Rent or Buy: Finding the Solution for You

One of the toughest decisions for contractors just starting out is whether to buy or rent their first pieces of equipment.

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It’s not something Michael Morehouse had to ponder too long. When he started his company seven years ago, was he going to buy or rent a hydroexcavator?

“It’s kind of hard to go to a bank and tell them you need to borrow $500,000 for a truck,” says Morehouse, who is the CEO of Davids Hydro Vac in White Bear Lake, Minnesota. “Generally, they want you to be in business three years before they’ll open up a bank account. That was the only option I had, so I had to rent it. ... New businesses, they don’t necessarily want to take that risk.”

If a new business can’t afford to buy equipment, the decision becomes pretty easy. However, for companies that have the viable option of buying or renting, there are advantages and disadvantages to both.

Steve Shafer, vice president of industrial sales at Jack Doheny Companies, says the decision to buy or rent comes down to financing and risk. “Buying is lower interest rate and higher risk,” Shafer says. “Renting is higher interest rate, but low to no risk.”


Buying is an advantage if the risk has been identified by the contractor, Shafer adds.

“There are a lot of reasons for businesses to rent versus buy,” Shafer says. “Big or small, in most cases it’s managing your risk portfolio. If you’re a bigger company and you have a lot of assets and a lot of burden, you don’t want to buy because you don’t want idle assets or underutilized dollars. You can use your dollars more wisely in investing in people or technology or other aspects of your business.”

A contractor who decides to buy a truck is certainly going to have lower payments per month. However, if that equipment breaks down, it’s all at the owner’s expense. “You’ve always got to have a nice chunk of change sitting in the bank account in case something goes wrong, because it could happen at any time,” Morehouse says.

Morehouse, who now owns five pieces of equipment, has about $30,000 to $40,000 set aside for maintenance and repairs. Shafer generally suggests to contractors if they own a $300,000 truck they should have at least $15,000 available.

“You should always plan on the operational expense of owning the equipment to equal somewhere in the neighborhood of 5 percent of the cost of the equipment per year,” Shafer says. “Depending on how old it is or how new, if you were to be conservative you would anticipate 5 percent a year to be required. But that doesn’t mean that’s going to happen. You could have years where you spend zero dollars to maintain.”


Morehouse believes establishing one's company before buying is paramount. But when he was starting out, he still wanted to buy his first truck as quickly as possible because over short-term increments renting can be more expensive than owning.

“When you own one you still have the same expenses, except it’s more spread out,” Morehouse says.

At one point, Morehouse was renting three pieces of equipment and spending over $40,000 per month. If Morehouse had been able to buy the equipment, his monthly payment would have been closer to $5,000 per truck, per month, for around a five-year payment contract.

Morehouse was in a rent-to-purchase contract where he was able to have 50 percent of what he paid go as a down payment. He was able to purchase the truck after three years. Shafer says that about 30 percent of the rental contracts through Jack Doheny Companies go out with a rent-to-purchase discussion included.


Another advantage of renting, according to Morehouse, is maintenance costs. If something goes wrong with a truck, it can be returned to the company to get it repaired for free. “These trucks are really expensive, so if you have something really bad happen, it could cost you like $20,000,” Morehouse says. “If you’re renting, they either fix it or they send you another truck.”

Shafer says the risk of downtime makes renting an attractive option. If a company knows it’s going to be slower during a certain time, it doesn’t make a lot of sense to foot a $5,000 bill each month and have nothing to show for it.

“With nationwide rental companies, not only are they managing your risk of owning equipment, but they’re managing your cost of owning your equipment,” Shafer says. “The risk of downtime can be the most expensive aspect of a contractor's business.”


Morehouse knows there are plenty of advantages to renting, but if he could have bought a truck instead, that’s what he would have done.

“Renting was always kind of a fail-safe,” Morehouse says. “If things don’t work out, it goes back and I’m not going to ruin my credit and I’ve still got a chance to do it again. When I first started, I had to send that truck back. If I would have bought that truck, I don’t know where I’d be at right now — probably not in the same situation.”

Shafer says any contractor deciding between renting and buying should consider the length of the project they’re involved with and how much work they have available.

“If the supply is only a short-term demand, then generally that leads to rental,” Shafer says. “If the demand is long-term and it’s the first of its kind, that leads to rental purchase. If it’s long-term and there are seven different projects that are long-term, then that generally leads to straight purchase.”

Morehouse agrees that sometimes renting is the best option.

“If you have a bigger job and you know it’s going to be tougher on the truck, it’s probably good to rent one,” Morehouse says. “If it’s going to be a tougher job and it’s only going to be two or three months, rent one that works. And then you turn it back in and that’s it.”


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