One of the burning question on the lips of many a farmer-to-be is whether to buy or to lease farming equipment. This includes everything, from a sickle to a combine harvester. So, should you be the owner of your tools, or borrow them until you see some profit?
If you decide to go for leasing, you should consider several factors. One of the most important things is the condition of the equipment. It’s all fine and dandy to have a pretty tractor if the thing won’t start. Also, you and the owner must go over which malfunctions will be covered by you and which by them. Think of it as having a landlord – if your residence is leaking, or has issues with electricity, they are the ones that should handle it. Read the lease carefully. This generally goes for any contract.
Next comes the issue of ownership. With an operating lease, you are just renting the equipment until you can no longer afford it, or the contract expires. Usually, the owner deals with risks and repairs. With a capital lease, you have the option to buy the equipment at the end of your lease. However, it is you who pays the taxes and repairs in that case.
Another problem is the fact that you may be able to use the equipment only at certain times of day, or on certain days. Leasing is a good idea if the equipment in question is not something you need around all the time, or if you want to try out new tech before you buy it.
First thing’s first – the overall cost is lower. The equipment is yours, and no one can take it away. In the worst case scenario, you can sell it to someone else. However, you may need to dish out a huge amount of money in a single go in order to obtain some pieces.
There is also the fact that equipment loses value over time. This means that, along with any piece of machinery or equipment, the amount of money you paid will be substantially higher than the one you’ll be getting, should you choose to sell.
This is very tricky and you need to play your cards right, either way. If you purchase the equipment, in that year you can deduct at least some of the cost of the equipment a business expense. You can do something similar if you are leasing – you can note your leasing payments as a business expense.
So, In the End…
Whether you buy or lease is up to you and your circumstances. Leasing is optimal for trying out something new, whereas buying is better if you already know the game well.