In the rental market, landlords often offer incentives to attract new tenants or convince existing ones to stay. These incentives are called rent concessions.
With the rental market becoming increasingly competitive, rent concessions have become even more important. In fact, a recent survey found that 54% of renters in the U.S. receive at least one concession when they move into a new place.
This article will serve as a guide to rent concessions for both landlords and renters. We’ll walk through the benefits and risks of offering or accepting rent concessions, the different types of concessions available, and the best practices to keep in mind.
What are rent concessions?
Rent concessions are discounts or incentives that a landlord offers on rent or security deposits. Landlords may offer rent concessions as a marketing tool to keep their properties occupied.
Some common rent concessions include:
- Waiving the first month’s rent
- Offering a discounted month’s rent when a tenant renews their lease
- Reducing the amount of the security deposit
Rent concessions vs. rent abatements
Rent concessions are proactive incentives offered before a tenant signs a lease to encourage them to rent a particular property. Rent abatements, on the other hand, are usually offered after the tenant has moved in, typically because of property damage.
Types of Rent Concessions: A Comprehensive Overview
Landlords and property managers have a lot of tools at their disposal when they’re trying to entice new tenants. Here are some of the most common rent concessions:
- Free or Reduced Rent: You might get a certain number of months rent-free, or a lower rent for a period of time.
- Waived Fees: The landlord might waive the application fee, or other administrative fees.
- Lowered or Waived Security Deposit: The landlord might ask for a smaller security deposit, or waive it completely.
- Free or Discounted Parking: If parking is expensive in your area, this can be a huge perk.
- Renovation Credits: The landlord might give you credit toward renovations or upgrades to the property.
- Free or Reduced Utilities: The landlord may pay for some or all of your utilities for a specific period.
- Access to Special Perks & Amenities: Your lease might include access to things like gym memberships or concierge services.
Rent concessions: Weighing the benefits and drawbacks
Like any business strategy, rent concessions have advantages and disadvantages for both landlords and tenants.
The benefits of rent concessions
For landlords, offering a concession can reduce the number of vacant units and help them fill vacancies more quickly. Concessions can also attract a larger pool of applicants, including more highly qualified renters, and can improve tenant satisfaction, which often translates into higher retention rates.
For renters, rent concessions reduce upfront costs and can improve their overall financial well-being. Extra perks and amenities can enhance the rental experience, too.
The drawbacks of rent concessions
Landlords may see a decrease in short-term rental profits. They also run the risk of attracting renters who are more interested in a good deal than in taking good care of the property. Finally, offering concessions can create an expectation that concessions will be offered in the future.
Renters should remember that concessions are temporary. Rent may increase significantly once the concession period ends. Renters may also be tempted to overlook important factors when choosing a rental, such as neighborhood safety or proximity to work, because they’re so focused on the concessions being offered.
Strategic implementation: When and how to offer rent concessions
Rent concessions can be a powerful tool for landlords, but it’s important to implement them strategically. Here’s a look at when and how to offer rent concessions effectively.
When to offer rent concessions
- In competitive rental markets: If vacancy rates are high and there are a lot of other properties competing for tenants, a rent concession might be the thing that tips the scales in your favor.
- During the offseason: Demand for rentals often dips during certain times of the year, so offering a concession during those periods can help fill vacancies.
- When desirable tenants might leave: To keep good tenants from moving to a competing property, consider offering a concession to sweeten the deal.
How to offer rent concessions
- Understand the rental market: Analyze vacancy rates, what your competitors are offering, and what tenants expect in your area.
- Time concessions strategically: Offer concessions when vacancy rates are high or during economic downturns, when people are likely to be more cost-conscious.
- Set a budget and track results: Figure out the financial impact of offering concessions and then monitor how well they’re working to attract and retain tenants.
- Target ideal tenants: Tailor your concessions to attract the specific type of tenant you want to rent to—for example, offering a discount on parking for tenants who work downtown.
- Clearly outline concessions: Be sure to explicitly spell out the terms and conditions of the concession in the lease agreement, so there are no surprises later on.
Best practices for landlords: Legal, financial, and ethical considerations
As a landlord, there are certain legal, financial, and ethical considerations you need to keep in mind when offering rent concessions.
Legal aspects and documentation
First and foremost, you need to comply with all state and local laws that apply to your rental property. Be sure to keep accurate records of all concessions you offer and which ones your tenants accept. And make absolutely sure that the lease agreement clearly spells out the terms and conditions of any concession you’re offering.
Financial considerations
Think about how offering concessions might affect your rental income and profitability. Review your concession strategies regularly and adjust them based on occupancy rates and overall financial performance. If your occupancy rates are high, you may not need to offer as many concessions. If they’re low, it might be time to sweeten the deal.
Fairness and transparency
It’s essential to apply concessions fairly and consistently to all renters. Communicate clearly with your tenants about exactly what you’re offering and what the terms are.
Navigating Rent Concessions in Different Markets: Urban vs. Suburban
The kinds of rent concessions landlords offer can vary quite a bit, depending on where you’re looking to rent.
Urban Areas
In big cities like New York, it’s common for landlords to offer a month or two of free rent or to reduce the broker’s fees. Because there’s so much competition for tenants, landlords have to be pretty aggressive with their incentives.
Suburban and Rural Areas
In the suburbs and rural areas, rent concessions might not be as common, but they can still be a good way to attract renters. Landlords might emphasize the amenities or upgrades they’ve made to the property to make it stand out from the competition.
Less Competitive Markets
Even if the rental market isn’t super competitive, targeted rent concessions can still help landlords fill vacancies or keep good tenants from moving. It’s also important to build strong relationships with tenants, so they’ll want to stay put.
Final Thoughts
In today’s rental market, rent concessions are a powerful tool for landlords looking to attract and retain tenants. When used strategically, concessions can reduce vacancy rates, increase tenant satisfaction, and ultimately boost a landlord’s bottom line.
However, offering rent concessions requires careful planning. Landlords need to be aware of all applicable laws and regulations, and they should thoroughly understand the financial implications of any concessions they offer. It’s essential to consider the long-term impact on cash flow and profitability.
Open and honest communication between landlords and tenants is also key. By discussing rent concessions transparently, landlords can ensure fairness and consistency in their policies, while tenants can gain a better understanding of the value they’re receiving. When everyone is on the same page, rent concessions can be a win-win for both parties.