DIY versus hiring it out

[smstonypoint]

A fair number of threads ask about the tractors/equipment required to perform certain tasks and sometimes respondents suggest that it might be less expensive to hire the job/jobs out. http://www.tractorbynet.com/forums/land-clearing/185493-rough-cut-10-acres-moderately.html is a case in point.

WARNING!!!! Stop here if you were bored in your economics classes and ignore the rest of my post. Or if you are like some of my former students, you can take a nap.


I thought I would work through an example to show how this issue can be resolved through a "purely" economic perspective. I suppose that I'm like most other TBN members in that my tractor & equipment purchases are based on more than just economics, but the analysis may be useful in figuring out how much our "fun" is costing us.


To keep it simple, my example deals with bush hogging and bush hogging alone. That is, I want to determine how many acres I would have to bush hog each year to justify the purchase of a tractor and bush hog instead of hiring the job out.

The number of acres bush hogged per year at which the costs of DIY and hiring the job out are identical is given by X = AOC/(ACH - AVCO)
where AOC is the annual costs of owning the tractor& bush hog (i.e., depreciation, interest on the investment, taxes, and insurance), ACH is the cost per acre of hiring someone to bush hog for you, and AVCO is the variable cost/acre that you would incur if you do the bush hogging with your equipment and includes fuel & lube, repairs & maintenance, and labor (more on this later).

If X is lower (higher) than the acres you plan to bush hog each year, it is less expensive to hire the work out (buy the tractor & bush hog and do the work yourself).

The example is hypothetical in that I'm going to use data from two states, Iowa and NC. This is the best I can do in short order. You would have to modify the analysis to reflect your situation.

Iowa State University reports annual average custom rates for that state. http://www.extension.iastate.edu/publications/fm1698.pdf

The reported average for mowing pastures is $14.50/acre and I will use that as my value for ACH.

NC State reports the ownership and operating costs for a 55 HP tractor and bush hog. http://www.ag-econ.ncsu.edu/extension/budgets/coolseason_grass_86-2.pdf

The reported ownership cost is $2,711 and I will use that as my value for AOC. The reported variable cost per acre is $6.65 including a labor charge of $9.50/hour and $3.62/acre excluding labor.

Which value should I use if I'm going to be doing the work myself -- I'm not paying myself? If you were awake in ECON 101, you may remember your prof saying something about "opportunity cost." If you are using your own time, you ought to value that time by the income you are giving up by bush hogging. I will use $6.65/acre and $3.62/acre as alternative values for AVCO.

Allowing for a labor charge, X=($2,711/year)/($14.50/acre - $6.65/acre) = 345 acres/year, and excluding the labor charge, X = ($2,711/year)/ ($14.50/acre - $3.62/acre) = 249 acres/year.

That's a lot of bush-hogging.

Keep in mind that this example is hypothetical. You would have to use your own data to evaluate your own situation. But I suspect that a lot of us are paying for our "fun" -- not that that is a bad thing. I get a lot of "utility" out of using my utility tractor.

Class dismissed. Would someone please wake up Mr. Jones?

 

[Ford tractor]

The reported average for mowing pastures is $14.50/acre

Good luck finding that price on the open market. Especially for smaller acreages.

Come to think of it, it costs me more than that to cut what I cut (trails and
food plots).

 

[MtnViewRanch]

While what you have posted may very well be true, you have left out many other variables that could drive the price sky high. I have 80 acres and I can assure you that if I had hired out the work that I have done over the past 10 years with the tractors that I have bought, well I simply would not have been able to pay to have gotten it all done. So progress on my place as slow as it is would be far less than what it is today and in the end I will have some machinery that could be sold and lower that cost even more. :thumbsup:

 

[jlsmith]

I would go broke mowing there. I get 35 an acer and am thinking of going up depending on the place I mow. I just got finished doing a 400 acer job and was the lowest bidder.

 

[timswi]

Pretty extensive analysis, but I believe most of us are DIYers...Don't ever tell your wife that hiring out is cheaper than the tractor in your argument. Your only hobby will be collecting lint.

 

[flusher]

Good luck finding that price on the open market. Especially for smaller acreages.

Come to think of it, it costs me more than that to cut what I cut (trails and
food plots).

Amen to that--it's more like $40-50/acre around here.

 

[twarr1]

Nice work. Thanks for the effort.
I'm sure your analysis is valid for someone who owns a tractor for a single purpose. For others, the "utility" is actually that. Even if I discount the actual money making tasks (plowing, planting, haying etc), my tractors still pay for themselves many times over with the endless pulling, pushing, hauling jobs to be done.
Also, I suspect things must be different elsewhere, but getting anyone to do anything around here is literally impossible.

 

[MBDiagMan]

If you can find someone who will shred my pastures for $14.50 an acre, I will give you $5 an acre finders fee.

 

[johnrex62]

Like most things, when done in volume the cost go down. I suspect those Iowa numbers come from large commercial farms and do not reflect the reality of the average small farm or residential non-farm operator. I know they are certainly not valid for my situation in central Texas on my non-farm property.

The cheapest I could obtain a local operator to mow my small acreage was $100 per hour. No rates per acre, only by hour. It normally took a couple hours to navigate the obstacles and mow the various patches of field, so that would equate to over a hundred per acre if calculated in that manner. I do not have any large open fields, just a couple smaller areas way too tough for a lawn mower and too irregular to farm easily. I keep them as open areas between my house and woods. The "lawn" I keep is just 50-60 feet between the house and fields.

Using the formula provided and my actual ownership costs, historical mowing rates, and the number of times per year that my fields need to be mowed to keep them under 6 foot high, my break even would be 15 acres. I only own 4.3, so I am under a third of the way to breakeven until you consider the additional maintenance activities I can do to my property that I cannot get my mower to perform for me and activities that I cannot economically contract out.

I have started blazing trails through my woods, that I could not direct someone else to do since I could not see the tree patterns until I removed the thickets and brambles. Only then could I start to decide where I wanted trails and where I did not. I could also not economically hire someone to thin my woods of small trees until my trails were being laid out, so it would not work to hire someone to come pull a couple trees every weekend as I decided what to remove. Anyone want to volunteer their mulching hardware and time to come do less than six 4" thick 10' tall trees? Most of them a few dozen feet apart with one or two larger "keeper" trees in between. No, I did not think so. It is cheaper to wrap a chain and pull them with my L3700 than to hire the "right tools" for the job.

Having my own equipment may not make sense economically for hogging, but it sure opens possibilities that I would never pursue due to the hiring costs involved if I were to limit myself to hiring work done for me.

 

[johnrex62]

If you can find someone who will shred my pastures for $14.50 an acre, I will give you $5 an acre finders fee.

Heck! I will give you a $25 an acre finders fee! I figure I have two whole acres to hog 5-6 times a year. Maybe in a few years it will only need mowing, but right now the woody tall weeds have possession.

 

[logan97]

Nice work. Thanks for the effort.
I'm sure your analysis is valid for someone who owns a tractor for a single purpose. For others, the "utility" is actually that. Even if I discount the actual money making tasks (plowing, planting, haying etc), my tractors still pay for themselves many times over with the endless pulling, pushing, hauling jobs to be done.
Also, I suspect things must be different elsewhere, but getting anyone to do anything around here is literally impossible.

Amen Brother


Also hiring out for snow removal can cost the home owner thousands. One example, last winter a friend got his tractor snowed in his barn as we had an unusual amount of snow. After a week or so he finally found someone close by with a Bull Dozier to clear his drive and get his tractor out. When the snow melted to he and his wife's surprise. They had a New Road, the fella had got off track.
Another incident someone came to ditch a road, took all of the dirt from the ditch and put it on the road looked like a fantastic job until it rained. The cost to re-gravel was right under $1000 and counting.These two examples are small in comparison to some Horror stories.

 

[smstonypoint]

I tried to stress in my original post that my example was hypothetical and that you should use your own data to evaluate your own situation -- I didn't want to just pull the data out of thin air. My objective was to illustrate a simple way to compute the "break-even" acreage for a single task.

<snip>
I'm sure your analysis is valid for someone who owns a tractor for a single purpose. For others, the "utility" is actually that. Even if I discount the actual money making tasks (plowing, planting, haying etc), my tractors still pay for themselves many times over with the endless pulling, pushing, hauling jobs to be done.

As you say, the proper procedure would be to compute the net present value (NPV) of the tractor/equipment investment. I would be happy to discuss the niceties of such an analysis were it not for the liability issues involved. I fear that readers would fall asleep and crash their foreheads into their keyboards.

Steve

 

[Dr_Zinj]

For me, break even with current cost for a Bobcat CT235 with front mount snow plower versus hiring someone to plow my drive is about 16.3 years. That's without adding costs for annual regrading of the drive (back blade), fixing the ditches and prying out and moving rocks (backhoe), field & brush cutting (rotary or flail mower), and hauling firewood and lawn and garden material (FEL). Honey, wouldn't you rather spend the money now and save enough to buy a new car in a few years?

The problem with hiring is that there is a base cost involved with their just transporting their equipment to your place. Sure, it may only cost you $20 per hour to hog a feild, but more often than not, they have a base fee just to get there. The more often you use them, the more those transport costs add up.

 

[TripleR]

Very interesting thread. For us, it is a mix. We rent/barter back hoe, skid steer or dozer. Our tractors are a mix of economics, convenience and pleasure.

 

[Dr_Zinj]

Pleasure. Now there's an interesting thought.

Need to factor in the entertainment value of the tractor.

And you know, I'll bet there are mental health benefits too. Substitute the cost of a therapy session? The does assume that owning and operating your tractor contributes to your peice of mind; and doesn't raise your blood pressure due to breakdowns or mechanical inadequacies.

 

[Egon]

If you are using your own time, you ought to value that time by the income you are giving up by bush hogging.

Now this is an interesting statement. Given that many of us may find ways of spending money rather than making money??:thumbsup:

 

[Jay4200]

I have a good example of why it is worth buying equipment - can't comment on running a farm, but with the construction industry, you're ALWAYS better off doing it yourself:

I spent this summer working the grounds on a property I recently bought. The grounds around the house and barn were cleared of trees, but had little else done, and that was 25 years ago. The soil is basically bank-run gravel, so not much grows. Existing grades needed to be redone for drainage, and cover was natural brush. The driveways (1100 ft. total + ~5000 sq. ft of parking areas) were made from natural existing material and were in bad shape - improperly crowned, rutted and rocky.

I graded the grounds and driveways using my tractor. I dug out hundreds/thousands of rocks with my FEL and backhoe. I brought in 360 yards of nitpack gravel for the driveways, and 235 yards of organic loam (poo) and spread and raked the products then seeded the loam, creating a little over 1/2 acre of grasses areas and about 1/2 acre of driveway surface. I also reluctantly did a jet-pump to submersible conversion on my well in the middle of the whole thing, which required digging a 100' trench for a new water line and power, re-plumbing the interior, etc.

I got a price from a driveway company to do the road work that I did - $15k + materials. The landscaping work would've been easily double that. I would guess that the well work would've been somewhere in the $3-4k range. Sure, it cost me 2 months of time, but I enjoy doing all of that stuff and I need the exercise. I spent about $10k on materials and supplies, put over 200 hours on my tractor's meter, lost 25 pounds, but knocked out a solid $50k in work, and likely increased the value of my property twice that. Also, if I hired the work out, everything would've ended up so screwed up, I would've had to do it all over anyway, since the vast majority of professional contractors are completely incompetent. I paid $15k for my TLB 5 years ago, so it paid for itself 3 times over this summer alone.

As far as a maintenance story; I recently bought a used 6' 3pt snowblower for the same property. I paid $1350 for it, but got a grading blade thrown in for free, so let's say it was $1000-1100. I'm going to spend $300-400 more to get the hydraulics working, so call it $1500 to make the math easy. I don't know what it would cost me to plow/blow 1100 of drive, but it HAS to be at least $100. We usually get about 8-10 storms a year worth clearing, so payoff on the blower system is 1.5-2 years.

JayC

 

[smstonypoint]

I have a good example of why it is worth buying equipment - can't comment on running a farm, but with the construction industry, you're ALWAYS better off doing it yourself:
JayC

Jay,

Not to be argumentative, but I disagree. If what you say is universally true, there would be no sub-contractors, only GCs.

Steve

 

[Jay4200]

Jay,

Not to be argumentative, but I disagree. If what you say is universally true, there would be no sub-contractors, only GCs.

The construction industry exists in it's present form for two reasons: most people can't do it themselves, and many/most people have become accustomed to and accept sub-standard work.

I'm a little bit jaded (can you tell?) - my experience with hiring contractors is that if you do, you'll pay them like they were surgeons, and they'll screw up the job so bad that you won't even be able to use what you paid for. I'm 0 for 6 with contractors - and currently in dispute with one for screwing up a rubber roof installation on some rental property I own. How retarded do you have to be to screw up contact cement? It's baffling to me.

I built an addition on my house in the late-90's, adding 3 BRs, a bath, and an oversized garage. I did it all myself - every nail and screw. The only thing I didn't do was the concrete work. Of course, the garage floor ended up screwed up so bad I can't park a car in there - still a good place for my fleet of dirtbikes though. Other than the floor fiasco, it came out great, with solid engineering and construction, workmanship and features that you can't even buy - I'm convinced that it could survive a tornado. It cost me no more than $25-30k to build - rough estimate was $100k through a GC. Also, since I built it myself and along with improvements I made to the existing house, it's actually insulated correctly, unlike ALL new construction. I heat my 2600 sq. ft. house at 72-74 degrees using 450 gallons of oil for the entire heating season. Everyone I know with similar size houses burns at least twice that amount. Pshaw.

JayC

 

[Travelover]

Steve, nice analysis, but we will rationalize our tractors no matter how much math you throw at us.

It is kind of like trying to calculate the value of a wife or girlfriend. Better left alone. :laughing: