12/13/2016 5:12 AM
We used to lease the majority of our equipment and change it over to a new lease every 48 or 60 months. I felt stupid turning in fairway mowers that had 3,500 hours on them when some other mowers we owned were running twice that much. What we have since gone to is a $1 buyout lease (basically a fancy name for finance). This allows us to keep the mowers after the term of the lease without an on-going monthly payment. This has saved us hundreds of thousands of dollars in payments. I can honestly say I have not had the same expense in repairs with this equipment.
For example, take two mowers, lease one on a traditional 60 month lease, $1 buyout lease the other for same term:
Mower 1: 60 payments of $700 = $42,000. Turn the mower in at end of term and start payments over.
Mower 2: 60 payments at $800 = $48,000. Keep the mower at end of term and run it another 5 years.
In the first case, over a 10 year period, you would have spent roughly $84,000 plus repairs. In the second case, over a 10 year period, you would spend $48,000 plus repairs. You can't tell me that the second mower would require $36,000 in additional repairs during the second 5 year lifespan.
Additionally, yes downtime has a cost. But, is the downtime costing you what a payment would be? In this case, $700-800/month per unit?
Multiply by 8 mowers on average $500/each/mth = $48,000/year x 4-5 years = $192,000-240,000 saved by keeping mowers longer.
Doing a $1 buyout also allows you to keep the equipment and use as a backup. We have grown our fleet this way. It also frees up cash flow to pay your mechanic better and allow for better preventative maintenance to keep the equipment running longer.
I can also argue against the theory that new mowers don't break down. We replaced a triplex engine at 28 months. We've replaced hydraulic pumps at just over 3 years. We've replaced hydraulic reel motors and ancillary parts all within a lease. It can break whenever regardless of age. We are in process of replacing an $1,800 hydraulic pump on a 2003 Toro 6500D with 15,511 hours. The rest of the machine is solid and by keeping this mower I have saved roughly $78,000 in payments. I have not spent anywhere near that in repairs.