Budgeting for equipment for each project can be tough. One of the toughest decisions you’ll have to make is whether you should rent or buy.
We've covered the pros and cons of each option.
Buying vs. renting equipment
There’s no clear-cut answer to whether you should buy or rent your equipment. That depends on your specific project’s needs.
Pros and cons of buying
Pro: Ownership
When you own a piece of equipment, it’s all yours. You don’t have to worry about a rental company nickel-and-diming you for every little superficial scratch and ding on the equipment. That means it’s at your disposal. You can deploy it as needed without having to rent it all over again for each new job.
It also means that the equipment adds value to your company in the form of equity. The more you pay on the asset (assuming you finance), the more that equity builds.
Con: Upfront costs
To buy your equipment, you have to be able to spend more upfront. Whether you buy that equipment outright or finance, your costs will be higher at first.
Pro: Long-term savings
Not having to rent one specific piece of equipment over and over again could save you money in the long run, even if the upfront costs are high.
For example, the average cost to rent a skid steer is about $400 per day or $3,500 per month. If you rented a skid steer at that price for ten months of the year for three years, you’d spend $105,000. In contrast, the average cost of a new skid steer is roughly $60,000. That’s a difference of $45,000.
Plus, with regular maintenance, it’ll last you far longer than just three years, which means you keep saving. The average lifespan of a skid steer is 7,000 operating hours, which translates to roughly 10-15 years depending on how hard you use it.
Con: Depreciation
Your equipment’s value will drop over time the more you use it, meaning its resale value will be considerably less than what you initially paid for it.
That’s especially true when you buy new equipment. Like cars, construction equipment depreciates immediately when you take it off the lot. And those first few hours of operation depreciate it even further.
Pro: Unlimited use
When you own a piece of equipment, there are no arbitrary limits set on how much you can use it or for how long. The only limit is the machine’s lifespan.
Con: Maintenance costs
Ownership means you’re on the hook for maintenance. While owning a piece of equipment outright costs less than renting in the long run, you still have to shell out for engine work, new parts, and regular service like oil changes and, if relevant, tire rotations.
Those add up and, depending on the repair, the cost can catch you by surprise.
Pros and cons of renting
Pro: Lower upfront costs
Equipment is expensive. Renting is a great way to avoid incurring large expenses on top of already pricey projects.
Con: Potentially more expensive long term
The downside of renting is that you have to keep renting that same equipment every time you need it. If it’s something you need often, you may be better off buying it. See the example of the skid steer referenced above for the cost breakdown.
Pro: More flexibility
If you have a highly-specialized project that requires equipment you wouldn’t normally use, it makes much more sense just to rent that piece of equipment so you don’t buy something you don’t need.
This way, you never have more equipment than you need taking up space in your warehouse and you don’t have to worry too much about return on investment because you’re getting exactly what you’re paying for.
Con: Strict contract terms
On the flip side, any minor damage, overuse, or early termination can result in additional fees being charged. It’s best to know ahead of time how long you’ll need the equipment to avoid this.
Predictable expenses
Many rental agreements include maintenance and service in their terms. The only added expense you have to worry about is gas or additional usage fees. That makes it easier to calculate for project budgets.
Con: No equity
Because you don’t own the equipment, the equipment doesn’t add value to your business beyond the actual work you use it to perform. You can’t resell it (without getting charged for theft), and it doesn’t add to your business’ net worth.
Factors to consider
Whether it’s better to rent or buy depends on your company’s specific needs and characteristics. Here’s what you should consider before making a decision:
Company size
If your company is larger and you have multiple projects going on at the same time, it makes sense to buy. At least to maintain a reliable baseline fleet you can deploy across jobsites. Buying also increases the asset value of your business.
However, if you’re a small operation with a smaller budget and are more interested in staying flexible, renting makes more sense. It’s easier to budget for and makes for fewer long-term obligations.
Speciality
Depending on how specialized your business is, and what your specific needs are, buying could be a better option so you have an inventory of specific equipment on hand at all times.
For example, if you own a demolition company, it makes no sense to keep renting new jackhammers for every single project.
However, if you’re a small residential builder who needs to remove incorrectly-installed concrete flooring for a project, renting a jackhammer might make more sense.
Maintenance needs
Depending on usage, it may be smarter to rent equipment that requires frequent, expensive maintenance. If you don’t need a crane or excavator on every jobsite, spare yourself the headache and just rent them.
But some pieces of equipment can take more abuse than others, and maintenance is simpler and more affordable. If you need a mini skid steer on every single jobsite, go ahead and buy a couple to keep in your back pocket.
Get better equipment management with Raken
Raken makes it easier to track your equipment, including knowing where they’re deployed, when maintenance is coming up, and how much they’re being used. Reach out today to learn more about our comprehensive equipment management tools and how we can help improve your bottom line.