How do you start an equipment rental business and make $384,000 a year?
How to start businesses and which businesses you should and should not start. If you get value out of this video hit like and subscribe. Okay. So we’re going to talk through getting in the construction equipment rental business and specifically I’m talking about heavier equipment today. I’m talking about skid steers and excavators specifically and I’m going to see how much we can make if we were to purchase a $1,000,000 in equipment using a loan so let’s go through here we’re going through a $1,000,000 in equipment and I I basically said hey let’s let’s buy 4 excavators and 4 skid steers the excavators are gonna be around a $150,000 so they may not be new, they may be lightly used, but a $150,000 per excavator, a $100,000 per skid steer.
That puts us at 4 of each, which puts us $600,000 in excavators and $400,000 in skid steers. Now if we’re going to buy a $1,000,000 worth of equipment we’re going to need to get a loan. Okay. And to get a loan in the SBA guidelines or in the in any type of loan they’re gonna require you to probably put 20% down because this is gonna be a new venture for you. So 20% down that’s a hefty down payment of $200,000 now if you shrink this down to maybe buying 1 piece of equipment this is probably a more attainable to most people but I want to run a real scenario of if you really committed and you got some equipment so $200,000 down would put you monthly loan at 11,000 and $20.
I would highly, you know encourage you to really think about this because I always say when you want to get into business I would make sure you get a loan that you would be able to pay off, every month. You’d be able to make the monthly payments if the business failed. So in this scenario, very hard to pay off $11,000 unless you have a high income job and you’re able to float that for a number of months, but let’s just go through this scenario. So a monthly loan of $11,000 your insurance is going to be about a 1,000 a month because you’re insuring that equipment while it’s not rented out. And while it is rented out your, renter is going to insure that equipment on their policy.
So we’re gonna need insurance while it’s sitting on our lot. A lease of a building or a parking lot, wherever we’re going to put our business, where people are going to be able to lease our equipment, is going to be about 1500 a month, because you’re probably not going to need a very nice building. You’re going to need more space, maybe a vacant lot that people drive by and you can fence it in and have maybe a little tiny shed there where you’re there between you know 8 to 5 where people can rent the equipment. Okay. So let’s go through those are expenses.
So every month we’re going to have about $13,500 in expenses. I know that seems like a lot but let’s go through it and see how much we can actually make running this business. So I looked up and I saw an average of about $600 a day in which we can earn by renting out our excavator and for the skid steer that’s gonna be about 400 a day. Now depending on where you’re at that maybe high, that maybe low but I tried to use an average number so we can really go through this exercise. The average rent time I said about 4 days, so someone’s going to rent an excavator or skid steer, they’re probably gonna rent it 3 to 5 days.
Because they’re going to have a job to do, normally people don’t rent big equipment just for one day, so they’re going to rent it for an average of about 4 days and if we have 4 days every other week, okay, so that means we run it for a 4 day period and then it may not be running out for a whole another week so about every month we’re going to be running out about 8 days. So basically we’re going to run it out 2 times. This is pretty conservative. A lot of people are running stuff out all the time and if you have the demand there but let’s look at 8 days a month.
All equipment rented in one day would produce $4,000 a day. Let’s go through that. We have 4 excavators at $600 and we have 4 skid steers at $400. That puts us at a total a day of $4,000. Okay.
So if we take $4,000 times 8 days a week. That’s what I said before we rent something out for 4 days takes another week. We’re running out for 4 days another week. That’s a whole month. Okay.
So 8 days a month 4,000 times 8 is 32,000 a month that we’re earning by renting out that equipment. On a yearly basis that’s $384,000 a year. So gross revenue 384 that’s where we’re getting that number. Now let’s dive into the cash flow because everybody can talk about revenue but let’s actually talk about cash flow and profit. Okay.
Let’s go back to that monthly earning number of $32,000 and then we have 13,500 in expenses puts us out of cash flow, a gross cash flow of 18,500. Okay. So that 13,500 in expenses, let me rewind here. That’s the monthly loan at 11,000, the insurance at 1,000 a month, and then the lease at 1500 a month, that’s at 13.5. That puts out a cash flow of 18,500.
That’s a $222,000 profit. Now let’s budget in some unforeseen expenses. The equipment breaking down, you have to pay somebody to fix it, maybe something gets broken, yet there’s all these unforeseen costs that are really associated with this business that make it kind of a downside but the amount of money you could make without really working you know all day long and somebody else is paying your loan for equipment I’ll go into that in a second so $220,000 in profit I took out $50,000 in maintenance and random costs okay puts out a gross profit of a 172,000 I really like this business because that gross profit if we rewind what’s our down payment? Our down payment was 20% on a $1,000,000 of equipment. That’s 200 grand.
So year 1 if we don’t have that many expenses on the maintenance we’re almost basically breaking even on our down payment and a lot of people say well breaking even like what? So yeah but somebody else paid your loan on all your equipment for that year and that loan that we have is a 10 year note okay so we put 200,000 down we had somebody else pay all the loans that whole year we made 172. Now going into year 2 you’re gonna turn that profit and you’re gonna be making money while somebody else is paying for your equipment. What happens after the 10 years? Well at any time you could sell that equipment at a depreciated cost but let’s say the loans done for that piece of equipment okay great you can sell it and it’s always gonna be probably worth something all equipment unless it’s completely destroyed but 10 year old equipment is still worth good money.
So somebody else is paying for your loan is paid off you still have a value there and you’re still making money. So a 172,000 our gross profit with only 200,000 put down somebody else is paying your loans okay so what are we gonna do after we understand the numbers As you could drill this down to say, hey I’m going to buy a $50,000 piece of equipment. It’s the same numbers, it’s the same thing and the numbers have to be there. If the numbers are there, what we need to do is we need to think of it in a business mindset what that what that means is hey we’re going to think of all the ways in which this business won’t work What are the ways that could put us out of business? Let’s create strategies around that to ensure that it doesn’t happen to us.
And what I saw on this was, hey we’re not renting out of our we’re not renting out our equipment. Why are we not doing that? Well there’s a sales mistake, there’s a marketing mistake. We didn’t get the information out there, we didn’t get the name out there, people don’t know you’re running out equipment, you’re not in the contractor circles, you’re not in those areas in which people trust you, trust your equipment, so you need to get your name out there get it I would always try to pick a location which is next to a highway or a road to a contractor is driving by and they know that they can rent that piece of equipment in case theirs goes down. Or people want to start a contracting business but they may not need an excavator all the time.
They may not need a skid steer all the time but when they do they’re going to call you because they know you’re in business. So having a marketing approach having some sort of way to get people to know about your equipment rental business is going to be one of the most important things for this business. Probably the most important thing in any business is the sales. If you’re not making sales you’re not in business. Okay.
So the second thing is we get destroyed or stolen equipment. This means hey we didn’t do our due diligence to the people that we rented the equipment out to we didn’t have a client contract and I’ll go through that in a second but you need to have a contract, you need to have a vetting system in which to make sure that the people renting out your equipment, 1, know how to use it and number 2, are going to return it without it beaten up to heck and that you’re able gonna be able to be able to basically take back the loss of revenue or expense that you have because that equipment’s destroyed. So a contract, a very solid contract that you would reach out to an attorney about, plan ahead for that and make sure they have some sort of vetting system in the community where you can look at these contractors and make sure that you get their insurance and get their equipment and you listed on their insurance as a lost payee additional insured. The reason I know that is because I own an insurance agency and all of our clients we tell them, hey, make sure that if you’re renting equipment let’s list it on your policy so you don’t have to pay the hefty fee from the equipment rental businesses for the insurance on that.
You can insure that on the policy and we have to send those certificates to the equipment rental places. So if you own the equipment rental make sure those insurance agents are sending you the certificate showing that your piece of equipment is on their policy because it’s not and it gets destroyed and the contractor leaves town you’re trying to find them and it may take months months before you’re paid for that lost piece of equipment, if you’re ever paid. So make sure that you kind of get yourself in a position where, hey, we’re going to set up with a firm and there’s firms that do this where you can actually charge the contractor an insurance fee and if something happens, you’re basically collecting from that third party not from that contractor. That is a decrease in your expenses but I would say best thing to do is somebody doesn’t have contractor insurance I probably wouldn’t rent the piece of equipment. Okay.
So the third thing is people aren’t paying you. Okay. So means you rented the piece of equipment, you didn’t take a down payment and people kept it for too long and they didn’t pay you for it and they just returned it and then pay you. So now you have to go after them. So making sure like I said before vetting those people out, making sure that they are an existing contracting business, making sure that they have a reputation in your community.
You know this isn’t a business that I would just start and just start dealing and wheeling and dealing with everybody. This is heavy equipment very expensive equipment. Make sure you know what you’re doing and who you’re dealing with to make sure you do not get screwed over. Number 4. Unforeseen equipment expenses could potentially put you out of business on this.
Making sure that you have cash reserves saved up in case you have to fix something on your equipment. If your equipment breaks down not due to one of the people that is running it just because it just randomly breaks down making sure that you have either contract with a mechanic or some sort of mechanical company which can go out and fix your machine right away and that you have the cash to do so. Some companies run so thin that if a machine breaks down they can’t even fix it because they don’t have the money. Make sure that you have the money to fix that piece of equipment. What we’re going to do next after we’ve done that and we’ve created strategies we’re gonna legal up.
What legal up means is we’re going to create an LLC so we have a separate legal entity from us personally. You do this because if something happens your business is separate from your own personal assets. You don’t want to get involved in something where somebody can take your personal assets because of what your business made an accident on so make sure you buy insurance by proper insurance insuring that equipment while it’s on your lot and potentially and also setting those insurance standards with the people renting your equipment you’re listed on their policies, lost payee, additional insured, and that you’re making sure that those certificates are received by the insurance agent not the contractor because some people commit fraud when it comes to insurance certificates. What we’re also going to do is we’re going to create a client contract that is boilerplate that I would suggest that you reach out to a local attorney and have them create that contract for you, so that you can have that signed. So if something happens, you plan ahead for the things that are unforeseen, you have a contract signed and then you can take that potential renter to court if they destroy your equipment.
So hold people accountable and that’s what contracts do. After that you need to commit to starting this business if you really have a passion for it. This is a business where you can make a ton of money. You’re too you’re basically getting all your money back from the down payment and you’re making money year 2. You know, I really like this business because it’s like a real estate rental.
Okay. Somebody else is paying your loan. Your asset value in this business probably isn’t gonna go up because the machines are gonna go down in value. But that being said in in real estate if you buy a house for 200,000 you’re not going to get $200,000 back in cash flow this business you buy a piece of equipment for a $1,000,000 or 200,000 you’re likely you should be able to make your money back on that equipment if not by year 2, which is unforeseen in the real estate business as far as rentals. Okay.
So, lot of opportunity in this business. Just make sure you know a lot about a heavy equipment. I would suggest that you do some research, know how to operate the equipment, and, basically be in this kind of community. I would say, hey, this isn’t a business that if you don’t know anything about construction community, probably pretty hard for you to start, because you’re gonna run into a lot of issues and problems and you need to know who to trust locally. Thank you.
great!