Is my math right-return on depreciation for a Bx23s

[rScotty]

SNIP..... While brand new tractors depreciate quite a bit it stops after a few years, I'm not sure a five-year-old tractor is worth appreciably more than a ten-year-old one. For personal planning I might assume a tractor depreciates 50% in the first five years and then not at all after that.

My experience is similar. There is a period of initial depreciation for about 5 years and then not at all after that for many years...even decades.
My guess would be closer to an initial 25% in the first five years or 5%/year and then rather abruptly the value becomes static.

The next change in price happens in terms of condition and hours rather than years. At somewhere between 1000 & 2000 hours and still in decent condition I would put the value at 50% of new. It will hold this new value for a long, long time.

I simply would not recommend buying any machine in poor condition. You don't need to do so. There are plenty of nice ones.

 

[quicksandfarmer]

I simply would not recommend buying any machine in poor condition. You don't need to do so. There are plenty of nice ones.

I think that varies by region. Around here everything used has thousands of hours on it and an asking price close to new. No point in buying used.

 

[shooterdon]

Good point about "accounting" depreciation" and actual.

When I bought my tractor I looked at a 15 year horizon as I am now 70. It seemed like a reasonable time before I can no longer live in the sticks and do the work to maintain the place. I assume no loss over those 15 years. The tractor/attachments will be worth the same $$ as what I paid for them. Likely averaging 60-100 hours a year. Tractor and most attachments stored indoors. I estimate inflation at 4% per year and with what our "fearless leaders" are doing that my be a tad light. My $40k investment would cost $72k new in 15 years. I figure I can get my $40k back.

Between snow removal and firewood processing, I "save" about $2500/year. I "earn" about $500/year doing odd jobs for neighbors. $3000 saved/earned and about $400/year of fuel/filters/maintenance so savings of $2600/year

If I kept the $40k in investments, I would earn about $2400/year...so it looked like a wash.

If the economy goes into the dumper, "stuff" becomes more valuable. Case in point, this year my propane costs are 33% higher than last year (TY Mr. *****) so my savings will be higher. And it is convenient to have the equipment available for those assorted tasks that are difficult to quantify.

 

[rScotty]

I think that varies by region. Around here everything used has thousands of hours on it and an asking price close to new. No point in buying used.

Don't buy any machine in poor condition. A tractor is a tool. Buy good tools.

Every time I go out to the East Coast I'm always astonished by how quickly the salt air ruins everything mechanical. If I lived there, my recommendation would probably be to buy new. Or lease rather than buy at all.

In the dry western states we don't have the same weathering problem, and very little problem with rust. Used machinery maintains its value. It isn't uncommon for a 50 year old tractor, car, truck to still have sheet metal in good shape & little to no rust. When it looks good, they tend to get better care.

 

[dougtrr2]

My eyes are kind of glazed over with all this depreciation/financial costs of owing a tractor. For me, it is either; you want a tractor and the freedom to do what you want when you want, or I'll just hire all my work done. Trying to do calculations on whether it is a good investment seem rather pointless.

This discussion is sort of reminiscent of the debate of whether it is worth buying a back hoe with your tractor. Theoretically, it might be finanacially smarter to just rent when needed. But, practically, it is nice having it available at the drop of a hat.

Doug in SW IA

 

[shooterdon]

My eyes are kind of glazed over with all this depreciation/financial costs of owing a tractor. For me, it is either; you want a tractor and the freedom to do what you want when you want, or I'll just hire all my work done. Trying to do calculations on whether it is a good investment seem rather pointless.

This discussion is sort of reminiscent of the debate of whether it is worth buying a back hoe with your tractor. Theoretically, it might be finanacially smarter to just rent when needed. But, practically, it is nice having it available at the drop of a hat.

Doug in SW IA

It depends....

Is it a nice "toy" that makes life easy? Maybe the buyer gets his jollies from doing the work and it is his hobby. Does the buyer have so much money, that economics do not matter? Then go for it!!

Is the tractor simply a tool to get work done. Does the person have the money to afford it?

One size does not fit all.

Financial calculations are relatively straightforward, but the assumptions are open for debate. I have seen a couple of farmers go broke, and they were not stupid or lazy people. But they made poor financial decisions.

 

[fried1765]

Two factors your model does not consider.

1) Tractor condition. Some writing here admit to abusing their tractor so badly than they want to replace them after 3-4-5 years because they are barely operable and dealer repair estimates are too expensive relative to residual value. An abused tractor might be worth less than 45% after five years.

2) The Deere and Kubota dealers tend to remain around. Those two brands represent around 70% of the compact tractor market of 300,000 units per year. The other 30% of the market, "normally" around 100,000 compact tractor units per year, the 2nd tier, is spread over 20 - 25 brands depending on how you count. Second tier dealers open and second tier dealers close. If there is no local dealer 45% depreciation over five years, on a well maintained tractor, may be about right. (There is a cushion here, as 2nd tier owners may have paid 20% less up front for a 2nd tier brand.)

In most cases a well maintained tractor with good dealer support should not depreciate more than 30% over five years in a reasonable economy with reasonable employment.


Would it be correct to say if was already paying someone $2400 per year to do a task that I would now do myself with the tractor that would be a return on my investment?

Your are paying someone 5 X $2,400 = $12,000 over five years for a job?

What about dealer or self-service consumables for your tractor?
Motor oil, hydraulic fluid, filters, parts that dropped off?

What about your cost for garage space given to the tractor?

What about your cost of fetching tractor fuel, which may be more than the fuel itself?

What about tractor insurance?

In a calculation like this, you cannot value your operating time at zero.

Enter your tractor into your T-B-N PROFILE.
Enter your LOCATION too.​

And then......In the current used market, my 2006 (cherry- 251 hr.) Kubota L48 TLB is apparently worth what the original owner paid for it new in 2006......15 years ago!
A totally crazy used tractor situation!

Also: Just sold my 1997 Suburban for $1,200 more than I paid for it used in 2006, and I actually thnk I could have sold it for even more!

 

[sunandsand]

Depreciation is weird and can cut both ways.

I bought a new tractor because I simply didn't want the hassles of trying to fix an older one and trying to get the work done. There's nobody around here who will do what I want the way I want. It is used in a business, so I can write off everything.

I keep it inside, clean, maintained, and when I'm done with it, I'll likely recover most of the purchase price. No effective depreciation - just "paper" depreciation, which isn't a real out of pocket cash cost.

I bought a used Mercedes convertible for 25 cents on the dollar, and it looks and runs exactly like a new car. MB depreciates 50% in five years, then 50% of that in the next five - 75% depreciation in ten years. Most of these cars are used gently, properly maintained and kept garaged, so a ten year old low mileage MB for 1/4 of the new price is a darn good deal. The "depreciation" doesn't affect the utility value (or the pleasure of ownership), it only affects the selling price.

There's more to life than numbers. They keep telling me I can't take it with me, but my plan is to turn it into asbestos American Express traveler's checks - and if they don't take Amex, I'm not going because any place that won't take Amex is a dump and I won't patronize them. (Hey, you, big red dude with the pitchfork - I'm talking to you!)

Best Regards,

Mike/Florida

 

[fried1765]

Depreciation is weird and can cut both ways.

I bought a new tractor because I simply didn't want the hassles of trying to fix an older one and trying to get the work done. There's nobody around here who will do what I want the way I want. It is used in a business, so I can write off everything.

I keep it inside, clean, maintained, and when I'm done with it, I'll likely recover most of the purchase price. No effective depreciation - just "paper" depreciation, which isn't a real out of pocket cash cost.

I bought a used Mercedes convertible for 25 cents on the dollar, and it looks and runs exactly like a new car. MB depreciates 50% in five years, then 50% of that in the next five - 75% depreciation in ten years. Most of these cars are used gently, properly maintained and kept garaged, so a ten year old low mileage MB for 1/4 of the new price is a darn good deal. The "depreciation" doesn't affect the utility value (or the pleasure of ownership), it only affects the selling price.

There's more to life than numbers. They keep telling me I can't take it with me, but my plan is to turn it into asbestos American Express traveler's checks - and if they don't take Amex, I'm not going because any place that won't take Amex is a dump and I won't patronize them. (Hey, you, big red dude with the pitchfork - I'm talking to you!)

Best Regards,

Mike/Florida

I bought a used 2014 MB E-350 in January of 2020.
Same model with same miles, is currently (Aug 2021) selling for several thousand more than I paid.
Florida is absolutely great for buying clean used MBs.

 

[ROUSTABOUT]

Buy your own stuff for peace of mind. We used to pay for our poultry houses to be cleaned out. About two times of that and we bought a spreader truck. Just sold it with over 500k on it and running good. Think of all the money made from spreading our poop on other peoples pastures. Still doing it. Have another truck. We bought the first truck in 96 or so. We had three weeks to clean out 4 layer houses, once a year. 800 loads of litter, slats had to be moved. We always jumped on clean out because maybe had some house maintenance to do while chickens were out. Or maybe my parents wanted a few days off to visit my sister and her family. My brother and I are nearby.