Should You Buy or Rent Equipment For Your Business?
If you have a business that uses vehicles or equipment to perform the services to your customers, this is an extremely important blog entry. I'll be addressing renting versus buying that equipment. A Youtuber recently announced that he is giving away his CAT mini excavator. The winner gets to take this thing home. It is a 2019 caterpillar 304.
He goes on to say that he's only put 62 engine hours on that excavator over the past three years since buying it new for $67,000. The reason I feel like I have to talk about this is because nothing was mentioned in that video about the fact that this was not a good business decision.
If you're watching influencers or other landscape YouTubers, you must realize that there's money to be had online. That goes for myself and for any other YouTuber or influencer. And therefore, some of our business decisions are tainted by the fact that we're going to get money from other streams. For 99.9% of small businesses, they should not buy an excavator or a $70,000 piece of equipment that they're only going to use for 62 hours over the course of three years.
They'd be much, much better off just renting that piece of equipment. At Augusta, while we cover simple services for landscaping, we still have multiple skid steers and track loaders. So, I'm not saying that big equipment is a bad purchase, but it needs to make financial sense. And buying something brand new for $70,000, putting all the maintenance in, storage and transportation costs... over the course of three years, if you only used it for 62 engine hours, that is extremely unwise for most businesses.
What Are The Pro's And Con's
So, let's look at some of the pros and cons of renting equipment versus buying it. And this goes from just about any size of equipment, whether you're looking at a $2,000 piece of equipment or $100,000 a piece of equipment. Let's jump into it.
So, renting is a much lower initial investment. You on't have to spend a bunch of money up front. You can typically walk into any rental equipment place and rent it for a day or a week or whatever you need. What's really cool, though, about renting is you have access to a much broader range of equipment and therefore, you don't have to buy a $20,000 implement because you've got to do a certain type of tilling or a certain type of digging.
You can simply go and rent that piece of equipment and have access to all the different types of machinery - instead of just the one locked in type of model or make or size that you purchased. Also, when you're renting, it's usually newer equipment, so it is nice to operate as well. Plus, no maintenance costs.
And what's really, really awesome is that when when it comes to renting, you don't have to transport the equipment. Typically they're going to have a delivery costs and actually bring on a flatbed or trailer. And that saves you from buying a bigger truck and a bigger trailer just to haul around the equipment. And in the case of Tigren, he specifically said he purchased these $30,000 green massive dump trailers, not for the dumping capability, but to transport the equipment.
So not only is it the $70,000 excavator, it's the $30,000 trailer, plus a $70,000 truck to pull that trailer because you need a bigger truck to pull that size and load. But if you're renting, you don't have to worry about maintenance, insurance and all the other down costs of storing and maintaining a large piece of equipment. Now, when it comes to buying a piece of equipment, it is actually cheaper in the long term.
If you buy the piece of equipment assuming that you use it quite often. We'll get into the numbers of that in just a moment. What's also cool about when you buy equipment is when you don't need it anymore, you can sell it and get a return on that investment. What's really great about buying equipment, though, is the fact that you don't have to wait on a rental company because sometimes there is backup. Sometimes you need to reserve pieces of equipment. So the type of equipment you want isn't ready to be used or is being reserved by somebody else. And you can't get it right when you need it. So, it's much more flexible when you own it. You can get exactly when you need on the job on this specific day that you need it.
And again, there are massive tax advantages to buying a piece of equipment simply because you can take a Section 179 and write off all the cost of that equipment in one year and save yourself potentially quite a bit on taxes. But at the end of the day, when it really comes down to whether you should rent or buy a piece of equipment, it should be dictated by the numbers, not whether or not you have money to spend and you want to save on taxes.
Should You Buy or Rent Your Equipment?
It should be dictated by the numbers. There are much more tax efficient ways of spending and investing your money to save on taxes than just buying equipment that you don't need. So, let's look at a cost calculator of comparing the cost to rent equipment versus the cost to own equipment.
You can fill in the numbers and use these equations to determine whether you should buy a piece of equipment or you should rent it at the end of the day. What we're really looking for is the cost per hour of use. And that's why I said if you're going to use it for 60 hours over the course of three years, not a good decision for an excavator.
Now, if you're going to use it for 2000 hours over the course of three years - Very good decision to go buy the piece of equipment. In the long term, it's usually going to be more cost effective per hour of use to buy that piece of equipment.
You can work from top to bottom in the right hand side, work top from bottom. You can literally determine whether you should be buying a piece of equipment or renting it by simply determining, okay, what's my purchase cost plus the delivery and the maintenance and the insurance. Remember the delivery is also going to come when it comes to owning your equipment because you have to deliver the equipment yourself with bigger trucks and bigger trailers.
So, do all of this on the left and right hand side and you're going to come down to your cost per hour of use. And that's going to be the main determining factor of whether or not you should rent or buy. The asterisk: The fact that you do get more flexible time with that equipment when you do buy it.
This leads to sometimes buying equipment, not necessarily because you use it a lot or it makes more sense financially from using those equations, but simply because you can't get the equipment when you need it from a local dealer. Now, keep in mind, if you do purchase and buy a piece of equipment, I still recommend that you charge the customer a day rate whenever that piece of equipment is being used on the property.
If you do this, it'll make owning a piece of equipment make sense financially a lot sooner. Simply because you're still charging your day rate, regardless of whether or not you're renting that piece of equipment or you're buying that piece of equipment. So, as your business grows and you start to use that equipment more, it'll make more sense financially to be able to go buy it, purchase it, and acquire it yourself.
Is it Worth it to Buy Used Equipment?
One thing that a lot of dealers won't tell you is that if you use a piece of equipment or a slightly older piece of equipment and just take really good care of it and have good maintenance, is that they last for a very, very long time. We purchased a skid steer from our rental dealer and we were able to buy it for $9,000. Those are usually within $40,000, brand new!
It had 900 hours on it. We gave it a brand new paint job, company colors, and it looks great. And by the way, we charge $300 per day to use that track loader on the job sites. So, it's probably earned the business 40 or $50,000 over the course of the past several years because we charge the customer for that use.
So again, I am not against buying any equipment whether it be small or large. You just have to make financial sense of it and not follow what everyone else is doing or what seems fun or popular and don't buy into the hype of buying more equipment. There are plenty of advertising dollars being spent to convince you that you need to buy more when in reality that's not what makes a profitable business and it's not going to make you wealthy in the long run.