The heavy construction equipment market is projected to grow at a compound annual growth rate (CAGR) of 7% through 2021. Urbanization is increasing in size and rate, and with that comes a greater and more urgent need for excavation and demolition equipment, among other heavy construction equipment. In fact, the expectation is that the segments of excavation and demolition equipment will be the major players in the market. Still, with so much growth expected, many businesses are choosing to rent construction equipment instead of buying. This isn’t necessarily the wrong choice in some cases. There are considerations to be made in each decision.
Construction Equipment Usage Ratio
The decision to rent your construction equipment is one that makes sense in certain situations. If a piece of equipment is not going to be used frequently, choosing to rent may be the best option. Of course, this will vary based on factors such as budget and project scope.
On the other hand, if you’re planning on using the piece of equipment often—especially if it’s going to be used on multiple construction projects—it may be in your best financial interest to make a purchase. As with anything, this is about getting the most bang for your buck. For some, that means purchasing brand new construction equipment. However, quality used equipment that’s been inspected and maintained well can be much more cost-effective than renting in the long run.
Keep your crew in mind when it comes time to decide whether to rent or buy. Is there low job frequency for your company? Is the length of the project for which the equipment is needed relatively short? Construction equipment requires regular maintenance and the schedule may not allow for it. If that’s the case, choosing to rent may be your best bet.
If your crew has the time and skills needed to inspect the equipment and perform preventative maintenance to keep it up and running, buying could be in the cards. There’s also the added bonus of flexibility when purchasing your heavy construction equipment. If a job goes past the initial completion date, your equipment is still available to you. If repairs are needed, you don’t have to wait for another rental to show up because you can service. Furthermore, when you no longer need the machine, you can get a return on your investment when you sell.
Expenditures and Taxes
When renting construction equipment, the customer can be billed for it later or you could actually deduct the amount as a business expense. However, if you decide to buy your construction equipment, that purchase is a capital expense, which you must address during tax time. It’s important to note that you won’t be able to deduct the entire purchase in the year it was made. Capital costs are depreciated and amortized during the equipment’s life. When the construction equipment is bought in the U.S., you could potentially avoid paying capital gains tax once the equipment is sold (when you no longer get it), thanks to the 1031 Like-Kind Exchange. Your tax adviser can discuss what specific advantages may be available to you whether you rent or buy.
An element that can get lost in the research of whether to rent or buy construction equipment is the transportation costs of that equipment. Costs to move equipment sometimes hundreds of miles (or more) between jobs add up quickly. Included in these costs are the crew it takes to load and unload the equipment, fuel, the truck, and the driver. Depending on the location of your job, it may be best to rent in order to save on excess costs. On the other hand, if you’re doing more jobs close to home, a purchase may be the better option.
When evaluating the pros and cons of renting versus buying your construction equipment, it’s important to remember that a multitude of costs go into equipment management. Communication is key, so be sure to speak with your crew, financial advisers, and anyone else who may have a different perspective to add.