20 September 2019, 10:59
Construction equipment rental has its upsides, especially when it comes to reducing risk. However, there can be advantages to equipment ownership if you are confident in the technology, confident in your work outlook and believe you will have good utilization of the machine.
“For the most part, rental rates are higher than your payments would be when purchasing the piece of equipment,” says Dustin Robbins, rental representative with James River Equipment, a John Deere dealer headquartered in Ashland, Va. “In the long run it can make more sense to own.” Every situation is unique, but here are four signs that rental may not be your best option.
1. YOU’VE RENTED THE MACHINE MORE THAN YOU ANTICIPATED
If you have been a renting machine for three or six months it’s time to consider whether rental is still the best option. You may be spending more than you anticipated. Dealers often provide an incentive to purchase by allowing customers to apply their rental payments to the down payment on the new machine.
Whether purchasing equipment with cash or financing, buyers should consider owning and operating costs over the life the machine. This includes not only the initial price of the equipment but the cost of financing, insurance, maintenance, repair and fuel expenses. Except for fuel costs, all of these costs apply only to ownership. The residual value of the equipment at the point you expect to sell it should be subtracted from the costs.
According to Robbins, one cost that is sometimes overlooked is transportation and storage. “If you own it, you need a truck to haul it around and a place to store it.”
Several manufacturers such as Caterpillar, Case, and Gehl offer ownership and operating calculators to help you make your decision. Your dealer can also provide you with assistance.
2. YOU COULD BENEFIT FROM A TAX BREAK
Tax incentives may tip the scales in favor of equipment ownership. Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment and software purchased or financed during the tax year, up to $1,000,000. Businesses may also take 100 percent bonus depreciation on qualified property both acquired and placed in service after Sept. 27, 2017, and before Jan. 1, 2023. Discuss a pending purchasing with your accountant to determine you can benefit from the tax advantages and what the impact will be on your balance sheet.
3. AVAILABILITY IS AN ISSUE
Availability can play into ownership decisions. “If demand is high, you may have to take what the dealer or rental firm has vs. when you purchase. An owned machine can be specified to how you want it,” says Robbins. Equipment operators may not be as satisfied or productive in a machine without an air conditioned cab or a radio, or one that is not the brand they are familiar with. The more specialized the machine, the more difficult it may be to find rental inventory. Ownership provides 24/7 access to the equipment and that means you can react to unexpected changes or new opportunities. Ownership of equipment may provide clients with confidence in your firm’s ability to handle the work.
4. YOU HAVE THE RESOURCES TO MONITOR AND MAINTAIN EQUIPMENT
Downtime is a profit-killer for any equipment-intensive business and when you own equipment you take on that risk. However, if you are confident in your ability to maintain the equipment, either through your own staff or your dealer, that risk can be minimized. With GPS and telematics , fleet managers can better monitor the location and condition of owned machines. In addition, these tools can help you identify opportunities to reduce idle time and save on fuel costs.
There’s a lot to consider when making acquisition decisions and no one formula will give you the answer. However if you see the signs that favor ownership, take time to do the math, meet with your accountant and dealer and decide on the best path forward.
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