Leasing vs. buying equipment

[Duekster]

Originally Posted by lazor-cut

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]

Originally Posted by Duekster

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]

Originally Posted by lazor-cut

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]

Originally Posted by Duekster

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]

Originally Posted by lazor-cut

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]

Originally Posted by TTM42

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]

Originally Posted by Duekster

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]

Originally Posted by easy-lift guy

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.

[Oakleaf landscape]

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.

[olmod]

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.