There is a way for your rentals to stand out in the competitive market while improving your investment’s performance, especially in low occupancy situations.
It’s called Rent Concession.
Rent Concession Defined
A rent concession is any rental promotion you give prospective renters to make your rental more attractive. They may come in various types of temporary or long-term arrangements like rent discounts, credits, or write-offs. It can also be any adjustments you make in your lease contract to incentivize your residents for good behavior.
With a little creativity, you can come up with your own other options that can help you stand out in the market.
But remember, since giving rent concessions reduces your bottom line, it is critical to determine when you should give it or how much it should be. For instance, in a market condition where there are more renters than available homes for rent, offering a concession will not make much sense. Likewise, if you are already carrying a lot of expenses on your property, you may go easy on your offers and give only what you can afford.
If your property has been sitting vacant for long, rent concessions can help you quickly place your property with a tenant, improving your vacancy rate. Rental vacancy impacts your finances with high vacancy costs such as shelling out money to pay for mortgage, taxes, and utilities instead of taking those expenses out from your rent. Likewise, enlisting a tenant placement service to market your property can cost you as high as 50% of your first month’s rent.
Types of Concession to Offer
Prospective renters are always on the lookout for ways to save on housing expenses which makes rent concessions attractive to them.
The ideal rent-to-income ratio is 30%. Yet, according to Harvard University housing studies, about 10.9 million American renters spend 50% of their income on housing. That is why, when choosing what to offer, it would be wise to base your decision on what your renters consider as relevant.
Here are some suggested concessions which you may opt to adopt:
Free Month’s Rent
This is an exciting offer and can get your prospective renter to sign your lease right away. Keep this offer time-bound, for instance, within thirty days upon listing your property to create a sense of urgency. You may also use this offer to encourage your current tenant to renew their lease, especially if they plan to move to a lower-priced rental.
If a month’s rent sounds like a significant slash from your rental income, then you may consider a monthly rent reduction. You can offer this discount only within the first six months or the first year of the lease in decreasing amounts if you choose to do so.
Reduced Security Deposit
If your renter has a good homeowner reference, then you may not have to worry about property damages. You may opt to forgo collecting security deposit altogether or reduce it to an amount that still gives savings for your renter.
Free Use of Storage Units
Among the many things new renters need when they move into their new home is temporary storage space. If you have in-house storage, offer free use for a limited time. You may also pay a portion of their storage expense if you have none.
Free Use of Amenities
If you charge a fee to use the common areas — parking spaces, fitness areas, laundry, or lounge areas — let your renters use it for free on a limited time or reduce the fees throughout the lease period.
Free Merchandise or Service
Free merchandise could be in the form of an upgraded appliance unit or any item in the house that will provide them with a more convenient and efficient way of living. You may also offer annual home cleaning services such as carpet or upholstery cleaning as a lease incentive.
Gestures of Appreciation
If you find the cost of rent concession too much to spare for your business, then consider small acts of appreciation instead. They will also go a long way to improve your relationship with renters. For instance, give them dinner vouchers to welcome them to your rental. Pay for a streaming subscription during their birthday month. Give a discount on their rent at the start of the school season. These are simple ways to show your thanks and even alleviate their financial burden.
Making Your Offers Work
One downside of giving rent concessions is you may attract less desirable renters ready to sign your lease but are only after the freebies or discounts. Residents may not renew their lease until you make another offer. That is why it is critical to set expectations with them about your terms and conditions.
For instance, during the rent inquiry, you should discuss thoroughly how the concession will work, its extent and limitations, and what will happen to the lease obligation once it has expired. This way, your renter can share their feedback on the get-go and both of you can come up with an agreement for any further adjustments before signing the lease.
If you do not want to extend the concession after it has expired, then be prepared to show your renter some numbers to prove that the new rates are based on fair market value. You want to avoid your renters thinking that your initial offer of concession is just a way for you to make them sign the lease and then increase your prices on a level they can’t already afford or back out from.
If you are finding it hard to look for the ideal renter then working with a property manager could help your business. They have a thorough tenant screening process that ensures your property is placed with high quality renters and not bargain hunters. And since their process is tech-driven you can expect your home to be rented out in thirty days or less.
Rent concession is a win-win situation for you and your renter. For your rental business, it is a strategy to keep your property continuously rented when the competition in the market is tight, or to encourage current residents to renew their lease. For your renters, the savings on their housing expense is a help that they will definitely appreciate. But because there are costs involved in offering concessions we suggest that you tread lightly on your offers and only do so when necessary.