Deciding whether to buy or rent heavy equipment like compact (mini) excavators for construction can be a challenge. There are benefits to both approaches, but there are also other factors to consider, like equipment utilization and your project’s context. Here are some things to keep in mind if you’re deciding between renting or buying compact utility equipment for construction.
There are many good reasons why project managers might choose to rent a compact excavator. For one, renting helps maintain a company’s financial fluidity.. With a long-term rental, you avoid the sales tax of an acquisition, plus you run four to five percent of the cost to purchase.
With a rental excavator, you don’t have to make a long-term commitment. You can rent the best machines for each specific project. Finally, with heavy equipment rentals, you don’t have to shoulder the cost of maintenance. Repairs and downtime are all up to the rental company.
Other factors can influence your decision to buy or rent. For example, the number of hours you put on the equipment, how long you will keep it, financing programs available for purchasing, and your company’s cash flow are all things to keep in mind.
If you expect enough work over the 60 to 72 months you will pay for the equipment, you can consider purchasing the compact excavator, especially if you expect a 60 percent or higher annual time utilization for 22 days out of each month. Otherwise, or if utilization rates will be lower than 40 percent, renting is a more cost-effective solution.
Besides the annual utilization rate, consider the length of time you plan to hold onto the equipment. The longer you do, the closer the rental cost gets to the purchase cost. When you have multiple projects and have to pay 50 to 70 percent of the sale price in rentals, it’s better to buy a brand-new machine.
There are certainly downsides and benefits of both buying and renting construction machinery like compact excavators. It’s important to consider all factors along with your specific situation.
It can be challenging to compare costs between renting and purchasing since rates can vary by market. As a rough estimate, suppose you need a piece of equipment that costs $100,000 and are deciding if it’s better to rent or purchase it.
If you purchase that machine and use it for 1,000 hours a year for five years, and it has a 25 percent residual, the cost of renting the unit will be equal to the cost of buying it. At that rate, leasing is probably better than acquiring the excavator. What’s more, the older a unit gets, the higher the cost of maintenance becomes.
Meanwhile, if you rent this machine with today’s market rates (at about 3.5 to 4.0 percent of the acquisition cost or $3,500 to $4,000 a month), it will cost you $52,000 a year. You may be able to negotiate a lower rate for a full-year rental.
Renting construction machinery provides contractors with more flexibility. In an uncertain economy, businesses should protect their capital base and cash flow, and renting will enable them to do that. Utilization and cost efficiency are also crucial factors that make rentals the better option at the moment.
Groff Tractor & Equipment is your trusted name in heavy construction equipment rental. We are a multi-OEM new and used solutions provider and authorized dealer in Pennsylvania, offering various brands. Contact us for more information!
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