Austin Gray: Justin Reitman, welcome to the show!

Justin Reitman: Thanks for having me! I'm really excited to, uh, to be here, talk some trucks, talk some financing, and, uh, you know, get into some nitty-gritty.

Austin Gray: Yeah, and it's great to finally meet you because right before I started the recording here, we were talking about—so I've been repping Justin’s—so the name of Justin's business is IN Tech Leasing. Did I pronounce it right?

Justin Reitman: Yep!

Austin Gray: So I've had the phone case for my wallet or for credit card holder on the back of my phone case since last Christmas because Justin, we did this little Secret Santa deal on, um, I guess it was on Twitter, and we were just like putting two and two together here.

What was funny was Justin had sent a big box with like mud flaps for the truck, you know, branded, and a custom phone holder case, and I got the package, and I remember thinking like, wow, somebody did an amazing job of cold outreach and sending like a gift because I was thinking like truck leasing, man, like this is like very highly targeted. Turns out, like, we did a Secret Santa deal, and anyways, I appreciate the gifts.

Justin Reitman: You're one of the few people I could send that to, so I definitely lucked out by drawing your name.

Austin Gray: So that's how it actually worked out, like you drew the name and it just so happened that I'm in the heavy equipment business too.

Justin Reitman: Yep,
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Austin Gray: that's great! Justin, why don't you tell us about your business?

Justin Reitman: Yeah, so IN Tech Leasing is a family business my father started about 38 years ago. I have a brother who's 10 years older than me who's my business partner, and really what we focus on is commercial vehicle financing and leasing. There's primarily two sides of our business: there's the, you know, the heavy vocational side where we will finance tow trucks, dump trucks, excavators, a lot more like heavy equipment for people primarily in the Northeast. Some very specialty equipment will go more nationwide.

Then we also have more of a fleet leasing side of our business where we tend to work with HVAC companies, garage door installers, where they really want a vehicle that's purchased, upfitted, and wrapped and ready to go to work. So there's kind of two sides to our business where we can kind of function almost like a bank because you come to us if you want to buy a used excavator or a used dump truck or used tow truck or even a new tow truck. And then on the other side, more like the fleet leasing, where you might be running anywhere from 10 to, you know, 30 vehicles. You always want to make sure you always have, you know, a fresh fleet on the road because, you know, running, you know, 20, 30, 40 trucks, you know, not having vehicles on the road definitely becomes a bit of a pain.

Austin Gray: Got it, got it. Okay, so I'm very interested in this business model, and I would love for you, Justin, to just teach me truck leasing options like I'm a third grader. Why would leasing be beneficial to me as a third-grade business owner?

Justin Reitman: Really, the short of leasing or financing in general, it kind of comes down to two things: it's a cash flow situation because you can either just go out and purchase the vehicle. People always ask me, "What is the cheapest or, you know, what's the least expensive option?" And they go, "If you want to make sure that you don't pay any interest, you can go take all the money out of your bank account and go, you know, buy the vehicle cash. Like, your interest rate is zero." But does it make sense to necessarily dump $150,000, $300,000, you know, some of the trucks we do are a million dollars, you know, out of your bank account to go purchase it? So financing and leasing becomes a very beneficial aspect.

The other aspect too is just more of a convenience and a speed. You know, being able to lease and have a lender that understands your business, there tends to be a lot of leasing or finance companies that specialize in specific types of vehicles can just become an advantage. If you're going out and you're trying to buy a spider lift or you're trying to buy a knuckle boom truck, and you have to go and explain this to your local bank what the value of this truck is, or if the truck is five or 10 years old and they don't understand why a rotating wrecker might be a half a million dollars or $600,000 used, you're going to be at a severe disadvantage to getting the equipment you need.

So from the standpoint of leasing, it creates flexibility and it allows the owner-operator or just the owner in general to focus on doing this business and doing their work. With our fleet leasing side, which I think is a great ground to kick off the discussion, we are going out and we are sourcing a vehicle where we are going out and getting it upfitted and wrapped. That owner can definitely save money by doing it himself, just like you could save money by doing your own, you know, QuickBooks, but it goes back to is that the best use of your time and your resources? Is it not better to just say, "Hey, let me partner with a company that I can literally push a button and get a vehicle on the road"?

And a lot of times when you think about it from a standpoint of trying to save money, a lot of people don't always think about it from the standpoint of how long am I going to have to wait to get this vehicle on the road producing revenue for my business? And that's really, especially with our business, but I think with any leasing or any financing company you work with, you want to make sure that the time between you locating a vehicle and getting it on the road is as narrow as possible, because without that vehicle, you can't produce revenue. If you don't have the right trailer to move your skid steer or your excavator, how are you going to do the job? The other option is that you're going to have to go out and rent a piece of equipment, which could be a lot more expensive, or you just might not have the equipment, and then you have to push the job off. So from that aspect, you know, leasing and financing in general really is a convenience and speed for the business owner.

Austin Gray: What size of fleet do you specialize in? You mentioned you work with owner-operators, and a lot of our listeners here are either just starting out or they're in the early stages of business. And as someone who has gone through this phase over the last two years, you know, as we think about bringing on snow removal services, I've reached out to other options. Like, take Enterprise, for example. And what I've learned from Enterprise is it doesn't even make sense to have a conversation with them until you're ready to pull the trigger on seven vehicles, is what I've learned. So what size do you specialize in, and can you provide options for that, like a one to six fleet size?

Justin Reitman: Yeah, it's a great question. So there are really two sides of our business. There's more of the traditional, what I would just call like truck financing where we do structure it as a lease purchase. Sometimes, we use an equipment finance agreement in that side of our business, where we're focusing more on niche vocational industries like tow trucks, tree services, roll-offs, dump trucks—that size. We tend to focus on the one to 15 truck operator. Our niche on that side of the business definitely is on the you side. Essentially, you almost function as a bank. We don't stock any inventory; we might provide some guidance to the customer in terms of specs that they should be looking for, but at the end of the day, that operator is going to understand what is the best equipment for his business.

On the other side, in the more traditional fleet leasing, seven is actually a good number. The reason for that tends to just be the frustration you might have with replacing one vehicle a year. If you have five or six and you may be cycling every, you know, five years, so you're only replacing one truck, it's not that much of an issue to go out and get one vehicle. We do have some customers that just don't want to deal with the process of getting a vehicle, going to a dealership, getting it upfitted, getting it wrapped at the smaller level at that five range. But when you're doing a vehicle a month or you're doing a vehicle every two months, everybody's been in an experience where they try to go to a dealership to buy a vehicle, and listen, you might not have the exact spec that you want. They might kind of give you the runaround a little bit.

So from the leasing side, where you're more cycling through vehicles and you're not looking to actually like hold on to them long term, the seven size does make sense. Traditionally, where our fleet leasing customers end up is kind of that like 7 to 10 all the way up to like 50, 60 range because when you're in that 20 or 30 vehicle fleet, you're most likely getting a new vehicle once a month, once every three months. If you're buying four vehicles a year and going back to a dealership that might not have the inventory or dealing with an upfitter if you’re getting a racking system can just become a time drain for a customer.

Austin Gray: So can you tell me more about your traditional fleet customers? I'm trying to just paint the picture of possibilities as our listeners grow their businesses. Can you talk to us about what you see a company that is adding the number of vehicles that you just mentioned—like how often do they turn those vehicles? Let's say I buy a vehicle, say I buy four trucks or lease four trucks from you next year. How long does that owner keep those vehicles in the fleet before they turn them over?

Justin Reitman: Yeah, so that's a great question because at the end of the day, it really just depends on the amount of miles and wear and tear. Traditionally, where we see people kind of cycling through vehicles, whether it's through our company or we're actually in a group with other leasing companies from around the country, is anywhere from like four to seven-year marks. So we have customers; they want a 60-month term, for example—they want to get a new vehicle every five years. But sometimes what they do is they'll actually purchase the vehicle outright and then use it for another year or two after the lease is expired.

But for a customer who has five or six vehicles where they might not have a backup truck and it's really—you know, but they have a good mechanic that can kind of work on a truck—you know, I would say anywhere from four to five years is good because that’s when the mechanical issues might kind of show some wear and tear, especially if you're putting on like 20,000 miles a year on a vehicle. After five years, you know the 100,000-mile mark, especially if you’re talking about more the lighter-duty Ford Transits or F150s or Toyota Tacomas.

Austin Gray: What does a typical lease structure look like?

Justin Reitman: So to kind of focus specifically on the fleet leasing, there's kind of like two main varieties. There's one called an open-ended lease, and then the other option is a closed-end lease. So let's take the closed-end lease. This is the lease traditionally where you're essentially renting the vehicle; you’re going to be making fixed monthly payments, and at the end of the lease, traditionally, you will be returning the vehicle. This is really great for a lot of nonprofits that use this structure because they don’t have necessarily the budget to purchase the vehicle outright, nor do they want the risk or responsibility of the vehicle. They want to have an understanding for this four-year or five-year period: I know exactly what my lease payment is; I know that I'm going to be able to get a new vehicle every, you know, four to five years and keep that vehicle on the road.

A lot of people don’t like that structure because a closed-end lease means there’s no purchase option. The lease is very fixed; you make these monthly payments, and at the end you give us the vehicle back. From the leasing company standpoint, they like that because usually there’s a lot of equity in the vehicle. Really, leasing is just a financing mechanism. I’m going to go out, I’m going to buy a vehicle. I’m going to have either a line of credit or use my own money to purchase that vehicle. And then I’m going to give you the vehicle on a fixed payment schedule, and I’m going to set a residual or balloon option. And then at the end, I’m going to hope that I have more equity in the vehicle than is owed on the lease.

So from that aspect, closed-end leasing is not as beneficial for a lot of people because they feel like they’re giving up a lot of this equity. Like, I’m basically just giving you money out of my pocket every month to get a vehicle, and then at the end of the lease, I have nothing to show for it. The other side of the coin is this open-ended lease. The open-ended lease, the lessor, which we are the lessor, and the lessee is the customer, they would agree on a residual value. And essentially, on an open-ended lease, you’re making your fixed monthly payments, and at the end of the lease, the customer is responsible for the residual value.

So if you wanted to be very aggressive, you might go to the lender and say, "I want a 30, 40, or 50% residual on this Ford Transit after five years." Well, at the end of five years, if the balloon payment is $20,000, as the lessee, I'm responsible for that. So I might be able to buy the vehicle and sell it if it's worth $25,000, and as the lessee, benefit from that upside. But if the residual value is misguided, all of a sudden the lessee is now on the hook. So if we set a $20,000 residual and at the end of the lease to go sell this vehicle, it's only worth $15,000, the lessee is responsible for that five.

But the reason that this open-ended lease program is popular with a lot of HVAC companies and fleet companies is because they have the ability to set a realistic residual where there’ll be equity in the vehicle, and they can basically turn the vehicle back in or sell it to a dealership, and the lessee might get a check from the lessor because if the vehicle is worth, let’s say, $20,000, but we set our residual at $10,000, all of a sudden, the lessee is going to walk away with a check for $10,000.

So they like that, and when times are really great and the equity in vehicles is very high, like you kind of saw with the used market going crazy during COVID, a lot of lessees liked that a little bit because all of a sudden they might be walking away with a check for the equity in it. But traditionally, that structure is used to cycle through the vehicles because you have that option to purchase the vehicle.

Our structure, ironically enough, is a little bit different. We take more of this hybrid approach. Our leases are actually closed-end leases, but we provide them with a purchase option, and the reason we do this is it allows the customer to maintain all the equity but not carry any of the risk of being upside down in a vehicle and having to stroke a check to us at the end of the lease. We really do that because traditionally, we had been more in the lease-to-own, what you might consider more like a finance lease agreement, so we might set our residuals a little bit more conservatively, but we want the customer to be building up equity every step of the way.

Austin Gray: Can you expand more on this hybrid structure?

Justin Reitman: Yeah, so for us, our business model has evolved over the past 38 years when my father started the business. He had car dealerships before winding up losing them and started doing car leasing because he leased a computer from a guy and he started working with the guy to do the car leasing side of it in like the mid to early 90s. A lot of the manufacturers had gotten into these subsidized lease programs, and everybody sees it, right? You see the Ford F-150 for $199 a month. You know, I'd love to find that actual truck because I've never walked into the dealership and actually been able to find it. But the idea is the dealers and manufacturers started to subsidize their product to the consumer, and we found a niche more in the commercial box truck and then we started finding a little bit of a niche with tow trucks. We really figured out that vocational types of trucks, especially used, could kind of be our niche.

So, the structure we always employed was this essential lease-to-own contract where it was a closed-end lease. Traditionally, if I told you we are writing a closed-end lease, people might be afraid because, "Hey, I don't want to give you a bunch of money every month for 36 months, 48 months, 60 months, whatever it is, and then at the end of the lease, not have anything to show for it." So we always provided a purchase option. Traditionally, it was a lot more of like a dollar purchase option. If you kind of compare it to just walking into your bank and getting a loan and putting a lien on a title, it's the same mechanism. At the end of that lease, at the end of this closed-end lease, you would be the owner of that vehicle.

Over the past, let’s just call it 10 to 15 years, some of the vehicles that we started financing became very, very expensive. We'll do a lot of these specialty tow trucks or even car carriers. A car carrier now is like $425,000, or a vac truck is $400,000. You wind up in a situation where you might be financing a truck that's $400,000, $500,000, $600,000, or even up to a million dollars. You have to have a different structure for the customer. So, a lot of customers don’t want to make a $12,000 a month payment.

So what we would do is we would maybe set a higher residual than going down to our traditional dollar purchase option. That creates a bit more flexibility. But the idea is, at the end of the lease, the customer has equity in the vehicle. If you think about our hybrid structure, our focus is to make sure that the customer isn't underwater in the truck. A lot of times, especially if you were to ever look at your mortgage payment, you're like, "Oh my God, I'm making all these payments to the bank." In the first few years, you’re not paying down any principal at all; it's really just interest.

If you go out and you put no money down, whether it's on a finance or on a lease, and you need to get out of that vehicle in a year or two and you've written a five-, six-, or seven-year lease, all of a sudden you are going to owe more money to your lender than that vehicle is worth because vehicles do depreciate. Our structure has always been more of a conservative structure with especially the more heavy equipment. We want them to build up equity in that equipment.

When you're talking more the fleet leasing side where there's consistency with, "I'm always going to be getting a new vehicle," I'm not going to be paying off a vehicle after 12, 24, or 36 months. While there is that risk earlier on, towards the end, if you've set your residual value correctly, you shouldn't be in a situation where that customer has the exposure to give you money back and you're underwater on the truck.

So really, if you want to think about leasing and financing in general, it is just a mechanism to make sure that you can get the equipment you need. The way that we try to focus on it is we want the customer to have equity and built-up equity in that vehicle because, you know, a customer of mine that I always go back to, they wound up getting a heavy-duty rotating wrecker tow truck. They put a sizable down payment down on it in 2017. At the end of 2021, they were going to get a brand-new truck, and the prices of these trucks went from like $500,000 to like $700,000 or $800,000 brand new. They’re $900,000 now because he had put a down payment on his vehicle initially; he had a bunch of equity in the vehicle.

So when he went to sell that vehicle, he was able to roll that equity forward, get a brand-new truck, and have a similar monthly payment. Otherwise, you would have been looking at a situation where if he didn't put any money down initially, and the value of the truck wasn't worth what the payoff was at the time, you’re going to be in a situation where to get another vehicle, you won’t have any equity to roll forward into it. All of a sudden, your payment might go from $5,000 a month to $7,000 or $8,000 a month because the price of vehicles skyrocketed.

Austin Gray: Speaking of which, can we talk about used equipment and used truck prices? Can you tell us a bit about what happened during COVID? Also, I'd like to hear what sort of market cycles you have seen and how used heavy equipment and used truck prices fluctuate.

Justin Reitman: Yeah, so on the heavy commercial side, it's kind of a perfect storm. You had a ton of lead time that these trucks needed to be built. When factories get shut down and there was a chip shortage, I mean, a lot of the new trucks that are built today are just rolling computers. It's not like they were, you know, 20 years ago. I mean, right now, if you went to buy a truck, let’s just say a 2020, 2021, or 2022, the first thing your mechanic is going to do is plug the truck into the computer and spit out a report for every single error code or anything that comes up with the truck—because these are essentially, you know, rolling computers.

You could see that too on the excavator side. A John Deere needs to come out and diagnose your excavator—the first thing they’re doing is plugging a computer into it and understanding every single aspect of the piece of equipment. So, this happened yesterday for us, by the way. Sorry to interrupt, but John Deere showed up to work on our track chipper, and they plugged it in. They said, "Hey, it's a computer error." They reset it, and now our DEF system is working, and we're all good.

Justin Reitman: Yeah, sorry to interrupt. Oh, it's all good! And that really is what happened during COVID; you had a lot of supply chain shortages. The truck industry was completely affected by that. A lot of the truck industry is kind of separated. There’s the over-the-road tractor market, which went berserk because everybody thought they could just become over-the-road truck operators. Just hire a driver, get a bunch of tractors, and the rates were great.

Then on the heavy equipment side, they’re still kind of all coming from the same factory. Detroit Diesel is making the engines, Cummins is making the engines. There are only so many suppliers. So when there's a rush of people trying to come into an industry, it’s just going to create more demand for that product. The dealers and manufacturers—they're not stupid; they're going to raise the price because the demand is so high. Then, you have all these supply chain issues that make the situation worse.

And if you even look at the PPP program and EIDL, a lot of business owners came into a lot of cash. People started raising prices, and that just creates more and more demand. All of a sudden, the price of a vehicle that might have been $100,000 for a flatbed tow truck is now $140,000 and the truck’s the exact same thing. So what does that do? Well, that takes the guy who might have bought used or bought new and says, "Listen, I can’t afford a $100,000 justifies paying $140,000 for a $100,000 truck. Let me go get a used truck." Now, more and more people are going to get used trucks and there's not enough new inventory, so that’s going to raise the price of the used stuff.

Really it's just a supply and demand issue—the used market went up because there wasn’t enough new trucks. If you own a trucking business and you don’t have a truck, you can’t make more money; you just can’t service your customers. If you have a dump truck business and you don’t have dump trucks, you can’t generate revenue.

So, you might traditionally go out and buy a brand new truck, but if the wait now is 12 months to get a new vehicle, you're going to go to the used market and then the used market's going to start going up. A lot of people just got a very basic supply and demand economics lesson during COVID—there was way more demand for these trucks than there was supply.

So the price of new stuff went up, forcing the price of the used stuff up as well. It’s a double-edged sword, because at the end of the day, if you go out and you buy three or four or ten or twenty triaxle dump trucks a year, and you’re used to paying $190, now you’re paying $220, $240, $280 for it—suddenly demand starts to soften. The dealer and the manufacturer can be hard-pressed to start lowering the price. If you just took delivery of ten triaxle dump trucks and you were paying $270 for them, I think you’d be pretty pissed if the dealer who may be having some trouble now sells them for $250 or $240.

So it’s a very tricky situation right now with some of the trucks. The dealers still need to move inventory, and there isn’t as much of a backlog that you saw during COVID, but truck prices haven’t come down. If the new truck prices aren't coming down, that person who might buy new or might buy used is now going to look at used. Have they come down a little bit? There is definitely more softness in that market.

But to go back to your specific point, what happened during COVID was really a very simple supply and demand issue. A lot more people rushed into these markets, and there were supply chain shortages. The person who might have bought a new truck started looking at a used truck, and that really raised the value of these trucks. But at the end of the day, like, trucks do depreciate over time; they shouldn't be going up in value. If you run these trucks, you’re going to have a lot of wear and tear, and at a certain point, buying a used truck of a certain age just isn't worth it.

There used to be a huge desirability for trucks built before 2007 because they don’t have that DEF system you talked about. That has definitely passed through a little bit because right now, are you really going to buy a 17-year-old truck? It might be easier to work on, and it might not have all the sensors that you’re accustomed to dealing with. But at a certain point, the life of that truck, the wear and tear, especially if you’re in the Northeast where the salt on the roads is going to corrode those vehicles, it just doesn’t make sense to go out and buy a 17, 18, or 20-year-old vehicle.

Austin Gray: Yes, and even if it’s almost like that truck doesn’t exist where it’s like okay, so I'll tell you one example, and it's a unicorn example. So I just bought a 2005 5.9 Cummins Dodge just for a daily driver. Why? Because I've always looked for it, and I've always wanted the one-owner. Grandpa owned it, garage kept, and I found it after a decade of looking. But my point with this is like I kept my eye out on Facebook Marketplace for that used truck for a decade, and it finally popped up. I mean, I literally walked up, and the dude came out with a cane; he had kept this truck in a garage. So it was no questions asked; I bought it.

But that truck is such a unicorn, and especially if a commercial truck has been used at any point. We’re now getting to the point where if you're anything pre-DPF, it's already blasted.

Justin Reitman: Yeah, it’s very hard to find pre-emission trucks that are worth it. Even on the heavy-duty side, you can maybe get trucks that have rebuilt engines, and that’s really what people try and focus on—just continuing to rebuild the engine. But there’s a certain level where it doesn’t make sense to run a 20-year-old truck anymore.

Austin Gray: Yes, definitely a commercial vehicle. So right now, what are you seeing in the used equipment market? While you do that, I'm actually going to pull up Facebook Marketplace and find a dump truck. If you’re cool with it, could we just go through a scenario of like, "Hey, if I was going to buy this dump truck, what would this look like?"

Justin Reitman: Absolutely! I do this all the time. Actually, I have a kind of like an SDR salesperson, and that’s one of our outreach strategies. We'll reach out to sellers of trucks, and we go through—on a weekly basis—we’ll go on Facebook Marketplace, and we basically do, you know, would you buy it, would you not, what questions would you ask? So that’d be awesome to do.

Justin Reitman: So, on the equipment side, I’d say maybe about 10 to 15% of our business is really, you know, equipment. One of the challenges with used equipment is: does the person selling it really have the authority to sell it? I saw a tweet the other day from a guy who has a tree service company. He said, "My guy just drove off with the truck." Imagine, you know, you are an employer, and you have a skid steer, and it just disappears. A person listed on Facebook Marketplace. I’m not saying this happens all the time, but with untitled vehicles and untitled equipment, it’s harder to find that paper trail of who actually is the owner of the vehicle.

So from that aspect, when we buy or finance used equipment, we want to see that the person selling it has the original invoice from the dealership. You want to have that paper chain of ownership. I’d say right now on the new side, listen, the economy definitely is in this weird funk where there’s not consistency; there’s not clarity on what’s happening. People are frustrated with where interest rates are, and I do think on the new equipment side, there are a lot of deals to be had because the manufacturers—you know, the eager beavers, the Mobar, the Bobcats of the world—they need to sell their equipment, so they are going to be a lot more aggressive in some of the financing they might offer on a brand-new piece of equipment.

Now, does it make sense for a guy starting out to go out and buy a brand-new $400,000 excavator or go out and buy a brand-new spider lift for $120,000 or $150,000? I don’t know; maybe he can get something more in the $60,000 price range. Even though the financing rate might be better for buying brand new because the dealer might subsidize it in some respect, it might not make sense for a guy starting out or a guy that wants to make sure he’s not taking on a huge obligation to go out and buy a used piece of equipment. But I definitely think if you’re in the market for new stuff, there are definitely deals to be had in the equipment space.

Austin Gray: So let’s talk used trucks here. I just pulled up a 2022 Peterbilt 348. I don’t know a thing about dump trucks; I know that we’re gonna need one. Can you share your screen? Is it possible to do a screen share?

Justin Reitman: Yeah. So dump trucks are something that I'm going to be leaning on our team for as far as what dump trucks we should get. So if any of you listeners are listening to this and you're like, "That's a terrible truck," I apologize for that. This may be a great truck; I don't know.

Austin Gray: So, a 2022 Peterbilt 348, listed five days ago, $65,900. So here’s the description: 2022 Peterbilt 348 tandem dump truck, 350 HP Packard PX9 engine.

Justin Reitman: Okay, yeah. Allison 3000 RDS. Here’s a great example, and I’ll kind of give you how does a lender or a finance company look at this truck.

So this is why I also tell people you want to work with a lender who’s in your market and understands your equipment. So, if I’m sitting in New Jersey and I have a New Jersey customer show me this truck, here are the first red flags for me: the most popular type of dump truck in our area is a triaxle dump truck. The triaxle dump truck is going to be the easiest to sell; there’s the most demand for those types of trucks. So right off the bat, when someone is giving me a tandem axle—which is the two axles right there—that, to me, is, okay, you need to make sure that at the end of this lease or when this person wants to go sell this vehicle, who’s going to be your market to sell into?

Tandem axles are really great for the guy that’s, you know, doing some construction; you might have a trailer that has a smaller excavator that he tags along too. But if you're doing paving work or you're doing snow removal on the highway with salt and you're working with a quarry or doing larger construction jobs, a tandem axle dump truck is not the way to go, especially in our New Jersey area.

The other thing that is a red flag from my standpoint is the engine. So this is running a Packard engine. Packard is the owner of Peterbilt and Kenworth; they’ve started to basically make their own engines, and they’re not as easy to work on with a mechanic. So right now, if I was advising someone to go get a truck—a dump truck—if they’re getting a Peterbilt or a Kenworth you want to get a Cummins; that’s kind of like the gold standard because your ability to get that truck worked on at a mechanic is much greater.

If they’re more comfortable working on that type of engine with the Packard, you might be more reliant on going to a dealer. While this truck might be under warranty, all warranty is going to allow you to do is get the truck worked on and not have to come out of pocket with as much money. That doesn’t mean that the dealer might not be backed up with other trucks that are under warranty, and if you have one or two trucks, you're at the back of the line. The guy that has 20 or 30 or 40 or 50 truck fleet is getting his trucks worked on at the front of the line.

From my standpoint, because of where I’m located and the types of trucks that we finance and work on, this wouldn’t be my first choice. Now, I have to understand what the customer’s application for this is. If you’re doing more medium-duty excavation work or you’re working with a plumber to, you know, do some builds, or to fix a plumbing system and do some excavation work, or you're doing some more hardscape stuff and you need to transport stone or pavers, this might be a better application.

It’s probably more than you need for the landscaper construction guy; they tend to focus more on the single axle Mason dumps. But the things you want to look at are this is a 2022 Peterbilt—why is this being sold? I will always click on the owner. Is it a private individual or is it a dealership, you know? Someone kind of bring this back in. Those are some of the, you know, kind of like main points. So, I’m always looking at like the engine as the first and foremost—how many miles are on it? A lot of these engines on the heavy-duty side can go five, six, 700,000 miles before you even really need to think about a rebuild on that.

Austin Gray: Okay, so give me your—you're advising me on buying a dump truck. Just give me some parameters or some search terms to search in. Let’s pull up something that you would advise one of your clients on.

Justin Reitman: Let’s take your application. You do a lot of land clearing; you do a lot of tree service, right?

Austin Gray: Yeah, but we are into gravel road grading now, so that's another service we've added on. And what we're doing is like—it’s just a very natural upsell. We saw that a lot of our clients—we live in a rural area, so we go in to do the tree work. And it’s basically like our work is primarily driven by wildfire mitigation, so reducing the fuel load on any given property so that if a wildfire were to come, then the home is more protected. So that’s what drives our land clearing side of the business, or tree side of the business. Then we started getting requests for driveway repairs, so we obviously have the skid steer; we have a mini-excavator, and we have access to subcontractors on trucking. So like right now, what I'm dealing with literally—our project manager called me yesterday, and he’s like, "Hey man, I’m having trouble getting truckers; everybody's booked up."

The reason is because it's September 13th right now; snow is coming in our area, and everybody is trying to get their construction projects in. So these trucks just run around the clock. Everybody around here does run tandems or most people. There are a few people who run quads. My head goes to, okay, this is a real-world example that we're actually going through right now. So let’s go through an example of what it would look like to lease a truck.

So to answer your question, we're transporting road base material—gravel road base—and bringing this in. Then we have a road grader, we have a skid steer, and an excavator to help with doing ditching, culverts, things like that. And that’s why it goes back to the market. You can’t run quad-axle dump trucks in New Jersey, but out West, you have the quads and the quints, which are just more popular applications out there.

Hearing a little bit more about your application, you're not looking to have a dump truck business; you're looking to take a pain point of a job and not rely on a third party. So being able to, I guess, get stone from a quarry—the little pebble stone that you’re grading with?

Austin Gray: Yep, it's 3/4 inch road base. And another aspect too is if you're doing some light excavation work or, you know, using your skid steer to, you know, kind of put some debris or dirt into a truck, you can now haul it away.

Justin Reitman: Are you—how do you traditionally haul away some of the debris or dirt?

Austin Gray: We would subcontract our trucking when needed. On the tree side of the business, we chip like 95% of the material on site. There's a rare case in which we pluck stumps.

Justin Reitman: Do you have a chipper that you're just chipping?

Austin Gray: Yeah, we have a big whole tree chipper on tracks. It follows us around in the woods, and we feed all this stuff by an excavator with a grapple.

Justin Reitman: Nice! So, yeah, from that aspect, this is why it’s so important to understand what the customer’s application is because we might think, "Oh wait, it’s a tandem axle; they’re not as desirable," but like you have a use case for it, and that’s the most important thing.

So, yeah, I would focus more on a tandem axle dump truck. A lot of this comes down to, you know, the customer’s comfort level, right? So right now, if you were going out and purchasing a vehicle, you must have an idea of how much—if you’re trying to, I guess, disintermediate and not rely on trucking companies—what is the calculation of how much are you paying this person to come and hire a dump truck company right now to bring in stone or to remove some stuff at the end of a job?

So you’re having trouble getting a contractor. That’s going to be two things, right? You’re either going to have to pay more money for that person, or you’re going to have to go to the customer and say, "Hey, I can't do this job now," and so you're going to miss out on that revenue.

Do you have in your mind like, "Hey, it's costing us X dollars, you know, a time or a week or a month to contract this out to somebody else?"

Austin Gray: Look, I don’t have that answer because this is literally the first time that we're running into this at the level of our business, and so I haven't put my business model to this. This is really just like real-time, raw, open real; a lot of times people have not thought about that. But you want to make sure, listen, if I'm going to go get a vehicle, am I gonna make more money from it or am I gonna save more money?

So you could either save more money because I’m not having to hire other people to do it because, hey, it’s a huge expense, right? And the other side is I’m going to make more money because I can do more jobs now, or I don’t have to push these jobs out far enough, or I have more control and I'm not relying on putting out a fire because I subcontracted out this dump truck work to somebody else, and they don’t show up. And now I'm calling the customer, you know, "Hey, I apologize, like this job didn't get done right." So, it gives you more flexibility on that aspect.

So like you do have justification for going out and buying the truck. The question just has to do with should you? Which truck should you buy? And how much should you pay for it?

When you bought a truck originally, how did you decide what truck to buy?

Austin Gray: For my personal truck or for work trucks?

Justin Reitman: Yeah, the work truck. And the skid steer that you have because I know you have, like, a Bobcat skid steer.

Austin Gray: Yep. So my perspective on equipment whenever I was starting out was I didn’t want to deal with used. And the reason was because I’m not a mechanic, and I have zero desire to be a mechanic as an owner-operator. So my philosophy was the more I can keep my machines up, rather than being repaired, I can be a service provider. Like, I grew up operating skid steers and excavators, so I knew that I could provide a good service with that. What I was not confident in is being able, if I'm broke down, to be able to fix the equipment. I knew I was going to be calling somebody else, so I wanted to limit the number of times that that was going to be happening.

Justin Reitman: Do you have a good mechanic? Like, right now, if you had a diesel truck, do you have a good mechanic that you know that you could work on the truck if it goes down?

Austin Gray: I do now. Now that I'm further in the business, I have better relationships in place. When I was starting out, I’m in a market that I moved to; I didn’t grow up here, so I didn’t have any of the local or family relationships in place that one would have if they started in their hometown. Now that I’m in the business and have been here for longer, I do have access to those types of service providers.

Justin Reitman: Traditionally because I think this is where also you're trying to get to: what should I do? Like, should I put any money down? What age should I get? What length of term should I use?

The reality is there’s not one magic answer. I would say traditionally, how many trucks do you have right now?

Austin Gray: We’ve got an F550 that we tow our equipment with; we've got a gooseneck trailer. We’ve got three pieces of equipment. So we have Bobcat’s largest skid steer with a forry muler, and then we have a Bobcat E50, which is like a 12,000 lb mini-excavator, and then we have a track chipper. And those trucks—then we have an F250 diesel and an F350.

Buying this tandem axle dump truck is a new opportunity for you, but I guess at the same point like you could wind up getting a truck and say, "Hey, I don't have like the exact work for it." Like, this is not what I want to be doing with it. It just is more efficient for me not to have to hire the CDL driver to drive this around. It might just be better for me to go continue to work with dump truck companies. But at the same time, you definitely see opportunity, and it could open up more opportunities.

So if you had just like walked in my door—my traditional kind of starting point is, listen, if you're going to go out and you're going to buy a truck and you do have a diesel mechanic you trust, I would go out and maybe look for something that’s, you know, five or six years old. Bring the mechanic out there if you're looking at the tandem axle. I think you’d be well served to look at Peterbilts, Kenworths. I think that you know you’re probably going to mostly find a lot more of those Packard engines. That’s what Peterbilt wants to push; they want to push their engines.

So it’s going to be harder and harder to find a Cummins. But if you could find a Cummins, it probably opens up a little bit more opportunity for you. Typically, if you're buying a five or six-year-old tandem axle dump truck, it's somewhere in the $100,000 range, maybe that’s for a truck that's five years old. At that rate, we always recommend people: listen, a good starting point is like 15 or 20% down. Sometimes you can kind of get away with a little bit lower.

But if this is your first truck, and you wind up going out and buying a truck, you go, "This does not work with my business," if you went out and you just borrowed 100% of that money, and you decide, "Hey, I want to turn it back in or I want to sell it," all of a sudden you’re now hamstrung. You owe more money than this is worth, and you wind up in a situation where you don’t have that flexibility as a newer operator of this truck.

The whole idea is you need flexibility. You need to say, "Okay, if I don't get the right application or hey, I find there’s more work if I had a quad axle," now you’re kind of stuck with this tandem axle truck, which might have worked really well for these few jobs, but the opportunity you saw was somewhere else. So we always recommend, whether it’s a newer business or you're just getting into it, you're better off going out, putting some money down, getting something that’s, you know, five or six years old that your mechanic can go out and verify with you because it gives you that optionality.

That’s really the name of the game with someone who's just breaking into a new industry. That’s why you see a lot of startups; they go out and pay cash for their first truck. Not only from the standpoint that maybe a lender might not be willing to extend them the credit, but it gives them the flexibility to get in the game, not have an obligation to somebody else, and then if that truck doesn't work out, they can sell it to somebody else, and they’re not worried about, "Oh shoot, I’m upside down on this truck; I can’t sell it; I’m having to make these payments." This truck isn’t the right truck for me.

So, let's say I bring 20% down on a $100,000 truck. Can you talk our listeners through what would a traditional lease structure look like or the hybrid structure you’ve talked about this whole episode?

Justin Reitman: If a person is coming to us for like a $100,000—let’s just use a triaxle dump truck in our area which is very popular. If someone's coming with a $100,000 triaxle dump truck, that means the truck's probably in the 2015 range, might have around like 400,000 miles on it, you know, kind of give or take. If they're looking to get a truck like that and they’re basically going to be putting out, you know, coming out of pocket or putting down like $15,000, I think somewhere on like the 42-month mark is really where they're going to kind of be.

It just depends on what state you’re in. In New Jersey, a CDL truck, there’s no sales tax on it, so you’d probably—on a 42-month lease—you could expect if they have a good credit background, you’re going to be somewhere in the lower double digits, like 10-11%, you know, depending upon the age of the truck, you know, 13-13% range if you’re kind of looking at it as like an interest rate or a borrowing rate. So you’d probably expect your payment to be somewhere in the $2400 to $2600 a month range, and that’s like a good starting point if you’re looking at putting $15,000 down on a vehicle.

Austin Gray: A quick recap: this is a $100,000 purchase price, 15% down, so $15,000 down, and then $2400 to $2600 per month on a 42-month term?

Justin Reitman: Yeah, just based upon the age of the truck—like the factors that a lender is going to look at is the age of the equipment, the credit profile of the business, and the credit profile of the person behind the business. So at this stage of the game, when you’re just, call it sub-100 trucks, you’re signing a personal guarantee for everything, but it is in the company’s name. If you're looking at used trucks and equipment, you’re going to be in that 9-10-11-12-13% range. Then it’s just do you qualify? Does the truck qualify?

From our aspect as a lender, it’s what’s the risk profile? If we got this vehicle back, would we be able to remarket and resell it and come out whole? Because it's very easy for anybody; anybody can lend money. Anyone who has access to capital can just go out and lend it. The question is can you make sure that you're getting the money back? On collateral-based lending and leasing like this, you want to make sure as a lender that the person’s not upside down. Also, I think from a consumer standpoint, from a lessee standpoint, you also want the optionality. So our interests are always aligned.

A lot of people will go to me and say, "Hey, if we finance it and it doesn't work out, you'll just take it back, and you'll be fine." I go, "Wait a second. I make way more money if you get a second, third, fourth, or fifth truck; you refer somebody than me taking back a vehicle and reselling it to someone." No one makes money in that situation; it’s not a good situation.

Austin Gray: So, let's say the lessee comes to the end of that 42-month term in that scenario. What happens?

Justin Reitman: In this scenario, I would set the residual at a dollar. It’s basically just a straight equipment finance agreement, and essentially they’re going to own the vehicle. So they made 42 payments at $2450. Their total payments are $12,900, plus they put another $15,000 down. So basically, their total out of pocket over the course of the lease would have been like $117,900. There might be some ancillary fees for like an acquisition fee, but that’s kind of the range of what it costs this person to get into the truck over the lifetime.

Some people say, "Oh my God, I'm paying $188,000 on a $100,000 truck," but you’re paying it over three and a half years. You’re also trying to mitigate some of your risk year two, year three, even year one. If you needed to get out of this truck, if you bought it for $100,000, you know, "Hey, I could probably sell this for $89,000 or $85,000 and you’re not upside down on the truck because you put some equity in originally."

The reason I was excited to have you on the podcast is because I want to give our listeners some options. Right? If you’re starting out, one of the first things you have to figure out is a way to go get your equipment. If you’re trying to buy it starting out, that is a challenge for a lot of early-stage business owners or owner-operators. You go to your—I can’t remember exactly how many banks I talked to locally when I bought the chipper, but all the local banks were like, "What the heck is this piece of?!" They don’t even want to have the conversation because they don't know what it is. They don't know the business; they have no idea of the risk profile; they have no idea of the resale value; they have no clue.

Ultimately, where I'm going with this is, like, I believe it's important for you as small business owners and early-stage owner-operators to have access to people who can lend on this type of equipment because then it makes your life easier. The reality is you have to have the equipment if you’re in these types of businesses, and if you don’t have the cash to go put $100,000 into a truck, then you've got to figure out some other creative ways to get it done.

So Justin, I appreciate you giving us a real-world example. I know our listeners will appreciate this, and I want to reiterate that it’s just an example, and those are very rough numbers, correct?

Justin Reitman: Yeah, everything is really customized. Honestly, there are a lot of factors that go into the risk profile. If someone called me up and wanted a quote for a vehicle, I’m not going to give them a quote right away because I have no idea about their finances. I don’t know what their goals are, you know?

I would structure something very differently for a person who’s getting their first truck as opposed to someone who’s getting their 12th truck. Have you been in business for five years, or are you in business for one year?

And I do think specifically to your community and a lot of the people that you know are finding this are in that earlier stage; our recommendation one is you want to find a local lender who understands your business. Being in the Northeast and working with a guy in California might seem like, "Oh, this person says they can help me," but if you’re having to explain to them, "Hey, here’s why this, you know, 10-year-old chipper is still worth, you know, $40,000, and don’t worry about the engine hours; I know the guy who did it before," if you have a guy that understands chippers or dump trucks in your market, they’re going to give you an approval a lot faster.

That goes back to the benefit of working with a leasing company or a finance company locally. It’s speed! So I always recommend, especially if you’re starting out, don’t fall victim to saying, “Oh just go out and finance the whole thing.” Financing the whole thing seems really sexy; use debt, put a bunch of debt on it, like go use someone else's money to borrow, but when interest rates are higher, the cost of borrowing is going to be up right now more than it was a few years ago.

But also, you don’t give yourself optionality. The worst thing that happens to a small business, especially a newer business, is they don’t give themselves options. A lot of people start out by buying used right out of the gate, but that also creates a little bit of a risk! Because if you only have one truck and you go out and buy a 15 or 20-year-old truck and it’s always in the shop, you just bought yourself a problem.

So you could have taken that, you know, $30,000 you used to buy a tandem axle dump truck that’s 25 years old, and you could have put it towards a truck that’s six or seven years old, and all of a sudden now you’re creating more optionality for yourself because your truck’s on the road more. You still have equity built up into it, and at the end of three, four, five years, you’re going to be able to pay that truck off and look at the situation with a completely fresh set of eyes.

Austin Gray: This is great feedback, Justin! Thank you so much for being on the podcast. We’ve gone a little bit over here, but it's all good information, and I’m really thankful that you've explained this to our listeners.

Is there anything else that you would like to add in regards to leasing a fleet or buying trucks?

Justin Reitman: I think the only thing to think about from a newer person’s standpoint is a lot of people really will get fixated—like what is the rate, what’s my cost of borrowing, is this the cheapest option? And if you only look at it from the standpoint of the actual interest rate and not valuing your time, leasing is not the cheapest way. The cheapest way is to either pay cash upfront or to do everything yourself.

And if you're trying to really scale your business and grow your business, focusing on how you're going to acquire the vehicles and filling out credit applications and not having a relationship with a lender is just going to add a bunch of time that might get sucked up and not realize what the actual cost is. So, I definitely think the person who's doing one or two trucks, you know, you're going to be sourcing the vehicle yourself; that's fine. But as you start to scale, think about it from the standpoint of what is my return on time and also aggravation because if you don’t have the right truck on the road, who cares that you got a really cheap interest rate?

You know if it’s taking you an extra six weeks or an extra two months to get the vehicle because the lender doesn’t have all their stuff together, how much revenue did you not generate because you didn’t have an option to get the truck on the road faster?

Austin Gray: Yes, that’s great! It looks like we're having a little bit of connection issues here, but as we wrap this up. Justin, what specifically would you recommend or what advice would you give early stage business owners? You've been in business for a little while now. What's the best advice you can give to someone who's starting out?

Justin Reitman: That's a great question! I think if you're just starting out, you want to find someone who's a few stages ahead of you, and even if they're not significantly ahead of you, someone who at least is in your industry that you can rely on and bounce ideas off of. A lot of people have this mentality of: there are so many slices of the pizza, and I can’t share my information.

We get a tremendous amount of value from being part of this leasing group with other leasing companies all around the country, being able to bounce ideas off other people who are either a couple steps ahead of you or even people that are a few steps behind you. This is the greatest unlock because you are going to step into situations, and if you have someone you can call who’s been there, they’re going to advise you on what to do.

That’s my best advice: find someone in your shoes, either a little bit ahead of you, or right around the same point. They don’t have to be a formal mentor. Grab coffee with them, tell them about a project you’re working on, and people will share information; you’d be surprised.

Austin Gray: That’s great! Thank you very much for that advice. Where can people find you and IN Tech online?

Justin Reitman: Yeah, so I am on Twitter at @JMReitman, and you can also find us at intekleasing.com (I-N-T-K leasing dot com). It's a real quick story; it’s a family business. I was a lawyer before I had a lot of head trash about going in and working in a family business, and for a long time I really couldn't find my footing. I didn’t really understand how we would get new customers; I didn’t understand what the value proposition we could be adding was. Ironically enough, I found people like Joah Wilson and I found different podcasts—Think Like an Owner—and those resources during COVID. I was like, “Holy crap! There are people buying and operating these small businesses around the country!”

It just created this huge unlock because I felt very much alone, and places like Twitter—you might not have someone in your neighborhood or your town that’s doing what you’re doing and you feel like you’re this weird oddball person—but places like Twitter and some of these podcasts are just amazing resources to find people that are even a step ahead of you or can help uncover ideas or break something down for you.

Twitter and some of these podcasts have been a huge unlock. I learned all my outbound sale skills through a podcast called "30 Minutes to President’s Club." There’s just an amazing amount of resources online. But I do preface it: don’t focus too much on just listening to podcasts and being a lurker on Twitter. You have to go get your hands dirty. There’s nothing better than turning off the podcast sometime—I know that’s not probably the best plug—but put on some rock on your way into work and get focused, you know, and get some stuff done.

Austin Gray: I'm so glad you bring this up,Jusitin. Because whenever I started this podcast, I remember I was in this phase of consumption. And this is definitely not good for listens, and it’s definitely not good for long-term listeners. But what I'm going to say right now probably sounds counterintuitive as a podcast host. My goal for you guys listening is that the last podcast you listen to before you actually take action. Because so many people—and myself included in my 20s—I fell into this trap of just the consumption rabbit hole. Like, I would listen to the podcast, and then I’d get another idea, and then I’d listen to another one and get another idea, and then, one, and then you’re pulled in a million different directions.

At a certain point, you just got to set your foot down and say, "I'm not listening to any more of this stuff; I’m going to put on the music that gets me in the zone, and I'm going to go to work, and I’m going to get my hands dirty, and I’m going to make things happen." And I believe it's like once I made that decision, my life changed at that point.

So, yeah, like I said, it’s not going to be great for long-term listeners, but my goal is to encourage that person who wants to start their business and who has been thinking about it and who is withering away in Corporate America like I was falling asleep in the middle of the afternoon—I was so bored. I knew I had it in me to start a business.

Finally, just took action on it, and that’s what I want this podcast to be, is an encouragement to bring on people like you who have gotten over the head trash and just figured out a way through it and made the decision to jump into the family business or start your own business, whatever it may be—just get in the game, and then you learn along the way.

You know, I continually think about my little brother. He’s in college, and he actually just started a pressure washing business—like he got his first job yesterday. And he called me. I saw you about that; he made like $300, and it was awesome. It’s like— I remember whenever I started mine, I'm like those first jobs are just amazing. Whenever you take it all the way from like getting the job, booking it on the schedule, fulfilling the job, collecting the cash—that’s cool!

And that’s what I want to see more of. And so I keep my brother in my mind of like, "Who can I bring on that can offer actionable advice to my little brother as he’s starting his business?" So, once again, yes, thank you for mentioning that, and bringing that up because I don’t talk about it enough. But I do have that as a mission for this podcast: it’s like you’re listening to this; I want this to be the last one you listen to before you take action.

Justin, thank you so much for being on the show. And listeners, once again, I appreciate you all listening to this. If you do enjoy this content, would you take 30 seconds and leave us a five-star review? If you’re listening on Spotify or Apple, just like building a local service-based business, five-star reviews are very important for podcasts as well. And if you’re listening on YouTube, would you mind subscribing to the channel so you get notified whenever we release new episodes, and give us a like on this episode?

Let us know in the comments below who would be a good fit for a guest on the show. With that, we’re going to wrap the episode. I wanted to introduce you to two of my growth partners. Striker Digital specializes in SEO services specifically for local service businesses. Bod and Andy, the two co-founders, have helped me get Bear Claw Land Services to the number one search result on Google inside my state for my specific search term. If you want to learn more, visit stryker-digital.com; that’s S-T-R-I-K-E-R digital dot com.

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