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Should Landlords Consider Rental Property Concessions?

Guide to Types of Rental Concessions and Are They Right for You?

Avoiding vacancy and retaining tenants in a competitive market is sometimes an uphill battle. Although moving is expensive, it is not always enough to deter tenants from leaving for a perceived better deal. Many multi-family rental owners are familiar with the term “rental concession” as a tool to make their property stand out from the crowd. However, this is also useful in single-family rentals as well. Also, rent concession does not automatically indicate free rent; in fact, there are various concessions that provide the same result for minimal financial impact. Join us below as we answer key questions such as what types of rental concessions work best and when landlords should consider using these as an effective marketing tool?

What is a Rent Concession?

Rental concession refers to a compromise or adjustment made by a landlord to attract or retain tenants. Generally, this is a temporary benefit used to fill vacancies or incentivize existing tenants to renew. That said, this could include a discounted rate, monetary bonus, or free service of some kind. Furthermore, these offers can be a one-time, monthly, or annual concession based on the goals and needs of the landlord. The goal is to use different types of rental concessions to reduce vacancy, which can cost far more in the long run than offering a temporary incentive.

5 Types of Rental Concessions

While the options for types of rental concessions may seem endless, some efforts work better than others. To be successful, landlords should target their concessions to what is important to their specific market. While it is not uncommon for tenants to request a concession, it is ultimately up to the landlord’s discretion. Let’s review the common types of rental concessions below –

5 Types of Rental Concessions

  1. Moving Cost Assistance – Consider helping tenants with some of the costs associated with moving, such as a moving van or storage locker.
  2. Reduced Rental Rate – Offering a slight reduction in rent as an incentive to move in by a certain date is quite common in the industry. However, be sure to include a lease clause that the rate is subject to the tenant paying in full and on time each month.
  3. Free Month of Rent – Some landlords use rent concessions such as “last month free” or “free month.” This is a huge bonus for tenants trying to pay the security deposit and moving costs.
  4. Access to Desired Amenities – Does your property have paid laundry, parking, or gym services? Consider offering these at a discounted rate or even free to attract tenants.
  5. Discounted or Free Merchandise or Services – Consider offering services such as discounted gym memberships, gift cards to a local coffee shop, or a free year of Netflix.

 Pro Tip: One popular suggestion for a rental concession is a reduced security deposit. While this is a big expense for relocating tenants, this is not ideal for a concession. As an owner, these funds are essential to covering damage at the end of the lease or mitigating lost rent if the tenant breaks the lease. Therefore, accepting less than the full deposit is a mistake!

When to Use the Different Types of Rent Concessions

The reasons to use rental concessions will vary from property to property and owner to owner. However, there are some telltale signs that using this marketing technique is a good idea. After all, limiting vacancy and boosting tenant retention is one of the best ways to remain profitable. Check out these factors to consider below.

When to Use the Different Types of Rent Concessions

Is it Time to Offer Rental Concessions?

The popularity of many types of rental concessions has tenants almost expecting some perk for choosing to lease with your building, especially in multi-family. However, before deciding whether offering one is right for your rental portfolio, ask yourself the following –

  • Is your advertised rent in line with the local market?
  • How quickly are comparable units in the area renting?
  • Has your unit been on the market long?
  • How much do I stand to lose with an extended vacancy as opposed to offering a concession?

The answers to these questions will help you determine if offering a concession is the right fit for your property. Making these informed investment decisions will ensure you retain as much profit as possible.

The Different Categories of Rental Concessions

Typically, offering a lease concession is a means to an end. That said, there are several instances where this is a good idea, such as leasing up a new building or beating out the competition. This reasoning is broken down into 3 main categories –

  • Lease-Up Concessions – Landlords offer these discounts for units during the lease-up phase. Therefore, ensuring a newly constructed building is quickly able to achieve its designated occupancy level.
  • Marketing Concessions – When a property is priced above others in the area, a marketing concession can bridge the gap to reach potential tenants. Thus, making them feel as though they are getting a deal.
  • Red-Flag Concessions – These concessions continue even after the original lease expires and entice tenants to renew. Thus, helping to ensure the building or property remains occupied at a high level.

The Pros and Cons Rental ConcessionsThe Pros and Cons Rental Concessions

Every decision landlords make, including between types of rental concessions to offer, comes with its own pros and cons. Before you decide to give away things for free, weigh the benefits and disadvantages below –

Pros of Offering Rental Concessions

  • Attract more potential leads
  • Provides leverage when assessing lease renewal increases
  • Increases occupancy rates
  • Fill vacancies quicker
  • The variety of concession options can suit any owner’s budget

Cons of Rental Concessions

  • Renters may struggle once the discount or reduced rent goes away
  • Could attract an influx of unqualified tenants
  • May condition tenants to expect something for free
  • The potential for decreased income each month depending on the concession offered

Boost Marketing and Tenant Retention with Professional Management

Ensuring that your rental property stays occupied with a quality tenant is the key to success and profitability as a rental owner. So, whether you decide to offer the types of rental concessions discussed above or not, finding solutions to fill vacancies efficiently is critical. Utilizing the services of a professional management company may be just the solution you need to maximize profit potential.

At Bay Property Management Group, our finger stays on the pulse of the local market. Our dedicated team of rental property managers in Northern Virginia guides owners through the best marketing techniques to ensure quality leads and qualified applicants. If you are concerned about an upcoming vacancy or are looking for ways to improve your ROI, give us a call today!