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Investing in used construction equipment

12/06/2011 @ 10:35am

Used equipment for sale. Those four words have been known to send chills of excitement down many a farmer's back. But with fewer and fewer farm auctions and a little extra cash in their pockets, farmers have turned to investing in iron from other industries not faring so well during tough economic times – like construction.

“As the construction industry softened over the last few years, the tools it used – backhoes, telehandlers, excavators, and forklifts – became more affordable for farmers,” says Illinois farmer Patrick Watson. “And many have taken advantage of that opportunity.”

The many includes Watson and his uncle, Jim Trainor, who purchased a 2007 Ingersoll Rand VR 638 telescopic handler from their local dealer, Illini Equipment. With only 1,500 hours on it, the machine was originally used as a rental in the St. Louis, Missouri, area. But it ended up for sale at the Pontiac, Illinois, dealership when the housing market collapsed.

Versatile performer

When we first bought it, the idea was to use it for a year and then sell it. But it has so much more capacity than my 45-year-old loader that it might stay around for a while,” says Watson. “We use it to move trees, as a forklift, and for other odd jobs.”

Introduced in the summer of 2004, the VR 638 was a popular item among builders for reaching high places with ease. Back then, the list price on a new machine was around $70,000. Today, you can find one for less than half that amount.

It's deals like these that farmers simply can't pass up. Yet, it's not just the price that's catching farmers' eyes; it's also the versatility of these machines.

“Farmers are looking for a machine that they can get as much use out of as possible,” says Paul Hendrix, IronPlanet's equipment pricing analyst. “They can do that by purchasing a machine that can handle several attachments, which gives it added utility, like a skid steer loader or a multiterrain loader (a skid steer loader with rubber tracks).”

Since these machines generally have auxiliary hydraulics to operate attachments and a coupler system on the front to quickly change them out, you can switch in a matter of minutes from a bucket to a broom, an auger to a trencher, or a fork to a grapple.

“In my opinion, that versatility attracts a farm buyer,” Hendrix says. “You don't have to have five different machines. You can have one and get various jobs done with different attachments.”

At home on the farm, too

Telehandlers and skid steer loaders aren't the only pieces of equipment finding a new home on the farm. Excavators, backhoes, and graders have also become favorites among farmers.

“Backhoes are probably the most common piece of construction equipment showing up in this neighborhood,” says Watson. “Fixing tile is the most common use. Between finding someone who will fix tile in a timely manner and the cost savings, a backhoe is a very cost-effective tool on the farm. And fixing tile is another way to make a landlord happy.”

As farms grow in size and cover more miles, well-maintained access roads have become a critical piece to the harvest puzzle. The tools to make that happen also come from construction.

“Roads must be in good condition during those critical harvesttimes,” Hendrix says. “A heavy rain puts a damper on that, so it's important to maintain roads. It's not out of the realm of possibility for larger farmers to partner to purchase a used grader to maintain roads. Better access to fields means trucks don't get stuck. When things get stuck, they get torn up. If you can avoid those situations, you're better off in the long run.”

No matter what piece of construction equipment you're looking to invest in, Hendrix notes that it's important for farmers to understand that this market may be a little out of their usual area, which means it's more important than ever to do some research.

“Find out what the retail price is. Talk to a dealer about transaction prices,” he advises. “Go out on the Internet and look for auction results and study the market very carefully.”

A little homework can really pay off in the long run.

“When a telehandler is better suited for agriculture and it comes through a construction auction, they don't bring very good money,” says Hendrix. “The new sticker price on a telehandler is around $65,000. A year and half down the road, it might sell for $25,000. That's a substantial savings if you've been watching the construction auction market.”

He also suggests considering the rental market for giving equipment a test drive or tackling a job that may not warrant an actual investment.

“If you're looking to purchase, the rental industry allows you to rent a machine with no long-term obligation,” he notes. “You can also compare brands; one rental company might handle more than one kind. Or, go to a different rental company to try different brands.”

By test-driving a unit, you may realize that the machine you rented for a specific job is actually too small or too big. Renting gives you the opportunity to narrow down the options.

If you'd rather get by without actually purchasing, renting is a viable alternative.

“The nice thing about renting is that you don't have that initial outlay of cash,” he says. “And you don't have to worry about having a piece of equipment sit for months.”

Marketing to ag

In difficult times, manufacturers who typically market to a specific industry like construction are forced to broaden their net to capture a wider audience, which includes agriculture.

“One thing we've seen in the construction industry is it has tailored certain machines to fit the farming industry,” Hendrix says.

An example is Case Construction's recent introduction of an option for their F Series Wheel Loaders. The Commodity King package for the 721F model is geared toward livestock and dairy producers and includes features like special cooler enhancements to protect against large particle contaminants, which are common in these environments.

“Wheel loaders are popular in feedlots and other ag applications because of their unique mid-mount cooling module and reverse fan capability, which allows them to perform well even in very dusty environments,” says Curtis Goettel, marketing manager for Case Construction Equipment.

Hendrix says not all manufacturers have caught on to the concept of marketing to agriculture.

Yet, as farmers continue to cover more acres farther from home, construction equipment will continue to claim its place in the shed to help move, lift, and transport materials.

That's because farm buyers know that crossing over into a different machinery market can yield benefits far beyond the initial investment.