To rent or to buy?

When contractors consider whether to rent or buy equipment, they need to evaluate several factors, including how they plan to use the equipment, the financial impact of owning a machine and the maintenance requirements.

Peter Menner, the owner of New Millennium Rentals Inc., says that, for most contractors, the decision comes down to how often and how long they anticipate using a given piece of equipment.

“Of everything, that’s going to be the biggest thing that’s going to play into it,” he says. “In my world—in the specialized attachment world—a lot of guys say, ‘Hey, I need this for a job. I need it for two months, and I’m going to send it back to you because I don’t know when I’m going to need this again. I might need it in three months, or I might need it in three years.’”

The decision to rent or buy also comes down to knowing what types of jobs are likely to come up and the types of equipment that will be needed for a contractor over a period of time.

“It kind of comes down to their business focus and what they have a need for … on a daily basis or monthly basis,” Menner says.

Business owners also must consider financial factors, he says. The size of a company, the money it has available and its long-term financial goals come into play, as well.

“With rentals, you don’t have the incurred financial liability of a monthly payment on it,” he says. “You only have the liability while you have it in your possession and are using it versus buying, which … you’re going to have a payment on it, and it’s also going to be portrayed in your balance sheet and your financials.”

If a contractor is carrying a great deal of debt on equipment, Menner says that can ultimately affect the firm’s bond rating and ability to absorb debt for other expenses.

Menner says some demolition contractors prefer buying equipment to provide a “competitive advantage” in bidding.

If a firm can show it owns the equipment necessary for a certain project, he says it could give the company an edge over another firm that does not own a specific tool needed for the job.

Menner says small “mom-and-pop” firms and larger firms seem to view the rent-versus-buy decision differently. He says larger firms could have a better ability to develop a strategic, long-term plan for these decisions, while a smaller firm might only be able to focus on short-term needs.

“The smaller guys—the mom and pops—look at the short game and say, ‘OK, well, I don’t want to give this guy $28,000 a month of rent; I’d much rather buy that shear for $100,000 and then I own it and put it on my machine,’” Menner says. “That might not be the right move because … they can write that rental off of their taxes or their profit loss and expenses.”

A third option: lease

If the monthly cost of a rental is too high for a company, and its long-term-use case doesn’t seem to justify a purchase, companies can lease equipment. However, Menner says this option is less common.

“My gut feeling for most customers is that if they’re financing it, they’re going to [purchase it],” he says. “Only the larger guys would entertain a lease with a lease to use/lease to buy [option].”

For example, Menner says one of his customers has held off on purchasing a piece of equipment because of the high interest rates.

“I said, ‘Well, why don’t you talk to one of your finance companies … and ask them if they’ll do a 12-month lease,’” he says. “It’s going to be a lot more than an amortization loan, but it’s going to be a lot less than rental rates are going to be. It’s going to be somewhere in the middle of that. But the idea is that … you’d be getting 100 percent equity on it.”

The economic uncertainty that came about because of the COVID-19 pandemic and, more recently, rising interest rates have positively affected the rental business, Menner says.

“The rentals were strong last year, and the year before was strong, as well,” he says. “I’ll [attribute] that to the economy and people being a little uncertain about that, as well as the interest rates, driving guys to be a little bit more likely to rent than buy.”

Weighing transportation costs

Menner says transportation costs also can be a factor to consider when contemplating whether to rent or purchase equipment.

“For two-thirds of rentals, the trucking could be a make-it-or-break-it factor,” he says.

That other third comprises customers who need the equipment urgently or who can’t find it locally, and the cost “is what it is,” Menner says.

In the case where a contractor needs a piece of equipment urgently, the firm needs to be careful.

“It comes down to, ‘Can I get it, and can I get it when I need it?’” Menner says, adding that discovering unexpected tasks during a project sometimes can create an urgent, unexpected need for a particular piece of equipment.

In some cases, rental businesses could tell contractors that a certain piece of equipment is being returned on a certain date, but the timing doesn’t always work out as planned, he says.

When the timing doesn’t lineup to send out the returned equipment, a contractor could find out at the eleventh hour that a piece of equipment isn’t available. At that point, the options are either to pay too much to get the equipment on-site from a remote rental company or to pay less for the equipment while falling behind on work.

Customers could end up paying more for transporting rental equipment a great distance, but that cost always is balanced against the cost of getting behind on a project.

Maintenance

One clear advantage of renting is that if a machine or tool needs a serious repair, dealers or rental companies usually will provide that necessary service.

But contractors do share responsibility for the machines and attachments they rent, Menner says.

“The preventive daily maintenance—greasing it, pulling the dipsticks, doing your preventive safety walk-around—that’s all on the contract,” he says. “That’s their responsibility.”

Menner says New Millennium, which is headquartered in Florida, New York, takes responsibility for repairs if a machine is broken and out of service.

“My guys will run pretty much Baltimore to Boston,” he says. “For anything in that region, my guys are going to go handle it. Somebody’s going to go fix it.”

However, for rental customers farther away, he says he tries to prepare them to cope with any maintenance-related incidents as much as possible.

“If machines are going to Indiana, or if they’re going to Kentucky, they’re probably going to get looked at a little harder than if they’re going to northern New Jersey,” Menner says.

In cases where a company rents the equipment from several states away, he says New Millennium includes more equipment and parts in the toolbox.

“If he’s got a shear, he gets—we’ll call it a care package,” Menner explains.

He says he includes tools and supplies that contractors can use to make some repairs on machines so that his staff doesn’t have to travel exceptionally long distances, which can create costly downtime.

In addition to tools, customers of New Millennium Rentals have maintenance responsibilities detailed in the rental agreement and on labels in the cabs that operators can refer to.

“I charge blade wear on the shears and on the concrete tools,” he says. “The shears are per edge, and they’re indexed blades, so you can flip them four times. And, for the concrete tools, I just do a flat rate per month or per week, depending on the size of the attachment.”

Those fees help New Millennium pay to replace teeth on shears and concrete tools as they wear out.

While New Millennium’s customers have some maintenance responsibilities, Menner says his rental equipment is all fairly new and shouldn’t require much work. He says he gets “a little freaky” about maintaining and cleaning equipment.

“My oldest machine today probably has 2,000 hours on it,” he says. “I keep them to about 3,500 hours, and then they find a new home only because I want to keep them fresh.”

The author is managing editor of Construction & Demolition Recycling magazine and can be reached via email at bgaetjens@gie.net.