Truck-Rental Leases
Copyright 2014 by Virgo Publishing.
By: Kirk W. Nash
Posted on: 03/01/2007



 

If I wanted to offer truck rentals at my facility, wouldn’t I simply become a dealer for U-Haul, Budget or Penske? Or better yet, why not just buy a truck, get insurance and rent it out myself?

These are all good questions if you’re considering entering the truck-rental arena. Read on to learn more about the process, being sure to review all your decisions with your certified public accountant to completely understand any tax ramifications.

On TRAC

A lease is a contract entered into between two parties. One party, the lessor, gives another, the lessee, the right to use its property for a specified amount of time. In truck rentals, the lessee pays the facility a predetermined amount of money (generally on a monthly basis) for the right to use the vehicle.

The lease can be structured in a variety of ways: tax- or non-tax-oriented leases, guideline leases and true leases. Most common to the self-storage truck-rental market is the TRAC lease. Spelled out, this lease includes Terminal Adjustment Rental Clauses introduced in 1982 by the Tax Equity and Fiscal Responsibility Act.

A TRAC lease is adjusted during the sale of the vehicle. The lessor and lessee agree upfront what the truck’s value will be at the end of the lease. When the actual value ends up being more, the lessee is given the difference; less, and the lessee is responsible for the difference.

TRAC Benefits

The most obvious benefit of TRAC leases is that the lessee gets to share in the potential profit of the truck sale at the end of the lease. And, because the lessee guarantees the truck’s residual value, the lease payments should be lower than otherwise.

The lessor in a TRAC lease is considered the vehicle’s “owner” and is awarded the tax benefit of truck depreciation. Lessees often “expense” their lease payments. TRAC leases are generally available in three-, four- and five-year leases. Depending on your company’s cash flow, you may want a longer lease with a lower monthly payment.

Finance

For the most part, leasing is considered complete 100 percent financing, and the lessor plays the role of the bank or finance source. Some leasing companies require additional security, such as one or more months paid in advance by the lessee, along with personal and company guarantees.

All leases contain an early termination value in the event the truck is totaled in an accident. Some leasing entities include an early termination value or guarantee their leases and, for a predetermined amount, release the facility owner from obligation early. Most leases also provide the lessee first opportunity to purchase the truck at the end of the lease term for fair market value. In TRAC leases, that amount is the predetermined residual value or lease end value.

Bonuses

Truck rentals are second only to locks as bestselling ancillaries. Plus, renting trucks is a great way to increase occupancies; customers often appreciate the simplicity of one-stop shopping. Also, instead of giving a free month’s rent or other concessions, you might offer the truck free or at a reduced rate to close the deal on a unit sale.

Another big bonus of operating a truck-rental company is the vehicles act as moving billboards, roaming all over town, marketing your facility and services, letting the entire community know you offer a truck with rental of a unit.

Let charitable organizations use your truck for free and advertise it on your truck. Give back to the community in which your customers live. Then watch as your facility fills, enabling you to increase rental rates or build more units. The advertising on your truck is that strong; it works.

Options

Yes, you can become a dealer for one of the big three in the truck-rental world. Call U-Haul, Budget or Penske for more information. Or, you can buy your own truck, obtain rental insurance, generate your own rental forms that are legal and court tested, and become a truck-rental operator. Lastly, you can contact a company to lease you a truck and provide all the insurance, training and legal forms you need to start a truck-rental business quickly and efficiently. These companies also provide graphics or suggestions to make your business the success you want it to be.

No matter which route you choose, rental trucks are essential in the self-storage industry. For example, imagine that facilities “A” and “B” are alike in every way. Both are brand new, climate controlled, have the same rates and are managed by identical twin sisters. Both properties are secure, with 24-hour surveillance and free candy.

The only difference is facility “A” owns a truck that advertises the facility all over town, offers it free to those moving in and to nonprofit organizations, and rents it to everyone else. Facility “B” has no truck. Is it any wonder that facility “A” has a 95 percent occupancy rate while “B” hovers at 80 percent? Of course not!

Get on the bandwagon: Rent trucks, provide a great community service, increase your occupancy and never look back. Ah … life is good! 

Kirk Nash is president and CEO of The KW Nash Group Inc., providers of truck leasing, rental and insurance. For more information, call 877.818.7825; visit www.kwnashgroup.com.