Equipment Rental vs Purchasing
September 8, 2023
By Dian Kohoutek, CPPA
Regional supply disruptions have hindered new equipment production, causing prices to spike and boosting the North American construction equipment rental market. A chip shortage is exacerbating the situation, and it’s expected to continue into 2023. For instance, prices of new equipment like skid steer loaders jumped by 30% in the region. Inflationary pressures also led to significant price increases in segments like aerial platforms and earthmoving equipment in 2022. Large excavator prices were up 12%, with John Deere excavators in Canada seeing an 18% rise. The North American construction equipment rental market is set to reach $58.49 billion by 2029 from $42.64 billion in 2022, with a 4.6% CAGR. High equipment prices and limited supply are fueling demand for rental equipment.
Given the rising cost of new equipment and the scarcity of well-maintained used options, renting becomes a viable choice for businesses. It is crucial to weigh the pros and cons of each option carefully.
Pros of Renting Equipment:
1. Cost Savings: One of the most significant advantages of renting equipment is the lower upfront cost compared to buying new machinery. Purchasing new equipment can be a substantial financial burden, especially for small businesses.
2. Flexibility: Renting offers unparalleled flexibility. You can access the equipment you need precisely when you need it, without the long-term commitment of ownership. After completing your task, you can simply return the equipment, saving money on maintenance during periods of inactivity.
3. Access to Latest Technology: Renting provides access to the latest and most advanced equipment without the need for a substantial capital investment. This can be particularly advantageous when technology is evolving rapidly.
4. Maintenance Included: Rental companies often assume responsibility for equipment maintenance and repairs. This can significantly reduce the burden on the renter, saving both time and money.
Cons of Renting Equipment:
1. Higher Long-Term Costs: While renting is cost-effective in the short term, it can become more expensive in the long run if the equipment is needed regularly for an extended period. The cumulative rental costs may surpass the purchase price.
2. No Equity: Renting does not build equity. At the end of the rental period, you don’t own the equipment, which means you don’t have an asset to show for your investment.
3. Limited Availability: Rental equipment may not always be available when you need it, especially during peak seasons. This can disrupt your operations and timelines.
Pros of Purchasing Equipment:
1. Ownership: Buying equipment means you own it outright, and it becomes an asset on your balance sheet. This can positively impact your financial standing and borrowing capacity.
2. Cost Savings Over Time: If you use the equipment frequently, owning it can be more cost-effective in the long run compared to continuous renting. The absence of rental fees can lead to substantial savings.
3. Control: You have full control over the equipment’s maintenance, customization, and usage. You can tailor it to your specific needs and schedule maintenance at your convenience.
Cons of Purchasing Equipment:
1. High Initial Cost: Purchasing new equipment often requires a significant upfront investment, including financing costs. This can strain your financial resources, particularly for startups or small businesses.
2. Depreciation: Equipment tends to depreciate in value over time, potentially affecting your overall asset value and financial statements.
3. Maintenance Costs: As the owner, you’re responsible for maintenance, repairs, and downtime costs. These can add up, especially for complex machinery.
Which Option is Better?
The choice between renting and purchasing equipment ultimately depends on your unique circumstances:
– Budget: Do you have the capital to purchase the equipment outright, or is renting a more viable option at the moment? While the initial cost of buying can be substantial, it’s essential to project your costs over an extended period. Renting equipment may seem cost-effective in the short term, but these expenses can accumulate quickly, especially if the equipment isn’t used continuously throughout the rental period.
– If you need equipment sporadically or for short-term projects, renting may be more cost-effective and flexible.
– If you use the equipment frequently and it’s critical to your operations, buying can lead to cost savings over time and the benefits of ownership.
In conclusion, there is no one-size-fits-all answer when it comes to renting or buying equipment. Each option has its merits and drawbacks. By carefully evaluating your situation and considering the factors outlined in this article, you can make an informed choice that aligns with your business goals and financial capabilities.
When determining whether to buy or rent heavy equipment, it’s crucial to estimate the total cost of ownership versus the cost of renting. Equipment ownership entails ongoing expenses such as maintenance, insurance, government licensing, and operating costs, which can vary depending on the type of machinery. In contrast, renting often includes these costs within the rental fees, albeit marked up by the rental company.
Additionally, consider transportation costs when renting equipment, as you’ll need to move it to and from the rental store repeatedly. Roughly one-third or more of your total expenses will typically be attributed to fuel costs, regardless of whether you choose to buy or rent.
Sourced:
North America Construction Equipment Rental Market Report 2023