Leasing vs. buying vs. lease to purchase a pumper?

[NotYetFireman]

First time posting here, currently going to school through the Fire Protection curriculum. I am working on this project where I have to come up with 3 ways to acquire a new pumper, whether it is used or new. I've searched until I am red in the face, and can't find the distinct information I am looking for. Partly due to the fact I have no idea how any of the three options work! This is what I have so far:

I understand leasing, but I do not understand how it could be more cost effective, referring to annual payments and such. Are leases spread out over a longer period of time?

Lease to own, how does this rate against just outright buying new?

If a pumper is purchased brand new, how does this compare to the other two options?

If someone could talk to me like a highscho.....kindergartener and help me wrap my mind around this, I would be deeply appreciative!

[LVFD301]

You forget about donations, where one department donates their old engine to a needy department, and FEPP, where the engine is government surplus and it is loaned by the federal government to the fire department for its use as long as it needs it. (normally until the wheels fall off)

[NewJerseyFFII]

We purchased our 2005 pumper and payed cash for the apparatus, most builders will give you $ 5,000 off the cost of the truck if you pay for the chassis cab up front. Leasing a fire apparatus is a very good way to purchase a apparatus over a 5-20 year time frame if your department does'nt have a large amount of cash as a down payment. Most fire truck leasing is at a very low interest rate and at the end of the lease you can buy the truck for 1 dollar and the bill of sale will be given to your fire department !. Also a lease purchase does not need " VOTER APPROVAL " from your town, city or fire district tax payers !

[mcaldwell]

LVFD is right that there are several ways beyond the standard buy/lease agreements. Donations and grants are a big tool in the states, but less so in Canada ( ).

As for leasing, there are a few potential benefits to the department to go that route.

1. Budgeting. To understand this, you need some business 101. When planning a budget, you have two types of funds; Capital and Operating.

Capital is new stuff like trucks and buildings and big-ticket one-time purchases. Capital is often the hardest to come by, as it is generally paid out in a big lump sum, and the city must find this money first.

Operating is day to day expenses like fuel, utilities, and payroll, but also includes fixed payments on financing for trucks and buildings. This is generally easier to manage and obtain, as it is almost the same year to year with small increases (just like how the taxes are collected).

To purchase a new apparatus, you will often require a big capital sum. You could finance it through the "Bank", but that consumes credit, and just like you and me, a city only has so much credit to use so they must use it wisely.

If you lease a truck, you don't need any capital, and you won't need as much credit. The truck never actually belongs to you (unless there is a buyout option), so the manufacturer/lease agent can simply take it back if you can't pay.

There are also potential tax benefits to placing the financing under operating expenses, as opposed to capital. When you pay for a truck with capital, you must pay all the taxes at once. When you lease, you only pay the tax on the value of the finance payment, so you don't have to pay it all up front.


2. Replacement. The bigger the city/department, and the busier they are, the shorter the lifespan of the truck. In a small department like mine, we plan to keep our trucks for 20 years before replacement. In a big city, they might sell them after only 5-10 before they become too maintenance intensive.

If you lease the unit for the shorter term, you will probably pay slightly more in monthly payments, but you will be able to replace the truck at a shorter term, and not require any capital funds, buyouts, or the hassle of selling off the unit after it is retired.

Sometimes a leasing agent who is not interested in dealing with the used truck after the term is over, will make you pay almost the entire value of the truck plus the financing charge, over the shorter lease term. This will make your payment's much higher, but since you keep the tax benefits and don't need a down payment, it is still easier than using capital funds.

[firepiper1]

Leasing or purchasing fire apparatus is very similar to leasing or purchasing a car.

If your municipality has the money, some say it is better to buy. A $300K truck will cost you $300K. But, that truck will depreciate the minute it is in your firehouse, just like a new car depreciates.

Leasing apparatus is good if you want to spread the cost of the truck over x number of years, but you will pay interest. When the lease is over, you turn the truck in and it is sold to another department.

Lease/purchase basically means you will make monthly payments for x number of years and then pay a predetermined balance at the end of the term to own the rig outright. Again, the rig will cost more than if you purchased it outright.

Which one is best? That depends on the department and city. I dont think there is a cut and dry answer.

[NotYetFireman]

Thanks guys, I appreciate all the feedback.

Alright so let me see if I get this:

Lease to own would be less annual payments, with the option to buy the truck at the end of the leasing period. The life of the lease could span 5 to 10+ years. And this is something the department can do on its own, without approval correct? Could this be done without going through the Board of Directors?

Just leasing the truck I understand, though would it be a higher interest rate than lease to own? Would the life of the lease be any shorter?


I am shooting for lease to own, as the department we are given is a small department, the budget is only a half million, and does less than 600 runs a year. So I am seeing leasing as a decent way to acquire a truck that would not suffer a lot of wear and tear, and wouldn't require lots of cash up front nor throughout the next couple years. Of course grants would be applied for, donations would be requested and fundraisers would be held in order to keep the budget cuts to a minimum.

[BC79er_OLDDELETE]

$500K budget at 600 runs is a huge budget. I've got clients running 3-4 times that on $100K. Details.

Anywho, as the others mentioned it's not much different than leasing or purchasing a car. The vehicle has an expected value at the end of the lease, and that's usually how the buyout price is determined. Many manufacturers will make the buyout $1 so it's an easy way to "purchase" a truck without actually purchasing it since no one will finance fire apparatus purchases for long periods of time. That way the buyout is affordable for the department at the end of the lease period instead of a massive balloon payment.

This will cost the department more in the long run as the interest is compounding monthly on the outstanding balance, but if you need a new truck and can't afford the traditional all or nothing purchase, it's a great option.

Many vendors are taking this approach with the more expensive equipment now also.

[Chief1FF]

If you are going to keep the truck for a long period of time like "mcaldwell" department leasing is probably not the way to go. Leasing makes sense for bigger departments that want to replace apparatus over a shorter period of time but have budget problems.

One of the positive's of leasing is that you can tie in maintenace and warranty into the lease.

One of the negitive's is there are just like car's mileage caps.

Your best bet is to try and contact different departments out there and see if you can find some one that lease's their apparatus. All that information should be available through the freedom of information act.

The only big city I know of that lease's apparatus is the City of New Orleans.

[NewJerseyFFII]

Lease Purchase

Do you think that a 10-12 year lease/purchase is a good idea for a vol dept that only has a small down payment of $ 75,000 , and is looking to buy a new aerial ladder costing $ 700,000. And runs 450 calls a year. What other options are there ! Bonds, Loans , etc.

[Chief1FF]

NewJerseyFFII,

If you were to take a loan out for 700,000 with out figuring in the lease it would be a yearly payment of about 58,333 dollar a year without interest and the down payment figured into the payment. Here in PA most of the departments are 501C Corporation which allows banks to give non-profits a much lower interest rate then a regular loan. For example our last loan for over 450,000 was at a 5% interest rate. I don’t know how NJ is set up but it might be something to look into.

The problem with going with some of the leasing companies is that their rate is some times very high. For example I know a department that took a lease to own on a piece that was 180,000 cost but they ended up paying 280,000 over the 10 year lease so you must be careful when leasing. If you choose to lease then you are almost better off going with a lease from a manufacturer. You may be able to get longer warranties and better repair options from a manufacturer.

My department runs 400+ calls a year and we purchase our apparatus, however I don’t know your department’s financial situation.

Do your research!!!!!!!!!!!!!!!!!!!

Let me know how you guys make out.

[HallSummitLA]

Lease to own would be less annual payments, with the option to buy the truck at the end of the leasing period. The life of the lease could span 5 to 10+ years. And this is something the department can do on its own, without approval correct? Could this be done without going through the Board of Directors?

Not necessarily so. Rules pertaining to this vary from state to state. For example, in Louisiana, before a department can enter into a lease/purchase agreement, it must be approved by the State Bond Commission because you are still incurring debt. Our fire district was unaware of this when we entered into a lease/purchase in 2003. We got busted for it, too, during our annual audit.

Also, in reference to the Board of Directors, this varies with each department. However, generally speaking, the "Governing Authority" (who is ultimately responsible for the finances and well-being of the dept) must approve any such purchase or long-term debt agreement. Again, this can and probably does vary.

[NewJerseyFFII]

NewJerseyFFII,

If you were to take a loan out for 700,000 with out figuring in the lease it would be a yearly payment of about 58,333 dollar a year without interest and the down payment figured into the payment. Here in PA most of the departments are 501C Corporation which allows banks to give non-profits a much lower interest rate then a regular loan. For example our last loan for over 450,000 was at a 5% interest rate. I don’t know how NJ is set up but it might be something to look into.

The problem with going with some of the leasing companies is that their rate is some times very high. For example I know a department that took a lease to own on a piece that was 180,000 cost but they ended up paying 280,000 over the 10 year lease so you must be careful when leasing. If you choose to lease then you are almost better off going with a lease from a manufacturer. You may be able to get longer warranties and better repair options from a manufacturer.

My department runs 400+ calls a year and we purchase our apparatus, however I don’t know your department’s financial situation.

Do your research!!!!!!!!!!!!!!!!!!!

Let me know how you guys make out.

We have a $ 400,000 per year budget for operating expenses,all funds are raised by taxation . Out of the operating budget comes capital appropriations of $ 25,000 - $ 50,000 for future purchase of fire apparatus. About 12 years ago we purchased a new engine through bonds or bond anticipation notes and payed off that loan in 7 annual payments . So the most we can spend per year on any type of loan or leases purchase would be $ 25- $ 50,000 , not that easy when aerial apparatus cost $ 550,000 - $ 850,000 !...