Heavy equipment and machinery, including construction equipment, are capital intensive and are considered a capital expenditure for buyers. It’s not a problem for larger construction companies to purchase new machinery. However, if it’s for a start-up business or for a small contractor, it is better to buy used heavy equipment. Many benefits go along with used equipment.
Lower cost of acquisition
Buying second-hand or used equipment is cheaper than a new one. Then, depending on how old the machinery is, one can get a bargain value. Heavy equipment has depreciation in the range of 15% to 30% annually. Also, depending on the market conditions, seller’s inventory position, and overall equipment condition. It is possible to get one for nearly half the price for sparingly used machinery in Dubai. So, for a lesser upfront cost, one can get almost all new equipment.
Lower insurance costs
New equipment costs are higher, and accordingly, the insurance premium rates are also high. The advantage of used equipment is that it may come already insured from before. The buyer need not pay any premium for the balance period of insurance validity. Even on renewal, the premium will be lower. Why? Because insurance premium will depend on the depreciated value.
In the event of an accidental claim on the new equipment, the insurance company may charge a premium based on the replacement cost value. This condition will remain the same even if the equipment has depreciated considerably. For used equipment, the gap in insurance loss is less.
Lower operating costs
Many used heavy machinery in Dubai dealer service providers refurbish used equipment before reselling. They also provide warranties on the equipment to attract customers. The quality of such equipment is as good as new. Thus, it means one can get equipment at a fraction of the cost of a new one. Many equipment dealers also provide used equipment on an operating lease basis for a fixed period and fixed rental. The rental includes the interest charges and other maintenance costs for the period of use. This arrangement works out beneficially for a contractor who requires equipment for a fixed period only against a specific contract agreement. By using this option, the upfront cash outflow gets saved to the extent of the equipment cost.
Better cash flow management
Whether one is buying used construction machinery in Dubai or taking it on a rental basis, the acquisition cost is lower than buying new equipment. The cash saved can be used for other operating expenses such as hiring and training operators and other running jobs. The construction industry is highly competitive and capital intensive. Contractors need to ensure that they do not suffer from cash flow mismatch.
Payments from Principals to contractors often get delayed leading to operational issues. There is also a possibility of deploying more equipment to the construction site as per demand. Therefore, it is better to take used equipment as there is no waiting period, and one can easily select from the many models available with a used equipment dealer. The operations get up and running in no time with reserve cash in hand for smooth operations.
Used equipment is older models, and most of the operators know how to use them. The new equipment has the latest models, and many operators or contractors are not familiar with their operations. For this equipment, one has to hire and train operators from scratch, resulting in extra costs. Another advantage of used equipment is their familiarity with the operators results in higher productivity as they get off the block immediately.
Better Resale Value
Construction equipment is always in demand due to the thriving construction sector.
This is one industry that never stops. The global construction equipment market is at around $ 140 Billion and is estimated to grow to $175 Billion by 2025. It means there will be a massive inventory of used equipment as demand for new equipment grows. The advantage of used equipment is that it has already absorbed the major depreciation in its initial year when it is purchased. Later the depreciation is lower, resulting in a better resale price. So, a contractor saves on the depreciation cost as well.
With all the benefits of used construction equipment, it makes economic sense to go for used equipment. Especially if one is a small or new contractor. Starting in the industry means they have to leverage their acquisition and operating costs from the operating income they would generate from a contract job. Later as one grows and becomes a big-time construction equipment operator, one can add new equipment to one fleet.