with quality and safety certifications. For example, construction equipment by Volvo comes with a 140-point inspection, and 6-month/1200-hr. powertrain warranty. In addition to the 140-point inspection warranty, CAT equipment comes with a comprehensive Equipment Protection Plan (EPP).
When to Lease Construction Equipment
A lucrative mid-way between renting and buying is leasing the equipment if you are sure of the project timelines. With a fixed lease, you can get attractive rates and still let the service provider manage overheads like repairs, maintenance, compliances, transportation etc.
The Key Takeaways
To summarize, an analysis of these key areas should be enough to help you make a decision on whether to rent, lease, or buy construction equipment:
- Duration for which you need the equipment.
- Accounting, balance sheets, and taxes.
- Cost of acquiring the equipment upfront vs. cost of monthly rent.
- Cost of maintenance, repairs, and compliances.
- Cost of transportation.
- Resale value, depreciation, and amortization.
A cost-benefit analysis can either be done using Excel sheets or advanced planning tools such as MS Project, FinalCAD, and BuildSmart.
about the author:
Amanda Wilson is an established freelance writer who has built her career focusing on the energy sector along with the oil and gas industries.
Modern Contractor Solutions, September 2020
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