When mobilizing your construction equipment for a project site, the enigma whether to buy, rent or lease must be tackled in a very sane and judicious way. Important questions pertaining to the duration of the need for equipment, the number of hours it’d be working at sites and geographical suitability must be answered to come to a decision.
There are various factors that affect the buy-rent-lease decision in an equipment’s selection. Some of the vital ones are capital budgeting, equipment specification, life-cycle cost analysis, financial and risk management strategies, and employee training.
With the surge in the demand for construction equipment, contractors have been buying more machines and at the same time have also been adopting rentals and leases to assist their own fleet.
There will never be a direct answer to whether to buy, rent or lease a piece of construction equipment. It would always depend upon the unique conditions you are up against.
Here in this article we have laid out some points in favor and against when opting for buy, rent or lease.
|Points in favor of buying||Points which are against buying|
|1. When the equipment is used for most of the construction period and likely to complete almost its full life, while working on project.||1. When the equipment can not be used for its full life, then owning may be more expensive than hiring.|
|2. It remains available for use whenever it is needed.||2. The purchaser is required to put in a huge investment initially, which otherwise he may need for other purpose.|
|3. Since it’d be an owned equipment it would be kept in better mechanical conditions and is more reliable||3. Contractor may have to face the danger of obsolescence.|
Procurement can be done through calling enquiries, technical and financial evaluation, ordering, contract making/purchasing, transporting, assembling and installation and operation/commissioning.
|Points in favor of renting||Points which are against renting|
|1. When the job is of short duration and there is no continuous need of the equipment.||1. Higher long-term use cost|
|2. It’s flexible when it comes to the disbursement of payment (month to month).||2. Limited to what is in the lot|
|3. Offers value-added services like supplying skilled manpower, repair and maintenance etc.||3. Has higher monthly payments than loan financing and leasing.|
|4. Pay only for use and time you need it.||4. Some specialized equipment may not be available when it is needed.|
|Points in favor of leasing||Points which are against leasing|
|1. Working capital is not tied up in equipment.||1. Only limited machines are available on lease.|
|2. Lessee gains a tax deduction because lease payments are treated as an expense.||2. No assurance of availability of equipment at required time.|
|3. You can choose the specific features you want on the equipment.||3. Commitment period is typically much longer compared to rental.|
|4. No large initial capital outlay||4. Contract hours can be a challenge.|