leasing v. buying heavy equipment

Pros and Cons of Leasing Versus Buying Machinery

Drive-thru:

  • Cost is not the only factor when considering whether to lease or buy construction equipment.
  • Leasing equipment has its benefits, such as staying current with technology.
  • Buy equipment, and you own the machinery outright to use as you wish—and to sell later.

If you require machinery to conduct business, depending on your specialty, the equipment may be pricey. That’s what Dave Bulfer of DMB Electric in Orange, California, has found.

“It’d be nice to have my own scissor lift, but buying such equipment would cost from $10,000 to $15,000, and I’d have to store it,” says Bulfer, an electrical contractor, who has been in business for seven years. “Whenever I need a scissor lift, I rent one, which runs me about $300 for a couple of days.”

While price plays a big part in the rent-versus-buy decision, there are other factors to consider as well. When making the choice between leasing and buying, it helps to weigh the various advantages and disadvantages.

Long-Term Leasing/Renting Pros:

Possible cost savings. If the equipment is a high-priced item, you can often save a considerable amount of money renting it for a short period, like Bulfer does with the scissor lift.

Stay current with technology. Pricey equipment requiring frequent updating, such as technological items, is often better rented or leased long-term. If you need to update equipment annually, it’s often impractical to make a new purchase on a yearly basis. Leasing or renting ensures that your equipment is always up-to-date.

Over time, rental fees may surpass the cost of buying your own equipment.

Easier budgeting. With a long-term lease, you usually make a monthly payment to the equipment leasing company. This allows you to plan your budget accordingly.

Tax deductible. Thanks to the new Tax Reform, leasing equipment, which is considered an operational expense, is now often 100 per cent tax-deductible under 179 IRS Tax Code.

Long-Term Leasing/Renting Cons:

More expensive over time. Long-term leasing of equipment requires that you also pay interest. This will add up over time. The longer you lease, the higher your costs will be.

Even if you only rent for short periods without paying interest, over time the rental fees may surpass the cost of buying your own equipment.

No equity. When you own an expensive piece of equipment, you have the option to resell it at some point. This isn’t the case when you lease.

Potential unwanted lease terms. Some lease terms may be too long for your needs. This can be problematic if, for example, you only need a bulldozer for two months and the lease term is for six months. In such cases, short-term renting may be your best option.

Limited availability. Leasing companies have limited equipment on hand. That may mean you won’t be able to locate the particular machinery you require, which could stall a project.

Buying Pros:

You own the equipment. No need to comply with any lease terms or wait for the opportunity to use machinery. It’s yours.

Option to sell. If you finish with the machinery or decide to buy another model, you’re free and clear to sell it and put the money back into your company.

Tax-deductible. Under Section 179 of the IRS Tax Code, you may be able to deduct up to $1 million dollars of equipment purchases of up to $2.5 million dollars. If your equipment doesn’t qualify, you may be able to depreciate the machinery instead.

If the machinery you buy features technology that is quickly outdated, you’ll be stuck with it. Click To Tweet

Buy what you want. You have control over the brand and model of machinery you choose to purchase.

Buying Cons:

Higher initial costs. Coming up with money for new equipment can take a big bite out of your budget initially.

Risk of outdated technology. If the machinery features technology that is quickly outdated, you’ll be stuck with it. This could also make the equipment hard to sell.

Storage space required. While it’s not much of a problem for smaller items, it may be difficult to find the space for large pieces of machinery that need to stay dry and protected.

Maintenance and repair costs. Some machinery repairs are costly. If your equipment breaks, you’ll be the one to pay the repair and maintenance costs.

The bottom line

Whether you should buy or lease machinery depends on your particular business and budget. Take time to consider the various options so you can make the best decision for your construction company.

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