Rent concessions are designed to help get a qualified tenant interested in your property fast.
Since every new and seasoned landlord alike can agree that rental vacancies can spell disaster for your bottom line, there is a time and place to offer concessions, incentives, and extra amenities. If you are having a hard time attracting a tenant to your rental property, or you simply want to increase your retention rate, offering rent concessions can be just what you need to achieve your goal.
What Are Rent Concessions?
Rent concessions are adjustments or discounts that a landlord or property manager makes to the regular rental rate or security deposit fee. They are also known as a rent discount, tenant credit, or write-off.
Concessions are temporary or long-term reductions for the purpose of enticing renters through temporary incentives, or as a reduction in exchange for specific services performed by the tenant.
Types of Concessions:
Incentive concessions are offered to encourage current tenants to renew their lease, or may be offered to prospective tenants as a lease signing bonus. While incentive possibilities can get as creative as the landlord desires (from offering nearby theme park tickets, to new TVs) there are a few common rent concessions that landlords and tenants alike may find appealing.
- Free Month’s Rent: Applicants naturally get excited about the possibility of a free month’s rent, and while this can be a relatively large discount, the benefits of getting a great tenant moved in quickly can outweigh the costs. This is also a common lease-renewal incentive that can promote tenant retention. Landlords may choose to offer the first month of the lease term for free, which can help tenants who already have extended their budget with moving expenses and security deposit fees. Alternatively, the free month can be outlined as the last month on the lease contract to hedge against the tenant moving out early. For a year-long lease, the tenant would pay the normal rental rate for the first 11 months and get a free 30 days on month 12.
- Moving Assistance: Moving widely recognized as is one of the most stressful life events. Offering new tenants help with moving costs in the form of reimbursing the costs brokers’ fees, movers, moving trucks, or a storage unit is a common rent concession for this reason.
- Rent Reduction: Reduced rent can be offered as a temporary concession (often in the form of the first 3 months) or can be offered as a long-term reduction. Long-term rent reductions are common rent concessions for tenants who sign a multi-year lease agreement or are renewing their lease. These long-term concessions are beneficial for landlords who wish to avoid the hassles and costs associated with annual tenant turnover.
- Security Deposit Reduction: Moving is expensive. Renters facing multiple expenses associated with moving may be more inclined to sign a lease agreement on a unit that offers a reduced security deposit requirement. Since cash security deposits can be difficult to manage for tenants who are facing other expenses, a minimal security deposit reduction can be a welcome incentive. Landlords need to be cautious about this concession, however, since there will be less to pull from should the renter damage the property during their tenancy. Some landlords choose to offer tenants the option of getting security deposit insurance to combat this issue.
- Free or Discounted Amenities: On-property storage units, laundry areas, WiFi, or preferred parking areas that normally require fees can be reduced or offered for free as a rent concession. For rental properties that do not have these amenities in-house, landlords and managers can offer to pay in full or partially for local gym memberships or TV streaming subscriptions.
When Should You Offer a Rent Concession?
Everyone likes free stuff, and renters are no different. Rent concessions can help your property stand out from the competition and prevent you from dealing with the excessive expenses that come with extended vacancies. If you are facing tight competition for renters, a thoughtfully offered incentive can do wonders.
Benefits of Offering an Incentive or Discount:
In a hot rental market, rent concessions may make less sense. If you are finding that dozens of applicants are competing for your unit, cutting into your income with additional discounts is likely unnecessary. There are a few exceptions to this rule. Tenants are very responsive to incentives, so offering them to current tenants based on responsible renter habits (such as regularly paying on time) can be a worthwhile investment, particularly if these concessions coincide with a lease renewal. Concessions as a way to keep great tenants often make sense, even in a hot rental market. After all, tenant retention is the most surefire way to avoid problematic tenants.
Things to Consider Before Offering an Incentive or Discount:
If you decide to offer a rent concession, there are a few last things to consider. Landlords and property owners should understand that these incentives (even if temporary) do alter your unit’s bottom line. This has implications when it comes to buying or refinancing. When underwriting a property for a loan, lenders will look at your rental income, including rent concessions.
Lenders seek to assess how much the asset is producing and gather information about how much the asset can optimally produce. Concessions are generally subtracted from your Gross Rental Income which could It can affect your chances of refinancing at a good interest rate or could make the property harder for others to finance if you are hoping to sell your rental property down the road. These difficulties may mean you will want to opt for incentives that boost your property’s value while still attracting renters. A minor remodel to attract tenants or an updated appliance can offer value to your unit long-term while still providing prospective tenants with a reason to value your property over the competition.
Tips for Offering Rent Incentives and Discounts:
If you do decide to offer any rent concessions, be sure to document them properly–even if they last the entire lease term. If your incentive is a long-term offer, it can be tempting to simply list the rent as the new rate, but it is vital for your accounting that you list the discounts in addition to the standard rental rate. The benefits are twofold. First, this reminds tenants that they are getting a deal! Second, it ensures that your rental accounting is properly documented and makes it easier if the tenant renews and the discount offer is altered or no longer valid. If you have property management software, this is easy to track. Whatever method you use, be sure to document any discounts for transparency.