Renting vs. Buying vs. Leasing Construction Equipment – Which is Best?

Contractors often learn by trial and error when it comes to making equipment decisions, but there is a better way – and it’s not as complicated as you might expect.
On this episode of The Dirt, we hear from equipment industry consultant Steve Fooy who offers concrete steps to take before deciding whether to rent, buy or lease. The method removes the guess work and replaces it with facts in determining what will be best for your company.
He also offers suggestions on how to improve your equipment management skills and some tips for new contractors in need of equipment.
So to find out whether buying, renting or leasing is best for you and how to reach fact-based equipment decisions, check out the latest episode of The Dirt.
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In This Episode:
00:00 – Should You Buy, Rent or Lease?
00:36 – How Do You Know Whether to Buy, Rent, or Lease?
01:36 – Existing Fleet
02:14 – Manufacturer Availability
02:54 – Capital and Operating Budgets
03:20 – Criticality of Equipment
03:50 – Cost Analysis
04:18 – Internal Rate vs. Market Rate
04:53 – Business Cycle
06:22 – Buying vs. Leasing
10:40 – New Contractors
14:44 – Resources for Contractors
17:27 – Final Thoughts

Video Transcript:
Bryan Furnace
Today we're here to talk about that age old question that everyone wants to know the answer to. Is it better to buy equipment, lease equipment, or rent equipment? And when does it make sense to do one over the other?

Bryan Furnace
Today we're talking to Steve Foy, and he's going to break some of this down for us and give us a little insight behind the decision making that goes on, especially with larger companies with larger fleets.

Bryan Furnace
So today, we're getting into the discussion that everybody wants to have, especially new business owners. The question is, is it better to buy equipment, rent equipment or lease equipment? So in what scenario would renting or leasing be more advantageous over just an outright buy of a piece of equipment?

Steve Fooy
Well, there's several different scenarios. I think first, one of the things that equipment managers and owners have to understand is what's in their budget. There's two different budgets that come into play here. You've got your capital budget, which is your purchasing of equipment, and you have your opex budget, which covers your day-to-day expense. When you purchase that, it falls under your capital.

Steve Fooy
And when you rent or lease, it normally falls under your operational budget. So first off, you have to understand there's two different issues going on there and understanding that will help you determine sometimes what direction you have to go. But I break it down. And the first one, it's pretty obvious, but you have to look at your own availability.

Steve Fooy
So it's kind of important that you take a look at your existing fleet and what kind of utilization are you running? Do you have some units with lower utilization that can be redeployed? Do you have ideal equipment? And one of the things that gets overlooked quite a bit is equipment that's being used in an application that require a different unit.

Steve Fooy
So for example, if I have a 70-yard loader doing an application where a three-yard loader would do the same thing, can I do some switching and redeployment? So maybe I don't have to rent or lease or even buy another piece of equipment. So I'd be the first thing. The next thing in under availability is what's the availability from the manufacturer?

Steve Fooy
What's the lead time? There are times where lead time specifically after Covid, where are they really stretched out. And my requirement was a lot sooner than I could get it from the manufacturer. So we would rent equipment to cover that gap. And this is where you can use a rental purchase option. I had an instance where I had to do this.

Steve Fooy
I rented it for a month under a rental purchase option. And another location that had capital dollars actually bought it. So that bridge, once again, that kind of bridge, that gap of, what I got for capital versus what I really needed. The second thing that's important, and I mentioned it before, is knowing your capital and operating budgets and what limitations to you have, and then having an understanding that rental and leasing can bridge that gap and actually conserve some of your capital dollars.

Steve Fooy
I always tell people, use all your money in both of your budgets, because that's one way that you can bridge the gap of some of the capital that you didn't get for the year. The third thing that I looked at was the criticality of your asset. How important is this to the financial success of your company or how special that equipment?