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View Full Version : Leasing vs. buying equipment


TTM42
12-08-2011, 09:45 AM
I have been thinking recently about leasing mowers instead of buying them, I have been wondering why spend $10000 or more on a depreciating investment that has a limited write off when you can lease a piece of equipment and have a new one every two years so you always have a warranty. I know you don't have ownership at the end but who wants a 10 yr old mower that won't be worth anything at the end of that time period anyway? Also, I was wondering if there were any tax write offs that you can get if you lease your equipment instead of buying it. Im sure that you guys here know the pros and cons of each so Im interested in hearing your response.

GMLC
12-08-2011, 10:08 AM
I have asked this question a couple times here and really got no answers. From what I understand some leases also include maintenance! I would think this is the best way to have a fleet for those that trade in their mowers every couple of years.

Thanksman
12-08-2011, 10:41 AM
I have been thinking recently about leasing mowers instead of buying them, I have been wondering why spend $10000 or more on a depreciating investment that has a limited write off when you can lease a piece of equipment and have a new one every two years so you always have a warranty. I know you don't have ownership at the end but who wants a 10 yr old mower that won't be worth anything at the end of that time period anyway? Also, I was wondering if there were any tax write offs that you can get if you lease your equipment instead of buying it. Im sure that you guys here know the pros and cons of each so Im interested in hearing your response.
very good question..

djagusch
12-08-2011, 11:00 AM
There are many different lease programs out there so one can not say if it is good or bad until the details are out.

Here is my experience.

Lease with ownership at end of lease. That says it all. I make payments over 34 months at the end the mower is mine.

Pro's: Easy to get (took three minutes), don't need to worry about interest rate changes, get the mower at the end of the lease, and lease payment 100% wrote off.

Con's: If you figure the rate of the lease it has about 10% interest rate (compare cost to write off), if you pay it off early you don't pay less (unlike a interest loan).

Going to the bank for a loan. 2yr loan.

Pro's: Lower interest rate (around 6%), build relationship with bank, if you pay more your costs of the loan go down (less interest), and you own the mower.

Con's: More paperwork to get and a meeting (maybe 2 hrs of time), deprication tables etc can be confusing (I just let the accountant deal with it).

djagusch
12-08-2011, 11:07 AM
The lease for 2 yrs and return programs I have not looked into. I would think they would work with high mower hour operations (if you put 1000hrs on a mower a year it could make sense).

You would need to go over your numbers to figure out if the lease makes sense. I don't find my mowers breaking down much, so if the machine is solid I'm going to still run it.

TTM42
12-08-2011, 07:03 PM
Thanks for the replies guys, keep them coming please

twward
12-10-2011, 10:18 PM
A true lease has a predetermined residual at end of the term. The benefit of a "true" lease is the monthly payment is considered a rent payment and is 100% expensed. Also, you get the "useful" life out of the piece of equipment. Do you really want to own an old, worn out mower that is just going to sit around once it is finally paid off? Or, would you rather have a consistent monthly payment so that you can have peace of mind about your equipment and also so that you can budget and plan future expenditures.

The lease with a "dollar buy-out" and the lease that you own the equipment at the end is not a true lease. Alot of these types of leases are now outlawed in some states. With these two leases, you generally do not get the tax advantages.

Having been involved with the financing and leasing of compact equipment, I can honestly say purchasing vs. leasing is something that you should talk about with your CPA.

muddywater
12-10-2011, 11:00 PM
I buy used and it pencils out better than anything.

Just bought a 09 Turf Tiger 35 briggs with 190 hours. Paid $6500 delivered. I will use it for two years and put 1500hrs on it. I will sell it after two years for about $4500. It will cost me $83 a month.

If you buy new new it will cost about $230 a month.

Duekster
04-15-2012, 04:32 PM
If you want to take the section 179 tax deduction then buy. Leasing is helpful if your credit is not the best.

I like the idea of new equipment but I see the point of saving cash for buying good used mowers.

lazor-cut
04-15-2012, 05:12 PM
We lease a few machines..this is our 2nd season doing it. We couldnt be more pleased with the program. We pay 4k for the machine and they do all the maintenance and repairs (oil,blades, belts, spindles, etc) on it. All we have to do is drop it off at the end of the season.
"The first year you get a BRAND NEW machine then every other year from then on."- Says the contract.
BUT For me, i have them tag my machines so i get them back year after year. This prevents me from getting someone else's such as Brickmans (Beat to death) mower.
This way i know exactly what they have gone threw.

We figure after 1000 hours the repairs begin and some of the major ones can be pretty expensive! Like $1500 for the part plus labor!!

My Dealer is pretty cool too, last year my dealer was so busy and couldnt get me in so i decided to change my oil on the LEASED machine, They reimbursed me with 3 sets of mulching blades for my OWN machines.

feel free to ask me questions.

Duekster
04-15-2012, 06:01 PM
We lease a few machines..this is our 2nd season doing it. We couldnt be more pleased with the program. We pay 4k for the machine and they do all the maintenance and repairs (oil,blades, belts, spindles, etc) on it. All we have to do is drop it off at the end of the season.
"The first year you get a BRAND NEW machine then every other year from then on."- Says the contract.
BUT For me, i have them tag my machines so i get them back year after year. This prevents me from getting someone else's such as Brickmans (Beat to death) mower.
This way i know exactly what they have gone threw.

We figure after 1000 hours the repairs begin and some of the major ones can be pretty expensive! Like $1500 for the part plus labor!!

My Dealer is pretty cool too, last year my dealer was so busy and couldnt get me in so i decided to change my oil on the LEASED machine, They reimbursed me with 3 sets of mulching blades for my OWN machines.

feel free to ask me questions.

Have you run any numbers to how many hours a year you need to put on the equipment to make it effective. If I have a piece of equipment that only logs a few hundred hours a year, it likely would not be worth it.

Is this a dealer offering the service or a 3rd party? I can see this as an great opportunity if you know you are going to utilize the equipment at least 50% of the time... IE 1000 hours.

lazor-cut
04-15-2012, 06:25 PM
Have you run any numbers to how many hours a year you need to put on the equipment to make it effective. If I have a piece of equipment that only logs a few hundred hours a year, it likely would not be worth it.

Is this a dealer offering the service or a 3rd party? I can see this as an great opportunity if you know you are going to utilize the equipment at least 50% of the time... IE 1000 hours.

Yes we have done our numbers, i cant remember off the top of my head what they were specifically, as i wasnt the one who did them. But It works for us! The way our routes are set up, we WILL reach the number of hours that we have to unless we loose like 6 accounts. We always use the leased machines as much as we can opposed to the ones we own.

Also my Dealer provides this service. No 3rd party! IT USED TO be a 3rd party but they realized how much money they could be making so they started providing it themselves. I know i am "throwing out money" because i know the maintenance isnt 4k worth but its okay. I rather rent the machine and not have to worry about repairs, downtime and resale value!

Anyone who has ever tried to sell a commercial mower know how hard it is to sell once they have a tons of hours. You always worry about getting what you think its worth yet NO one ever wants to pay that price!

Duekster
04-15-2012, 06:30 PM
Yes we have done our numbers, i cant remember off the top of my head what they were specifically, as i wasnt the one who did them. But It works for us! The way our routes are set up, we WILL reach the number of hours that we have to unless we loose like 6 accounts. We always use the leased machines as much as we can opposed to the ones we own.

Also my Dealer provides this service. No 3rd party! IT USED TO be a 3rd party but they realized how much money they could be making so they started providing it themselves. I know i am "throwing out money" because i know the maintenance isnt 4k worth but its okay. I rather rent the machine and not have to worry about repairs, downtime and resale value!

Anyone who has ever tried to sell a commercial mower know how hard it is to sell once they have a tons of hours. You always worry about getting what you think its worth yet NO one ever wants to pay that price!

So you have a lease payment in addition to the 4K? Does that include the cost of the lo jac and insurance too?

lazor-cut
04-15-2012, 06:35 PM
So you have a lease payment in addition to the 4K? Does that include the cost of the lo jac and insurance too?

ACTUALLY funny you say that i always included it under my own insurance, but i guess last year a few guys didnt so the dealer had to put them under their insurance after they got stolen!
So its really 4k for the mower+ gas + Insurance. We always just prepay for the machines.. that way we get the best price.

Duekster
04-15-2012, 06:42 PM
ACTUALLY funny you say that i always included it under my own insurance, but i guess last year a few guys didnt so the dealer had to put them under their insurance after they got stolen!
So its really 4k for the mower+ gas + Insurance. We always just prepay for the machines.. that way we get the best price.

Well it is not funny, it is a real concern. Landscape and construction EQ is stolen all the time and is a top target. I know a guy that had a truck and trailer driven off a jobsite leaving him with the tools being used. That can shut down many lco's pretty quick.

You say you know you are paying too much but it likely is not too extreme if the 4K includes the EQ, major repairs, maintenance and insurance. You have a like new piece of equipment every year. Down time is expensive the equipment is just a tool.

easy-lift guy
04-15-2012, 06:53 PM
I have been thinking recently about leasing mowers instead of buying them, I have been wondering why spend $10000 or more on a depreciating investment that has a limited write off when you can lease a piece of equipment and have a new one every two years so you always have a warranty. I know you don't have ownership at the end but who wants a 10 yr old mower that won't be worth anything at the end of that time period anyway? Also, I was wondering if there were any tax write offs that you can get if you lease your equipment instead of buying it. Im sure that you guys here know the pros and cons of each so Im interested in hearing your response.

When the graham rudman tax act took place it eliminated the advantage of leasing over buying. Using a straight line depreciation now is as good as it ever will be. Save your money, buy your equipment and sell it for scrap or
keep for spares. Don' t give up your money for interest/insurance you will be required to have for the sake of a lease. It is no longer worth it any more.
easy-lift guy

lazor-cut
04-15-2012, 06:54 PM
Well it is not funny, it is a real concern. Landscape and construction EQ is stolen all the time and is a top target. I know a guy that had a truck and trailer driven off a jobsite leaving him with the tools being used. That can shut down many lco's pretty quick.

You say you know you are paying too much but it likely is not too extreme if the 4K includes the EQ, major repairs, maintenance and insurance. You have a like new piece of equipment every year. Down time is expensive the equipment is just a tool.

Oh i didnt mean it was actually Funny how EQ gets stolen. I know its NOT! i've been there! I spent 7,000 dollars on this tracking system for 3 skidsteers and 4 enclosed trailers. After someone broke into our shop and ALMOST got away with all of that! I happened to be sleeping at the shop that night and saved it!

But yeah your second statement is dead on! That is why we continued with this program this year!

Duekster
04-15-2012, 07:01 PM
When the graham rudman tax act took place it eliminated the advantage of leasing over buying. Using a straight line depreciation now is as good as it ever will be. Save your money, buy your equipment and sell it for scrap or
keep for spares. Don' t give up your money for interest/insurance you will be required to have for the sake of a lease. It is no longer worth it any more.
easy-lift guy

I think in some regards, it depends on how hard long you run the equipment but for the most part, I prefer to buy too.

As I said earlier a few hundred hours buy but at some point in time it might make more sense,,, I have not run the numbers.

I also lease stuff I do not use very much of, however I think they call that rental. Some Highway construction contractors lease large equipment too. The large Rental places are surviving on that pretty well right now.

There has to be pros and cons to both and a way to figure it out. :confused:

Oakleaf landscape
04-16-2012, 03:55 PM
Yea guys, you need to see your CPA about leasing equipment. There are a few rules that apply. If your lease meets certain standards, then you actually treat the equipment as you bought it and you actually depreciate it, even though it's not yours. It can be confusing, but there are advantages and disadvantages to both.

dutchacres
04-16-2012, 11:52 PM
I have been thinking about this as well. I leased a skid steer last fall because for the hours I put on it I couldnt see buying. I was allowed 400 a year which is a ton since I have only put 30 on it since November but we also had no snow. I like the idea of leasing because I trade equipment every two or three years and I never get what I owe or think it is worth out of it. I think in the long run it is a wash from all my research. I like the idea it doesnt tie up your credit as well and it is 100% write off according to my cpa. I know Kubota offers a lease option but I am unsure who else does. I am interested if anyone knows of leasing companies.

andyslawncare
05-15-2012, 02:55 AM
buy your mowers, lease larger equipment, or just buy it all. A lease has never made sense to me cost to own vs. cost to lease. I couldn't imagine not owning my own mowers which last forever if you maintain them, which you lease will probably require.... Maintenance costs more than ownership during a normal 2,000 hr engine life. I subcontract most of my heavier equipment needs.

lazor-cut
05-19-2012, 09:08 PM
buy your mowers, lease larger equipment, or just buy it all. A lease has never made sense to me cost to own vs. cost to lease. I couldn't imagine not owning my own mowers which last forever if you maintain them, which you lease will probably require.... Maintenance costs more than ownership during a normal 2,000 hr engine life. I subcontract most of my heavier equipment needs.

Not to bash on you but....... When you're putting the kind of hours on a SINGLE machine as I or any other company is you might under stand my logic behind leasing mowers. Time is MONEY!

mjstef
05-27-2012, 10:34 PM
"FLEECING" anything is not smart. Owning it is. I just traded my 2004 721 Diesel 60" Grasshopper with 1,000 hours on it and got $7,500 on trade against a new 725D T6 Grasshopper. Wrote a check for the $9,000 to boot. I can write checks like this as i have no debt. Sitting on the trailer, paid for and i sleep well at night! Everything i own is paid for. Sure i struggled to do this for a few years but now all upgrades are CASH! It leaves a LOT of extra $$$ around for fun stuff that normally would go to payments and interest.......

elbow300
11-18-2012, 11:20 PM
I have been thinking about this as well. I leased a skid steer last fall because for the hours I put on it I couldnt see buying. I was allowed 400 a year which is a ton since I have only put 30 on it since November but we also had no snow. I like the idea of leasing because I trade equipment every two or three years and I never get what I owe or think it is worth out of it. I think in the long run it is a wash from all my research. I like the idea it doesnt tie up your credit as well and it is 100% write off according to my cpa. I know Kubota offers a lease option but I am unsure who else does. I am interested if anyone knows of leasing companies.

Not sure if you are talking about mowers, but Snapper Pro/ Ferris has a decent lease offer. I got the pitch from the local dealer, we just dont put enough hours on the machines to make it the best option for me