ARTICLE
CONSTRUCTION EQUIPMENT:
The Economics of Buying vs Renting
It’s one of the most impactful financial decisions for all construction companies, regardless whether you’re a
small, medium, or large company. Do you rent or buy the required construction equipment?
T
here are many important
considerations when making such
a strategic decision.
There are pros and cons to both renting
and buying construction equipment.
Here is a list of things to consider when
making that important decision.
Renting: The Benefits
Renting keeps equipment up-to-date:
A current model will have the latest
features and the newest technologies,
enabling greater productivity, safety,
and ultimately a better bottom line.
Also, consider the project length or
the frequency of jobs on the calendar.
With a short-term job, or a need for a
specialized piece of equipment, renting
makes more sense, since the piece of
equipment is only needed for a short
period of time. Few contractors or
businesses will have equipment that is
utilized 100% of the time. In order to
predict the rate of utilization, a common
industry calculation is to divide the days
utilized in a month by 22 days. (An
alternative metric for added accuracy is
hours utilized divided by 176 hours)
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For example, a piece of equipment
that is utilized for 10 days in a month
has a utilization rate of 45% (10/22 =
45%). A useful metric amongst industry
insiders, companies should only think
about purchasing equipment if they
expect utilization to be above 60%.
Alternatively, if the equipment has a
utilization of less than 40%, renting
becomes the preferable acquisition
method. From 60%-40%, other factors
such as available capital and job frequency
become the primary decision factors.
One
big
reason
many
construction
companies choose to
rent is because there is
a predictable monthly
expense with a rental.
The pre-determined
monthly line item can
help with budgeting.
Another
factor
to consider is the
transportation costs of
that equipment. Costs
to move equipment
sometimes hundreds
of miles between
jobs add up quickly.
Depending on the location of the job,
renting can save on excess costs.
In some cases, renting can lead to more
accurate job quotes. This is because the
cost of renting goes directly into how
much each job costs the company to
perform.
Finally, renting is a good option because
then companies don’t need to store
construction equipment. Paying for
storage space costs considerable
money.
Also, in the long run, buying can often
be more cost effective. Buying may be
a larger one-time financial outlay, but
contractors can see a return on your
investment when they sell.
Construction companies also need
to consider the impact of managing
the equipment. In some cases, buying
the equipment can save money
since contractors can take care of
maintenance in house.
On the flip side, working on a long
project, or if several jobs are on the
horizon, buying is better since rental
costs add up the longer a job goes on. Perhaps one of the biggest advantages
of buying is the fact that equipment
is available anytime a construction
company needs it. Construction
companies can react to unexpected
changes in projects or project schedules,
take on jobs at a moment’s notice, and
complete projects with less downtime.
Another benefit is having a multi-
purpose piece of equipment can be
used for various projects, which is a
great asset on any jobsite. Finally, buying equipment is deductible.
When doing company expenses and
taxes, the equipment owned can be
deducted.
Buying: The Benefits
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