Property management success is driven by continuous tenant retention and attraction. In some cases, you’ll have to make way for rent concessions to retain a percentage of residents. Thus, it is important to understand what a rent concession is. It is a benefit or discount offered to entice and persuade people to sign or renew a lease with you. Continue reading to better understand the different types of lease concessions, when you should offer them, and their pros and cons.
What Is a Rent Concession?
Rent concessions are reductions in rent or other incentives that property managers or owners can give to current and prospective tenants. It may also include waiving fees, providing extra incentives (such as free services) or giving items of value to the tenant. For example, providing a free month’s rent at lease signing on a 12-month lease.
Rental concessions can be temporary, recurring, long-term, or just one-time discounts or reductions. Landlords offer rent discounts to entice renters, make their property more attractive, generate tenant interest through rental listings, or motivate tenants to renew their lease for another term. Rent reductions may also be used when there is a high demand for rental properties and landlords are competing for potential renters.
Types of Rent Concessions
As the landlord, you can provide any rent concession you want for a specified period of time. Free rent is usually thrilling for the tenant, but it might not be a sensible option for you. If you’re not sure what to offer, here are the six common types of rent discounts to consider.
Free Month’s Rent
One of the most frequent rental concessions is offering a free month’s rent. This type of concession encourages tenants to move in soon and take advantage of their rent-free time. Free rent can be beneficial if you want to fill a vacancy quickly. This is also a common lease renewal incentive that can encourage tenant retention.
The landlord typically provides the last month of the lease term free of charge to give a free benefit to tenants, but also protect themselves until the end of a lease term. However, landlords have discretion over when the free month will occur within the lease term. Also, if you’re looking for a longer lease term (two years, for example), you can give multiple free months to ensure further retention.
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Moving Cost Assistance
Moving can be the most challenging and expensive part of the renting process for tenants. An excellent method to draw potential tenants and lessen the cost of moving is to provide moving assistance as a rent reduction. Consider covering a moving truck’s expense or hiring professional movers for your tenants.
Rent reduction is another type of lease concession that can be offered as a long-term or short-term concession. It entices long-term tenants who want a secure living environment. Additionally, this is especially advantageous for renters who have financial difficulties or are searching for a more reasonable home. For example, you can offer a reduced rent price for the first three months of the lease term.
Security Deposit Reduction
For some tenants, especially those who could be moving on short notice, security deposits can be a considerable financial hardship. Consider reducing or waiving the security deposit fee to increase the appeal of your rental property to potential tenants.
However, lowering these costs can make paying for lost rent or property damage more challenging. Therefore, when providing this rent concession, landlords are urged to have money set aside for unforeseen circumstances.
Free or Discounted Amenity Access
Free access to facilities like a community center, gym, or pool can be a powerful incentive for potential tenants. Landlords can also pay for renters’ Wi-Fi or a parking place in a garage as a concession. This sort of rent discount is less common than the others, but it works well for larger rental properties or those situated in upscale communities, and it can help draw in local tenants and minimize tenant turnover.
Property or Appliances Upgrade
Upgrades to the rental home may have a strong attraction for potential tenants. To increase the appeal of your rental property, think about updating the appliances, including in-unit laundry, or even remodeling the kitchen or bathroom.
When Should Landlords Offer Rent Concessions
Persuade current renters to renew their leases and entice new tenants by offering rent concessions when confronted with the following situations:
- When a current tenant’s lease is about to expire.
- If you are renting a large property for the first time.
- If you have a prolonged vacancy and cannot find a renter.
- When there are more available rental properties than potential renters in a given location.
- When the rental season is typically slower.
- When other properties in the nearby area are offering concessions, like lower rent and moving cost assistance.
- If you want your loyal tenant to stay in the property.
- If you want your lease to start or stop at a certain time period so you can raise rent, like at the end of summer when demand is high.
- After you’ve made property improvements and need to get a renter in quickly to offset finances.
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Pros & Cons of Rent Concession
Consider the benefits and drawbacks of a rental concession depending on how much money your rental property generates and how urgently you need to fill a vacancy. Check out the table below to learn the pros and cons of offering concessions to your potential or existing tenants:
|Pros of Offering Rent Concession||Cons of Offering Rent Concession|
|It helps landlords fill vacant properties more quickly.||Potential short-term financial loss.|
|It can assist someone in making a quicker decision about whether or not to sign.||Residents might get upset when the concession expires.|
|It boosts your chances of making more revenue.||The tenant may opt not to renew their lease, resulting in more financial loss.|
|It enables landlords to build positive relationships with both current and prospective tenants.||Property owners and landlords won't have enough money to pay for the required property repairs or expenses if they waive or significantly reduce the security deposit as a rental concession.|
|It aids landlords in maintaining a high rate of tenancy retention and signed leases.||Rent reductions may draw and encourage applications from lower-quality tenants.|
Tips for Offering Rent Concessions
After learning what a rent concession is and its benefits and disadvantages, we’ve gathered a few tips below that will help you use rental concessions to your advantage.
Tip # 1: Research Competitors’ Offerings
Research what your competitors are already offering in relation to lease concessions before introducing your own. Assess the properties’ rental rates—those within your area—to see how your price stacks up. Also, check out the discounts and other perks they provide to their tenants. Doing this gives you a general idea of what you can offer to beat out your competitors.
Tip #2: Choose the Right Time
Your rent concessions must be offered at the right time. For example, offering discounts or benefits at lease renewal periods can be beneficial as tenants are already making decisions about what they will do once their lease expires. This will give tenants enough time to determine whether to stay or move out. In contrast, offering a concession when you may already be extending a lower monthly rent may cause significant financial losses, and is thus not an ideal time to give tenants a rent discount.
Tip #3: Be Mindful of Your Financial Situation
Rental discounts shouldn’t significantly impact your profit margin. To avoid having a substantial influence on your earnings, consider limiting concessions and ensure the length of rental concessions for new tenants is not excessive. Most importantly, you must keep track of the costs and returns associated with concessions so you can decide when to terminate them.
Tip #4: Document It Properly
Be sure to completely document your offer. It should also be included within your property description when you are advertising the listings. Be sure to provide the start and finish dates for any concessions. Extensions can always be added later, but once something is included in the agreement, it cannot be changed. Keep track of everything in your financial records and on file. Your records will reveal what actually occurred, even if you disagree with what was agreed upon.
Rental concessions may prevent renters from moving out and enable landlords to fill vacant units faster. To provide a renter with the ideal rental concession, you cannot adopt a general strategy. Take advantage of your network and carry out market research to find the solutions that would work best for your tenants. But bear in mind that lease concessions must adhere to applicable laws, stay within legal bounds, and uphold fair housing standards.