I’ve been told I can’t build equity through the purchase of a combine. I’ve given myself headaches over the past couple of months researching the best option to harvest our crops. We have a few options: purchase, rent or lease.
If you read my September blog, you know that we rented a combine, corn head, soybean platform, and grain cart in 2015. Renting translates to a newer machine, no repair cost, no off-season maintenance, a simple line item expense, and a hefty price tag. Owning a machine comes with its own issues like huge repair bills and financing expense. We may own the combine after five years but we’ll still be left with little equity when it comes time to trade.
I checked with the Sloan Implement dealer earlier this summer. Rental costs are the same as last year. My dad spent a few weeks researching John Deere S680 combines at the June Richie Bros. auction in St. Louis. He took a mechanic with him to inspect the combines the day before the auction. Some of the combines met our specifications. He almost bought a combine at 20% less than dealer invoice. But, we felt the risks of not knowing the machine origin or history along with potential repair surprises outweighed the lower purchase price.
Now what do we do? Rental rates haven’t decreased, and we feel it is too risky for our operation to buy at an auction. Sloan Implement has thrown another bone our way; leasing.
The lease is a happy medium with four equal payments over four years. The lease payment is around 12.5% of the combine sale price. Knowing our combine payment for the next four years provides us a hedge against higher rental rates. At the end of the lease, we have two options. If our buyout is less than the machine value, we will purchase the machine. If the machine is worth less than our buyout, we simply give it back to the dealer, which protects us from huge increases in depreciation. The dealer provides the first 100 hours machine warranty, and help with a major failure. Other repairs are our responsibility.
I made the deal for the four-year lease on a 2013 S680 4x4 with low hours. It will save us money over the next four years, provided we have less than $40,000 of repair cost over that time period.
What do you think? Have you built equity in combines?
The opinions of the author are not necessarily those of Farm Futures or Penton Agriculture.