What are rental concessions?
Rental concessions are discounts or specials offered by a landlord or property manager to encourage qualified prospects to rent with them or resign an existing tenant.
The benefits are great, with rent concessions being a useful tool for attracting and retaining higher quality tenants.
And higher quality tenants, well… they make everything better.
But more than that, they can help keep your units occupied in certain circumstances where:
- Supply is high but demand is low
- Or you’re having trouble retaining or attracting quality tenants
However, you’ll want to make sure to only offer rental concessions in certain circumstances and not use it as a replacement for solid marketing and a good screening process.
But more on that later.
For now, let’s talk about the types of rental concessions you can offer.
5 Types of rental concessions
There are many different types of potential rental concessions you can offer.
Technically, there are no rules to what you can offer as rent concessions. However, there are certain commonly offered concessions that tend to work best.
Make the most of the flexibility the different types of concessions offer you, as some will be better to use in one market vs. another and with certain types of prospects and units.
Here are a few of the different types of rental concessions:
1. A free month of rent
A free month of rent is one of the most common rental concessions offered across the board.
After all, what speaks louder than money back in the renter’s pocket?
You can offer this as a free first month’s rent or stipulate that it pays for the last month of rent, whichever you prefer.
Alternatively, you can also offer…
2. A discount on the first month’s rent
Similarly, you can also offer a discount on the tenant’s first month of rent when leasing or releasing if you prefer not to offer a full free month.
This is less enticing, but it is still an effective lead generation tool that can convince a prospect to lease with you vs. another property.
3. Rent reduction
Similar to the previous concession, this is offering a discount on the first several months of rent.
Typically, this is a smaller discount but because it covers more months, it can be more enticing than a discount on only a single month’s worth of rent.
4. Reduced security deposit
The security deposit is a barrier to entry for many potential renters, especially those looking to move from their current property.
By offering a reduced security deposit, you’re able to attract prospects you might otherwise not have access to.
However, you’ll also have a smaller security deposit to grab from in the event that you need to cover damages. So, it’s a balancing act you’ll need to figure out for yourself.
5. Free amenities
Another super common concession is free or discounted amenities.
This can come in the form of free parking, storage, laundry use, WiFi, or reduced fees of another kind.
Another kind of amenity you can offer for free is access to local businesses such as daycare, gym memberships, and really anything else you can think of that your market would be interested in.
As we mentioned earlier, there really is no limit here.
These are just five examples of commonly used and powerful rental concessions.
So, get creative and think about what concessions would be most attractive to your ideal prospect.
How are rental concessions calculated?
Let’s quickly cover how to calculate rental concessions for your property.
To do that, you need to be clear on what your net effective rent is.
Gross rent is your standard rent price without any discounts applied.
If the rent on one of your units is $1200, then the gross rent is $1200.
Net effective rent is the rent with any rent concessions or other discounts offered taken into consideration.
You need to be clear on how much revenue in the form of annual rents or one-time fees you’re willing to shave off for your rental concession first to help you decide what kind of concession to offer.
Before launching any kind of rent concession, make sure you’re clear on how much that rental concession is going to eat into your revenue and what you estimate to get in return (an X% increase in retention, etc.) that should outweigh that cost.
Once you know that, simply deduct the cost of the rent concession from your annual gross rent to get your net effective rent.
When should you offer rental concessions? (pros and cons)
Now that you’re clear on what rental concessions are and the different types of concessions you can offer, let’s talk about the pros and cons.
Rental concessions aren’t something you’ll always offer. However, if you do use them at the right time they can be powerful tools for maintaining the health of your rental property.
Here are a few of the pros and cons of offering rental concessions:
Pro: Attract potential renters
The first and most obvious benefit is that concessions help attract potential renters in a general sense.
If one property offers a free first month of rent while another property doesn’t, that property which doesn’t is going to have to make up for that lack of a concession big time to convince the prospect to go with them.
Typically, a concession like that is too sweet to pass up, helping you attract more applicants and potential tenants.
Pro: Increase retention and keep great tenants
Beyond attracting new tenants, concessions are great at retaining existing ones.
If you have a great tenant that you don’t want to let go of, a concession can help ensure you keep them with you, especially if you notice they haven’t contacted you about resigning their lease early.
Pro: Fill vacancies sooner
Another big benefit is filling your vacancies faster than if you didn’t offer a concession.
You might think to yourself, I’ll fill my vacant units eventually, why waste money offering a concession?
But in fact you’re losing money if it takes you a few extra months to fill that property.
Con: Tenants can be unhappy when a concession related to an amenity ends
One unintended consequence of offering an amenity as a concession can be that they get used to having it, then lose it and end up sour because of it.
That can have the unintended consequence
Con: You lose money you may not have had to spend
There is always the potential that you may be offering a concession which isn’t effective.
In which case, you’re losing rental or other revenue for little point.
It’s difficult to gauge this without years of experience in the same area and similar markets, but it’s a con worth mentioning to at least encourage you to be smart about when you offer concessions.
With that said, concessions are typically a highly effective way of filling and keeping units filled in many markets.
Tips for offering rental concessions
Thinking of offering rental concessions?
If you’ve gotten this far, that’s no surprise. But you might still be a bit unclear about the implementation part.
Here are a few tips:
- Document the terms of the concession within the lease agreement, and make sure the tenant is aware of them
- List the original rental rate along with the discounted price in advertisements if you’re offering a concession on first or multiple months of rent to help sell the concession
- Use property management software like DoorLoop to track detailed accounting cases such as offering concessions, which makes it far easier to track and manage
Maximize your rental property returns
Rental concessions help you fill your vacant units faster and more reliably and retain great tenants.
How you choose to implement them and when is completely up to you, but we hope this guide helped you add another tool to your property management toolbelt.