Why Renting is Better Than Buying

What contractor hasn't relied on a versatile mini-excavator at some point. When it comes to foundation work, light demolition, small material-moving jobs, utility installations or any number of similar projects, the good-old mini-excavator is truly a valuable piece of equipment. But how valuable is it in terms of real dollars?

For some smaller contractors, owning a mini-excavator can actually be a questionable use of money. Unless you use the machine almost every day, it often makes much more economic sense to rent the unit when you need one.

"You would have to be utilizing it about three weeks out of a month to make a mini-excavator purchase worthwhile," says Larry Pearce, an area fleet manager for a leading equipment rental company. "Otherwise you have it sitting around, doing nothing and then you're still paying for it. Buying the machine is simply money thrown away."

Crunching the Numbers

When one does the math and evaluates the various costs, some calculations point to how renting can clearly be to a company's advantage.

To buy a new mini-excavator, an average purchase price might be in the range of $30,000. Then one adds tangible out-of-pocket expenses, including taxes, plus interest paid if the purchase is financed.

Next, consider ongoing regular maintenance (parts and labor) plus bigger, more expensive repairs later on, like track wear. One must also include warehousing, transportation and so on. The operating costs of that machine just keep growing. There's also opportunity costs: the matter of what a business could do with that capital if the money was being used more effectively somewhere else.

Adding up all the associated costs--assuming an equipment usage life of five years--means you're conservatively looking at a cost of about $10,000 per year to own the mini-excavator.

Now compare those numbers to typical renting scenarios.

For most jobs that call for a mini-excavator, you're probably not going to need the machine at its project site for more than a week or 10 days at a time.

Based on a standard rental rate of about $620 per week for that piece of equipment, your company could do eight week-long projects a year with the mini-excavator for less than half the cost of owning it: $4,960 vs. $10,000. Obviously, if you need it fewer than eight times, your savings are even more impressive.

Using those figures, renting would save you roughly $25,000 during a five-year span for that machine. Better yet, you'd be spared a lot of time and trouble during the process, because the rental company would be responsible for parts, maintenance, insurance and transportation.

"It's just not [always] cost-effective to own," says Barry Reeck, general superintendent of Weis Builders Construction Co. of Minneapolis, Minn. Weis has been renting equipment for 20 years. "Our rental company provides us with the equipment we need, when we need it ... near-new, well-serviced equipment," Reeck adds. "It's a big benefit to us."

The Best of Both Worlds

When dealing with a reputable provider, like Power Pac Rentals and Sales, renting can provide many of the advantages of having a premium piece of equipment without the costs or responsibilities of ownership. If the unit needs service or repairs, somebody else does the work. When you're finished with the mini-excavator at your job site, just send it back. You'll never have to worry about how to get rid of the machine at the end of its useful life.

When you rent rather than buy equipment, you also gain flexibility. You can just order the exact size and model of unit that you need to fit each particular job.

"Mini-excavators often need attachments, too, like a breaker or hammer or different size bucket," says Bill Strickler, an area fleet manager for a leading equipment rental company. "Whatever it is that a project may call for, it can be conveniently rented here as well."

Power Pac Rentals, for example, maintains millions of dollars in equipment and tool inventory at its facilities, which helps ensure its customers can choose from a comprehensive range of choices.

"One of our foremen wanted a skid steer with a scrubber on the exhaust, which is a pretty rare request," says Butch Satterwhite of Mobley-Speed Cement Contractors. "Fortunately our (rental) rep got it for us. He comes up with about anything I need."

Working with rented equipment can even simplify bidding and billing processes. It can be tricky to gauge the true cost of operating and maintaining owned equipment, but the price of a rental is clear going into the deal because there is just one accountable cost figure: the rental invoice.

Optional Thinking

Various reports and studies have been produced to help users weigh the costs of renting vs. buying. Standard industry guidelines and accepted computation formulas include the Rental Rate Blue Book and the Custom Cost Evaluator, along with a statistic known as Cost of Facilities Capital, which is a government-created formula that factors the cost of money invested in machinery.

In another case history recently published, a rent-vs.-buy comparison focused on a standard 185 CFM air compressor unit. The equation assumed a purchase price of $12,000 and an annual usage rate of 500 hours. After adding operating and ownership expenses, not counting fuel, that compressor would incur expenses of $5,420 per year for its owner.

Yet based on three month-long rentals per year, that same machine would have an operating cost of only about $1,800, for an annual savings of $3,600.

Of course, every situation is different, but in many instances, renting can offer clear advantages in cost savings and convenience. When contractors need equipment, making some phone calls and evaluating the alternatives might pay off. It could also make a big difference when it comes to a company's bottom line.

"If you're not using a machine enough to make it worth buying, it's just a better idea to rent it," concludes Strickler. "It's that simple."

So, when you are thinking about buying a piece of equipment, look into renting as a more economical alternative.  Give Power Pac Rentals and Sales a call at 541-884-0114 to inquire about renting versus buying. 

          *Adopted From: http://findarticles.com/p/articles/mi_m0QMH/is_5_7/ai_n15675860