Rent or Own? The Equipment Dilemma

By Brian Frederick
August 8, 2017

A guide to when to rent and when to buy equipment

You’ve just landed a big job, one that bodes well for the future of your company. And while it’s in your wheelhouse, there are some aspects of it that are outside what you normally do — and they call for specialized equipment that you don’t currently have in your fleet. That leaves you with two options: rent a machine for this job, or buy it so you have it on-hand for future jobs. Which makes more sense?

If you’re looking for a clear cut answer that applies to every situation, I’ve got bad news — there isn’t one. Every situation is different. And in some renting in the best option. In others, you should buy. But how do you know which is better in your specific case? Let’s take a look.

Consider the cost

Let’s look at a scenario. You need a scissor lift for your job. Renting this lift will run you around $700 a week, including pickup and delivery. You estimate between this job and upcoming jobs, you’ll need a lift like this 10 times this year, for an average of 2 weeks. That’s 20 weeks x $700, for a rental total of $14,000.

Buying the same lift, would cost you $17,000. Seems like an easy decision, right? For just $3,000 more, you can add the lift to your fleet and never have to rent it again.

Not so fast.

You’ve been in this business a while. You know there are a lot more costs associated with equipment ownership than just the purchase price. There’s depreciation, maintenance and upkeep, insurance and a whole host of other fees associated with owning. And that’s not even including operation costs.

In our scenario, let’s assume you’ve run these numbers and found that the cost to rent is $6,000 less than the cost to purchase. Even better, right? Again, not so fast. Owning equipment can come with possible tax advantages, not to mention you won’t have to pay for transport (other than fuel costs and driver labor).

Then there’s the financial side of the business to consider as well. Equipment is expensive and requires a significant amount of capital or line of credit. And it’s not enough to look only at your current situation. You need to project your costs over several months or even years.

Is it better for your business to pay one large amount upfront, pay interest by financing or spread that money out in rental fees over time? And don’t forget to factor in the value of the asset and potential resale value, should you decide in the future you don’t need it.

Confused yet? There’s more.

Think of the benefits

Even if you’ve crunched all the numbers and found it beneficial to rent equipment, there are other factors to consider — namely availability. If unexpectedly need a piece of equipment, it’s much more convenient to haul one over from your lot than call around trying to find a rental yard that has one available.

But when you rent, you’re not paying the maintenance and upkeep costs. Every piece of equipment in your lot requires regular attention to make sure everything is in great working condition. This requires on-site maintenance people, plus the associated costs of belts, hoses, oil and everything else that goes along with it. When it’s a piece of borrowed equipment, all of that is the renter’s concern.

Calculate usage

This may be the most important factor when deciding whether you should buy or own: how much use will you get out of the machine? If it’s a smaller job, with a piece of equipment you don’t have much use for, renting is a good solution. If it’s a bigger project, or an asset you’ll use often, buying makes more sense.

But how accurate is your usage? A telematics solution will allow you to determine usage for every piece of equipment in your fleet down to the minute, easily identifying underutilized assets to sell or rent out.

Manage your fleet

If you have the tools, you can save a lot of money by maximizing your fleet’s efficient. That means identifying what equipment you have too much of, and what you have too little. By owning the right amount of assets, you’re not paying unnecessary rental fees or upkeep on rarely used machines.

Buy

• Higher upfront cost

• Resale value provides return on investment

• Depreciates on your lot

• Available when you need it

• Requires maintenance, upkeep and insurance

Rent

• Lower initial cost

• Sunk cost

• Late model equipment

• Availability varies

• Maintenance and insurance handled by rental company

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