We're trying to decide whether we should spend millions of dollars buying our own equipment, or keep renting.

If we want to play in the big leagues of large-scale construction, we need our own machines.

A ready fleet signals both capacity and stability. And frankly, sometimes, it's the only way to get a seat at the table. Some tenders demand proof of ownership.

This is a high-stakes decision with millions on the line.

In this article, I combine both qualitative insights and hard numbers to show how we're navigating this decision.

To clarify our thinking, we shall focus on the following key areas:

1. Our current situation

2. The 4 factors we’re considering in the 'Buy vs. Rent' decision

3. How we're running the numbers (A deep dive into the analysis)

4. Hidden costs (Insurance + Transport)

5. Tax considerations

6. The 3 options we have (CapEx Vs. OpEx Vs. Hybrid)

7. What this looks like in the real world

8. Final thoughts

Let’s discuss each in detail.

OUR CURRENT SITUATION

At the start, we leased and subcontracted equipment because we lacked the capital to buy outright. We relied on third-party rental companies, often paying higher per-project costs but avoiding the financial burden of ownership.

At the time, the priority was winning projects, building relationships, and keeping overhead low.

However, we've started growing and securing larger contracts.

At our current stage, the firm is handling multiple projects at once, meaning equipment availability has become a real issue. Renting is still convenient but eats into profit margins, and scheduling conflicts often come up if rental fleets are unavailable during peak demand.

Our business development strategy focuses on securing both government-funded infrastructure projects and commercial developments. These clients often prioritize contractors with in-house equipment, perceiving them as more reliable and efficient.

We're also regularly bidding for multi-year contracts and handling larger volumes of work.

Profitability is solid, and cash flow is more predictable. A major contract win, coupled with a strong balance sheet, has put the idea of buying on the table.

The leadership team must now weigh:

• Do we spend millions to own our fleet, reducing long-term costs but increasing financial risk?

• Or do we continue leasing, maintaining flexibility but sacrificing equity?

• Is there a hybrid model that balances both?

This is where financial modeling, tax structuring, and capital allocation strategy become critical.

We must evaluate interest rates, depreciation benefits, maintenance costs, and the market outlook, because in Africa, economic and political uncertainties mean that what makes sense today may not work tomorrow.

If the firm buys, we transition into a capital-intensive business model.

Now, instead of rental fees, we will be making loan payments, maintenance investments, and insurance costs. While this can unlock higher margins, the risk is that if the market slows down, those assets sit idle, draining cash flow. We will then be forced to aggressively bid for work to justify the investment.

There are risks and benefits to both renting and owning, so how do we decide?

THE 4 FACTORS WE’RE CONSIDERING IN THE 'BUY Vs. RENT' DECISION

Buying means control. No more chasing down leasing companies, worrying about availability, or watching profits leak away in rental fees.

But it also means locking up capital in machines that don’t generate revenue unless they’re working. And in this industry, there’s no guarantee they’ll always be working.

Renting, on the other hand, keeps us flexible.

It protects cash flow, lets us scale up or down depending on the workload, and ensures we always have access to modern equipment.

But the costs add up. If we keep renting indefinitely, we’re essentially paying for machines we’ll never own.

So, what should we do?

There is no easy answer to this. The best approach is to lay out the numbers and market realities, then make a decision from there.

Here are the four big questions we're asking ourselves:

1. What does our project pipeline look like?

2. How do we balance Upfront Cost vs. Cash Flow?

3. Can we survive a market slowdown?

4. If we own the equipment, how much will maintenance cost us?

1. What does our project pipeline look like?

The ideal scenario for buying is when we have a steady flow of projects that require the same type of equipment over and over. If our pipeline is unpredictable (some months we’re flooded with work, others we’re waiting on approvals) renting might be the smarter choice.

So, we’re reviewing our signed contracts, our near-term bids, and our longer-term projections. Are we just hoping things will pick up, or do we have actual numbers backing this decision?

If we can confidently say, Yes, we will need these machines for at least 70% of our projects over the next few years, then buying starts making more sense. Otherwise, renting keeps us flexible.

2. How do we balance Upfront Cost vs. Cash Flow?

Buying a single excavator, dozer, or grader can set us back anywhere from $100,000 to $500,000 or more. Even with financing, the down payment alone could be substantial.

The real question isn’t just “Can we afford it?” It’s “What’s the opportunity cost?”

Every dollar sunk into buying equipment is a dollar not available for other areas like mobilization, payroll, materials, or even bidding for new projects. If tying up that cash means we can’t take on as many jobs, we’re just limiting our own growth.

For instance, if we buy an excavator for $200,000, and it depreciates over 10 years, we'll see a $20,000 reduction in its value each year. This depreciation impacts our balance sheet and taxes.

Renting, on the other hand, keeps our cash available (liquid). We pay per project or per month, avoiding big one-time payments (capital outlays).

But long-term, it’s expensive. Rent rates can eat into profits, and at the end of the day, we own nothing.

So, we’re running the numbers:

• How much will renting cost us over three to five years?

• How much would a loan cost if we financed the purchase instead?

• Can we afford to buy without crippling our cash flow?

If the math says ownership saves us more in the long run and we can comfortably afford it, buying makes sense. If not, we rent.

3. Can we survive a market slowdown?

A major road project gets greenlit and the whole industry is booming. Then government budgets get slashed and suddenly, contractors are auctioning off equipment to stay afloat.

If we buy, we’re taking a risk. If the market slows down, we could be stuck with expensive machines that aren’t generating revenue. Worse, if they’re financed, we’ll still have to make loan payments, whether we have work or not.

So, we’re looking at industry trends, government spending plans, and our own historical performance. If we buy, will we still be in a strong position even if things slow down for six months or a year?

If the answer is no, renting is the safer bet.

4. If we own the equipment, how much will maintenance cost us?

These machines will need maintenance, repairs, and storage.

A single breakdown can cost thousands in spare parts and labor. If we rent, that responsibility stays with the rental company. If we own, it’s on us.

So, we’re asking:

• Do we have the in-house capacity to handle maintenance?

• How much will servicing and repairs cost us per year?

• Do we have the space to store idle machines securely?

If maintenance and storage are going to be a major headache, renting might still be the better option.

HOW WE'RE RUNNING THE NUMBERS (A DEEP DIVE INTO THE ANALYSIS)

To make the most informed decision between buying and renting, we're going beyond gut feelings and pulling up the numbers.

Here are the big numbers we're keeping our eye on:

1. Total Cost of Ownership (TCO) vs. Total Cost of Renting (TCR):

First, we're calculating the full cost of owning each piece of equipment over its expected lifespan. This includes:

• Purchase price (or loan principal and interest)

• Maintenance and repair costs

• Insurance

• Storage costs

• Depreciation (or potential resale value)

• Taxes

Then, we're comparing this to the total cost of renting the same equipment for the same period. This includes all rental payments and any related service fees.

We're looking for the option that minimizes our overall expenditure.

2. Break-Even Analysis:

We're determining the point at which the total cost of renting equals the total cost of buying.

We're asking, how many months do we need to use the equipment for buying to make more sense than renting? We're also calculating the utilization rate needed to break even.

This helps us understand how long we need to use the equipment before ownership becomes more cost-effective.

For example, let's imagine an excavator costs $250,000 to buy. After adding up maintenance, insurance, and storage, the total yearly cost of owning it comes to $42,000, including depreciation. If we rent the same excavator, it costs $15,000 per month, or $180,000 per year.

To figure out the break-even point, we compare the yearly ownership cost to the yearly rental cost. In this case, if we need the excavator for more than just a few months each year, buying it becomes cheaper than renting it. Basically, if the monthly cost of owning ($3,500) is less than the monthly cost of renting ($15,000), then buying is more cost effective.

Important Note:

3. Cash Flow Projections:

We're projecting our cash flow for the next 3-5 years under both buying and renting scenarios. This helps us assess the impact on our short-term and long-term liquidity.

We want to ensure we maintain sufficient cash flow to cover our operational expenses and pursue growth opportunities.

To understand the impact of buying versus renting on our cash flow, let's look at a simplified projection over three years for a piece of equipment.

SCENARIO:

• Equipment: A bulldozer.

• Purchase Price: $300,000 (financed with a loan).

• Loan Terms: 5-year loan, 8% interest.

• Monthly Loan Payment: Approximately $6,083.

• Rental Cost: $12,000 per month.

• Projected Annual Revenue from Equipment Use: $250,000.

SIMPLIFIED CASH FLOW PROJECTIONS (ANNUAL FIGURES):

Key Observations:

• In the initial years, renting results in a higher net cash flow compared to buying, due to the loan payments associated with purchasing.

• After the loan is paid off (Year 5), buying significantly boosts the net cash flow.

• This simplified example does not include maintenance, insurance, or storage costs, which would reduce the net cash flow for the buying option.

• This example also does not calculate the time value of money.

Impact on Liquidity:

• Buying requires a substantial initial financial commitment, but it offers higher long-term returns.

• Renting preserves short-term liquidity but results in higher long-term costs.

Important Note:

4. Utilization Rate Analysis:

We are calculating what percentage of the time the equipment will be used. If the equipment will sit idle for large amounts of time, then renting is the obvious choice.

For example, if we expect to use a backhoe 80% of the time, buying it makes sense. If only 20%, renting is better.

We are looking at past project performance, and future projected projects to get the most accurate information possible.

5. Sensitivity Analysis:

We're running 'what-if' scenarios to assess the impact of changes in key variables, such as:

• Interest Rates: If borrowing costs rise, will financing the equipment still make sense, or will leasing become the safer option?

• Rental Rates: If leasing prices increase, does ownership become the more economical long-term solution?

• Equipment Utilization: What happens if project delays or market downturns lead to lower-than-expected usage? Can we still justify ownership, or will idle equipment become a financial drain?

• Market Slowdowns: If demand drops, do we have the flexibility to scale down, or will we be locked into fixed costs that strain cash flow?

This helps us understand the potential risks and rewards of each option.

HIDDEN COSTS (INSURANCE + TRANSPORT)

Let's discuss each in detail.

1. Insurance considerations:

Beyond the purchase price and maintenance, securing adequate insurance is a critical aspect of equipment ownership. Heavy machinery is susceptible to damage, theft, and accidents, all of which can result in significant financial losses.

When owning equipment, we will need comprehensive insurance coverage that includes:

• Physical Damage Insurance: Protects against damage from accidents, vandalism, or natural disasters.

• Liability Insurance: Covers third-party injuries or property damage caused by your equipment.

• Theft Insurance: Safeguards against the loss of your valuable assets.

The cost of insurance will vary based on the type of equipment, its value, and our operating environment. We plan on obtaining quotes from multiple insurance providers to ensure we have adequate coverage at a competitive price.

When renting, often the rental company will handle the insurance, but we have found it important to verify what is and is not covered. We also usually verify that the insurance coverage is adequate for our needs.

Failing to have the correct and adequate insurance can be financially devastating.

2. Transportation costs:

Another significant expense to consider is the cost of transporting equipment to and from job sites. Depending on the size and type of machinery, transportation can be a complex and costly process.

Factors influencing transportation costs include:

• Distance: The longer the distance, the higher the fuel and labor costs.

• Equipment Size and Weight: Larger and heavier equipment requires specialized transport, which is more expensive.

• Permits and Regulations: Some regions require permits for transporting heavy equipment, adding to the overall cost.

• Logistics: Coordinating transportation schedules and ensuring timely delivery can be challenging and costly.

So, when factoring in transportation costs, we're considering whether we have the necessary transport vehicles and personnel or if we will need to hire external transport services.

When renting, we would verify who was responsible for the transportation costs. These costs, we have found, can significantly impact the overall profitability of a project, so it's crucial we include them in our financial analysis.

It is also important to factor in the cost of mobilization and demobilization.

Important Note:

TAX CONSIDERATIONS:

When you rent equipment, you can usually take the cost off your taxes right away. It's like getting a discount on your tax bill.

If you buy the equipment, you get to take a little bit off your taxes each year as the equipment gets older. In Kenya, this is called 'capital allowances.'

Sometimes, you can even take a bigger chunk off your taxes the first year you buy it. So, both renting and buying can help you pay less tax, but in different ways.

It is critical to consult with a tax professional to get the most up-to-date and correct information for your specific situation.

THE 3 OPTIONS WE HAVE (CapEx Vs. OpEx Vs. Hybrid)

Owning equipment gives us control and long-term cost savings, but it locks up capital. Leasing keeps us flexible but can get expensive over time.

To make the right call, we break it down like this:

Option 1: Buying the equipment (CapEx Investment)

• Cost: $200,000–$500,000 per machine (paid upfront or financed through a loan).

• Depreciation: Equipment loses value over 8–12 years.

• Maintenance & Storage: We’re responsible for servicing, repairs, and secure storage.

• Resale Value: After several years, we can sell the machine for 30-50% of its original value.

Best When:

• We have multiple long-term projects requiring frequent use of the equipment.

• We want to own an asset that holds value on our balance sheet.

• We can afford the upfront cost or secure low-interest financing.

• We want to reduce long-term costs compared to renting.

Risks:

• High capital investment that ties up cash.

• We take on all maintenance, repairs, and downtime risks.

• If demand slows, we still own a depreciating asset that isn’t generating revenue.

• If technology or project needs change, we could end up with outdated or underutilized equipment.

Option 2: Leasing the equipment (OpEx Flexibility)

• Cost: $8,000–$20,000 per month per machine, depending on type and duration.

• Maintenance: Major repairs are covered by the leasing company.

• Flexibility: We can scale up or down based on project needs.

• No Depreciation: The machine isn’t ours, so we don’t worry about resale value.

Best When:

• Our project pipeline is unpredictable, and we don’t want to commit long-term.

• We want to preserve cash flow for other business needs (bidding, materials, payroll).

• We prefer to avoid maintenance, repairs, and storage costs.

• We want lease payments as a tax-deductible operating expense.

Risks:

• Over several years, leasing can cost more than buying.

• No ownership means no asset value on our balance sheet.

• If we need the machine for an extended period, leasing can become inefficient.

• We still have to make lease payments, even if work slows down.

Option 3: A hybrid approach

Given the nature of our projects, a mix of both could be the best path:

• Buy the equipment we use frequently and reliably (excavators, graders, loaders).

• Lease specialized or rarely used machines (asphalt pavers, tower cranes).

This keeps long-term costs lower while giving us the flexibility to scale.

Of course, with all this laid out, the final decision comes down to how confident we are in our future pipeline.

WHAT THIS LOOKS LIKE IN THE REAL WORLD

• Large infrastructure firms (e.g., Vinci, Julius Berger, China Road & Bridge Corporation) usually buy equipment because they operate large, ongoing projects.

• Smaller contractors or subcontractors often lease to avoid the capital burden and maintain flexibility.

• Some firms start by leasing and later buy used equipment when they can afford it.

• Government-funded projects often prefer contractors that own equipment since it signals long-term stability.

FINAL THOUGHTS

Owning equipment can be a sign of strength, but only if it aligns with a solid, predictable pipeline. Leasing gives us agility, but only if we don’t let short-term convenience drain long-term profitability.

The real challenge isn’t just choosing between the two, it’s knowing our business well enough to make the right call at the right time. That means running the numbers, understanding market cycles, and staying honest about where we are today versus where we want to be.

When approaching major investment decisions in your business, what do you prioritize? Is it flexibility, or long-term savings?

P.S

A big part of my day job is analysing the root causes of stalled growth in mid-sized Engineering & Construction businesses. Often, the symptoms are obvious, but the underlying issues are more complex. Over the years, I have consolidated my knowledge into a structured framework that quickly and efficiently identifies key growth levers based on 5 critical business areas.

This framework, called the ‘E&C Growth Index’, is designed to help you get to the heart of what's driving (or hindering) your progress. Think of it as your initial strategic diagnostic.

Click here to fill it out, it’s completely free, and I'll be happy to discuss the implications for your business.