There’s nothing like the feeling of full occupancy for a landlord. It isn’t always easy to get there, however. Many factors play into getting the number of tenants you need, including the economy, employment rate, and housing market.
Rent concessions help landlords attract numerous applicants in a short amount of time, no matter what’s going on in the world. A rent concession is a change in the standard lease made by the landlord to entice new applicants. Waiving the first month’s rent, for example, is a common rent concession.
There are a few reasons why this tactic is effective for landlords. This guide will explain why landlords offer rent concessions, the different types, and the possible downsides that can occur.
Why Landlords Use Rental Concessions
The obvious benefit of rental concessions is the increased occupancy, but there are other reasons to employ this profitable property management tactic. Here are a few of the most popular:
To Stand Out
It can be challenging to attract tenants in an oversaturated market. Offering rent concessions helps landlords set their property apart from the crowd.
To Counteract Vacancy Issues
Vacant rentals mean more than lost wages for landlords. Empty rental homes can also affect insurance, holding costs, and taxes. Landlords must also spend extra time on vacant properties to ensure their security and condition. Concessions offset the considerable expenditures associated with lengthy vacancies.
To Incentivize Lease Renewals
Rent concessions show current tenants they’re appreciated for their exemplary rental behavior. Reduced rent and other money-saving concessions can convince current tenants to renew their leases.
These are just a few of the reasons a landlord might use rental concessions. Each situation calls for a particular type of concession to be most effective.
Types of Rental Concessions
Rental concessions are one tool for incentivizing current tenants to stay put and new tenants to sign on. Landlords can use their creativity and come up with all sorts of fun incentives, from theme park tickets to smart TVs and cellphones, but there are a few standard concessions that are typically appealing to landlords and tenants alike.
1. Moving Assistance
Moving can be stressful, even if it’s just across town. There’s a lot to do, and not everyone has the vehicle and extra hands required to move efficiently. Offering a helping hand at this stressful time can be a massive incentive to potential tenants. Moving assistance concessions can be things like:
- One-day free moving service
- Reimbursement for moving expenses
- Reimbursement of broker fees
- Free storage unit
Anything that makes moving easier or less expensive can make an excellent rental concession.
2. Discounted or Free Amenities
People love free stuff, especially if it’s valuable. Any amenity on the property that requires a fee can be discounted or given away free to make an enticing rental incentive. Laundry facilities, Wi-Fi, exercise equipment, priority parking, and movie streaming subscriptions can entice future tenants.
3. Reduced Security Deposit
Saving money during an expensive endeavor like moving can be a godsend. Many renters have trouble raising a deposit and the many other expenses of moving, and they’re more inclined to sign a lease with a reduced security deposit. Another idea is to accept the security deposit in installments for a set number of months to alleviate some of the cost.
4. Free Rent
Another effective incentive that saves money is offering free rent. A landlord might provide the first month of the lease free to help offset moving costs or entice a current tenant to renew their lease. The last month of the lease can be offered free to deter tenants from moving out early. A creative twist on this typical concession is to provide free rent for tenants’ birthday month or a holiday month, such as December, when there are many other expenses.
5. Rent Reduction
Reducing rent for the first three months is a practical concession for yearly leases. Multiyear leases benefit from more extended privileges, such as one to three years of reduced rent. Long-term concessions help landlords avoid the frustration and extra costs associated with annual turnovers.
These special incentives for renters are one of the most valuable tools in a landlord’s toolbox. That doesn’t mean they’re risk-free, however. Some situations can be problematic when incentives are involved.
Disadvantages of Rental Concessions
The many rewards of rental incentives far outweigh the few risks, but landlords should still be aware of what could go wrong. It helps to be prepared and have a Plan B to deal with any issues that may arise. Here are a few situations landlords could encounter when offering rental concessions:
Tenants may want to keep priority parking or reduced rent after the lease period ends. Some tenants may not sign a new lease and decide to move if their landlord refuses to continue the concessions into the new lease. Get ahead of this issue by properly documenting the terms of the concession and having tenants sign it along with the lease.
Bottom Line Effects
Lenders look at rent concessions when underwriting property for a loan and refinancing. Offering free and reduced rent and forgoing other fees affects the property’s bottom line in ways that can be unfavorable. Counteract this possibility by providing incentives that upgrade the property value, such as better appliances and minor remodels.
Offering a reduced or free security deposit opens the possibility of property damage or abandonment by dishonest tenants. This situation is easily preventable with a good tenant screening process.
Resident retention is the easiest route to profitability in the rental housing industry, and concessions are one of the simplest ways to make it happen. Tools such as an airtight lease and a thorough tenant screening process can safeguard against these risks.
Ask a Leasing Expert Your Rental Concession Questions
Rental concessions are a viable option to get applicants fast, so it makes sense to have a way to process those applications efficiently. Rent Safe is a digital service that helps renters easy-submit their applications for rentals (apartments, homes, etc.), and landlords streamline their steps to screen potential tenants. Call today to see how we can help you.