Leasing Vs. Buying Your Farm Equipment by Mike Shepard

Author: Amitava Sarkar

Owning your own farm is like running a small store or business. There are a lot of important decisions that need to be made to ensure everything runs properly, and almost all of the responsibility lies only in your choices. If you make a decision, you are forced to deal with the benefits - or the consequences.

Leasing or buying your farm equipment is a big decision that can affect your farm in a negative or positive way, depending on which option you choose. It is important for you to know the advantages and disadvantages of purchasing or leasing the machinery you need for your farm to run successfully.

Buying Pros

Buying your farm equipment has many of its own advantages that will prove to be beneficial during your time of owning a farm. If your farm has turned into a lifestyle as well as a career, buying your farm equipment can provide you with some benefits that leasing cannot.

  • Owning your own equipment can allow you to use it as often as you'd like. In some cases, leasing the equipment may require you to only use the item for a certain amount of hours
  • Because owned equipment has its own asset value, you can use it if necessary as collateral against other loans.
  • Owned equipment can increase the asset value on the balance sheet
  • You can update your own equipment when and how you see fit
  • Owning your own equipment will allow you to replace the equipment or sell it if you no longer need it or want to buy something newer

Leasing Pros

Leasing farm equipment can also be a great way to prevent yourself from going over your budget, as well as give you some relief if you aren't sure of whether or not your farm will be a permanent option for you.

  • A lease payment has the ability to count towards a producer's asset-to-debt ratio, instead of the entire cost of the machine
  • Leasing your equipment is a great tax deduction. Almost 100% of your lease can be deducted from your taxes
  • If you're unsure of whether or not you will be permanently farming, leasing the equipment will allow you to pay for only what you need
  • Leased equipment will be less liability on the balance sheet
  • The ability to exchange and upgrade your equipment without having to worry about selling it is always prevalent. If a new and updated piece of machinery is released, you can speak with the company about changing equipment
  • The upfront costs of leasing the equipment are much cheaper than buying the machinery

Cons of Buying and Leasing

While there are many advantages to both leasing and purchasing, both options have a small amount of cons, which can solely depend on what you want as a farmer.

Choosing to lease your equipment may seem like a cheaper option, but there are some disadvantages you may face. The number of hours you are allowed to use your machine can be limited and you will be penalized for using more. Though your annual payments are less when leasing, once the lease is over, you do not have a piece of equipment to show for it.

Purchasing has its own disadvantages as well. If the machinery is damaged or stops working, you are responsible for finding out what the problem is as well as repairing it on your own. If you choose to go a different way with your farm, it is also your responsibility to sell your machinery.

It doesn’t matter which route you choose to take. Buying or leasing farm equipment is a great way to keep your farm in tip-top shape and make your duties a little easier.

About the author: Mike Shepard inherited a farm from his recently deceased grandfather, but had to decide if he would buy or lease farm equipment. After he decided to purchase, he found long lasting ag belts and doesn’t regret his decision not to lease at all.