Pros and Cons of Heavy Equipment Trade-ins:
A heavy equipment trade-in is by far the most favorable method of replacing old metal, but does it really provide the best value? We look at some of the pros and cons so that you can make better informed decisions on which route to take.
PROS:
Simplicity –
Clearly one of the reasons trade-ins are so popular is because of the ease at which the transaction can be completed. You walk in with your rusty equipment and walk out with a shiny new model.
Speed of sale –
Unlike selling equipment privately, which can take months or even years, the process is relatively quick. Remember that time is money in this industry. Every month that passes by without a sale will be costing you heavily in depreciation.
Cash flow –
You don’t have to be fearful of cash flow issues with trade-ins because the money from your old equipment is already in the bank. If you opt for the private-sale route you must ensure you can manage cash flow in the event that the items take longer than anticipated to sell.
Flexibility –
Looking to trade multiple items? Not a problem. Most dealers will cater for flexible transactions involving more than one piece of equipment.
Zero marketing –
A big advantage is that you don’t have to worry about any of the marketing for your old items. All of this is passed over to the dealer.
Dealing with third parties –
Selling privately means you have to deal with the money transfer, liability cover and worst of all tire kickers! You have enough on your plate already to be worrying about these things.
Cons:
Lower market value –
The dealers will want to make their cut on your old equipment as well as the new equipment you’re buying from them, so they’ll factor in for things like marketing and transportation fees. As a consequence the rate you’re offered is usually under market value.
Increased taxation –
This is commonly overlooked by many dealers but because of the way that tax from machinery sales is treated differently to trade-ins you can end up with a higher tax bill.
Although there are tax savings to be had selling equipment yourself, we advise you to speak to an accountant as every situation can be different. You also need to factor other things into the equation like whether or not you’re likely to sell the equipment quickly if you do it privately? If you can’t sell it quickly, then holding onto it for a few months can negate the tax savings altogether.
Just to confuse the issue further, you can completely defer taxes if you complete a Like-Kind Exchange (1031). Again we recommend you consult with a tax advisor to discuss this.
Verdict:
Clearly there are savings to be made if you’re prepared to take on the challenge of selling independently, however you need to question whether or not those savings really offset all of the additional effort and the risks involved. Speak to a tax advisor, evaluate the strength of the market, look at prices in your regional footprint and then you’ll be set to make an informed decision.
