Rent vs. Buy: Cost Considerations

By Dan Hounsell, Editor  
OTHER PARTS OF THIS ARTICLEPt. 1: Rental Equipment: Lifts, Spot Coolers and BackhoesPt. 2: Scheduling Complicates Rental DecisionsPt. 3: Who Should Managers Consult Before Renting Equipment?Pt. 4: This Page

Inevitably, managers renting equipment for their departments face a difficult decision — rent or buy? Does the department rent the particular piece of equipment often enough to eliminate rental costs and invest in a big-ticket item? Or is it financially smarter to continue renting and grouping jobs together to maximize rental time?

Newman’s benchmark for buying versus renting: If the cumulative cost to rent a piece of equipment is more than one-half its purchase price, he’ll consider buying. He cites a 12-inch chipper as an example.

“I had $8,000 into chipper rental and I said, ‘The heck with it. I’m going to buy one,’ ” he says.

For McGough, if the rental costs are more than one-quarter of the purchase price, he will look into purchasing. He cites a hand seeder as one example. The department had rented it for the athletic field enough times to justify buying one for the in-house arsenal.

Crews also seem to be renting a large backhoe regularly to take out fence posts, remove tree stumps and dig trenches for underground pipes because the department’s backhoe is too small for such tasks.

“If we have a broken water or sewer pipe, then we have to rent the larger backhoe,” he says. “If I buy another piece of equipment, it’ll be a backhoe.”

Making it Work

Newman offers managers two suggestions learned from experience that might make for more successful and cost-effective rentals.

First, schedule enough time to use the equipment.

“People always underestimate the time they think a project will take,” he says. If it looks like a one-week project, it is more likely to take two weeks. Scheduling enough time eliminates additional rental fees.

Second, never turn down the damage waiver.

Says Newman. “I don’t care how experienced you think your operator is. Take the waiver.”

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  posted on 8/1/2008   Article Use Policy

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