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Buy versus Rent

Buy versus Rent

Ask any Kiwi for their thoughts and they’ll usually have one opinion about the weather, two opinions about the government and probably three opinions on the current state of the housing market.

We’re a bit lucky in Upper Hutt. Our housing market is relatively stable with a moderate level of building activity. We seem to miss the manic aspects of many major cities, which includes the usual cowboys with their ‘boom and bust’ cycle. But that’s not to say we shouldn’t be cautious.

The Equipment Hire industry has steadily grown over the last few decades. The industry internationally seems to be growing at around 5% per year, a rate greater than the growth of construction. In New Zealand, the concept of hiring equipment has been tempered by the Kiwi desire to own something in your own name. Certainly, low interest rates and the ready availability of finance from international suppliers has made buying new gear enticing.

Unfortunately for many, the new-car smell quickly fades but the monthly payments keep on coming, irrespective of whether the equipment is working or not. Those monthly payments can be a real drag on your cashflow, especially if your clients are slow paying.

The penny dropped this morning. 

There was a building industry commentator on the radio talking about a couple of recent company liquidations. Can’t recall his exact words but he said two things “Construction companies work on cashflow” and “Everything built in the construction industry is done on the basis of borrowed money”.

Borrowed money. 

He hit the nail on the head. 

Virtually every dollar spend on construction is borrowed. When was the last time someone paid cash for their new build?

We’ve seen interest rate climb dramatically in the last 12 months. That’s got to affect funding construction, and by default, cashflow.

Money sure is tight at the moment. The latest Centrix Credit Insights Report (28 February 2023) notes that the numbers of consumers behind on their repayments are at a four-year high at 12%, company liquidations are up 15% and mortgage applications are down 26%. We’ve got a few slow payers (you know who you are) and we like to think we’ve been prudent in managing our cashflow.

Those of us still in business after the dark days of Covid learnt the hard way: cash is king. The construction forecast isn’t particularly rosy. You’d have to have balls of steel to go out and buy new gear, knowing you have 36 – 60 months of compulsory payments ahead of you.

We’ve been saying for some time that hiring ‘what you need, when you need it’ makes good business sense. It certainly makes cashflow sense. You pay only for as long as you need the gear and the cost of hire is attributed to the job. Our equipment is always superbly maintained and reliable, so you don’t need to muck around with cleaning and servicing.

We’re always happy to discuss rates for hires longer than a week. With cashflow tightening up, now is the time to come talk to us. 

Might just be the best financial decision you could make right now.

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