Leasing vs. Renting — How to Know Which Is Right for Your Project

When you’re a construction superintendent, it’s your job to plan and coordinate a construction site’s operations to ensure a project is done on time and on budget. Although the company owners may make the decision whether to lease or rent equipment, you might be asked for input. Considerations about leasing or renting can have an impact on the successful completion of the project.

The decision on whether to lease or rent construction equipment is not a simple one. The nature of the job, the business and the overall economy all play a role.

When to consider leasing
You should think about leasing if:

It makes the most financial sense
Leasing makes the most sense in getting equipment at a reasonable price for the long term.

If you will be using the equipment more than 60 percent of the time, leasing is preferable to renting. For example, if you’re going to need a forklift for most of the project, a long-term lease makes more sense than renting. Lease periods range from three to five years in most cases.

It might be beneficial for taxes
Taxes and other financial considerations are significant enough to affect the business as a whole, but they need to be balanced against your responsibilities to make sure work gets done on time and on budget. You and the owner or chief financial officer may need to run numbers on the benefits of leasing. Section 179 of the tax code usually allows for businesses to write off the entire payment as operating expenses.

There are two kinds of leases: capital and operating. With a capital lease, the company leasing the equipment, or the lessee, acts as the owner. While that means they are responsible for taxes, insurance and maintenance, it also means they receive tax advantages for depreciation and interest.

With operating leases, the leasing company, or the lessor, is the owner. They are responsible for all maintenance, taxes and insurance and the lessee receives no tax benefits. However, because the leasing company is responsible for maintenance, your project can never be stalled as you wait for a vital piece of equipment to come in or for a repair to be completed.

You want to purchase equipment later
Your company may want to purchase equipment down the road. Many leases can be set up as lease-to-purchase agreements. The purchase price may be advantageous to the owner.

In addition, you and your crew will be familiar with the equipment, which can maximize efficiency in upcoming projects. There’s no obligation to purchase, however. If things are not as busy as you anticipated, you have no added pressure of a large purchase.

You need a flexible payment schedule
A flexible payment schedule can be advantageous to your operation. For instance, you might pay a higher payment in months where your revenue is higher and less during months of lower revenue.

Many leasing companies offer lease terms that work in harmony with the realities of the construction business.

You need to find a specific equipment brand
Your work crew is likely most familiar — and more efficient — with a particular brand. But not all brands are always available as a rental.

If your crew is experienced with a particular backhoe or excavator, if may be best to ensure you’ll have that one — which may be easier to secure with a lease. The more experienced the crew, the better their quality and the faster their time to completion.

When to consider renting
You should think about renting if:

You only need the equipment short term
If you only need the equipment for a few days or weeks, rental terms are much more flexible than those of leases. Short-term rentals can also cost less if the equipment is not needed long term.

Just as you should think about leasing if you need the equipment more than 60 percent of the time, if you need it less, renting may make the most financial sense.

You only need the equipment for a specific project
Renting might make the most sense if the equipment is for a specific customer request. While construction equipment such as backhoes and excavators are part of nearly every job, equipment like a crane may be the result of specific customer demands for construction on upper stories.

Additionally, rental costs can often be passed along to the customer. This usually doesn’t work for a lease.

The equipment Is not needed consistently
If you don’t have another project scheduled right away where the equipment is needed, it doesn’t make sense to lease it. It is easier to rent the equipment again when you need it.

You’d like the most up-to-date technology
Technology advances rapidly, and the equipment may be rendered technologically obsolete in a short time. Construction equipment increasingly has sophisticated electronics and technology built into it.

GPS systems on graders and pavers, for example, save on labor costs and can make workers more efficient. If next year’s model grader will be more efficient, it makes sense to rent rather than to expend money on a long-term lease.

You’d like to test several different equipment types
Sometimes, it can be beneficial to test out different types of equipment, especially if you’re in the market to purchase later. You can see which type of excavator works best with sandy soil or which type of grader your crew thinks it the most effective.

For doing this kind of research while on the job, rentals are best.

Is it better to lease or rent on a construction project? There’s no one right answer. It depends on the company’s financial needs, the duration the equipment will be needed, the cost versus benefit and your crew’s familiarity with equipment. The considerations above can help you decide.

Article submitted by Megan Wild, a freelance construction writer. You can keep up with her on Twitter by following @Megan_Wild. She can be reached at meganbwild@gmail.com.