Rent Concessions: Everything Property Owners Need to Know
Property owners and managers in Chicago don't like the idea of reduced rent. However, rent concessions can do several things. First, the right rent concession might convince an existing tenant to stay put. Also, offering a lease concession might help you fill vacant spaces that are not currently generating revenue otherwise. In a soft market, rent concessions might be just what you need to get money flowing at a level you want.
What Are Rent Concessions?
Are you wondering: what is a rent concession? It's often some kind of compromise or adjustment a property manager might make in order to provide lease terms that tenants find favorable.
Landlord concessions might include reduced rent to persuade tenants to renew or sign a lease. A primary application of rent concession is finding tenants quickly to fill vacant units and generate profit. The idea behind this technique is that any money lost to reduced rent is better than the costs associated with vacant units that still require upkeep, utilities, taxes, and maintenance.
Common Types of Rent Concessions
Rental concessions can take many forms. They'll collectively have an impact on your gross rental income, but they can also drive up your income by filling units. Some landlords get creative with their rent concessions, doing things like offering new televisions or tickets to nearby theme parks. Then again, a typical lease signing bonus might be a more traditional rent concession.
- Free Rent: Prospective tenants love the idea of a free month of rent. The discount is relatively large and generous on your part, but if it gets a great tenant to move in fast, then it can seriously outweigh the associated costs. This frequent lease-renewal incentive also promotes higher retention rates. You can put this month at the start of a lease to help tenants with their moving costs, security deposit, and utility fees. On the other hand, you can do it at the end of a lease to protect yourself from tenants moving out too early.
- Reduced Rent: This is another popular rent concession that you might offer for the first few months of a lease or as a longer-term reduction. Long-term rental concessions often work out well for tenant retention if you want to avoid annual turnover and the stress and expenses associated with that.
- Discounted/Free Amenities: Laundry spaces, Wi-Fi, preferred parking, and on-campus storage units are perks that usually cost money but might be offered for free or discounted prices as rental concessions. You might also pay for partial or full memberships to local gyms if you don't have a fitness center on your property. TV streaming subscriptions might be another possibility.
- Moving Assistance: Having to move is a very stressful life event. Reimburse tenants for storage units, movers, and brokers' fees if they are moving into one of your units.
- Waived Security Deposit: Whether it's partially or fully waived, cutting back on the total security deposit necessary to rent your units can help out cash-strapped prospective tenants who are buried in the other costs involved with moving. This can be a risky proposition, however. What happens if you do this for a tenant that winds up damaging the property while renting and then leaves you hanging? One option is offering tenants security deposit insurance that might protect both of you at the same time.
Benefits of Rent Concessions
Rent concessions typically prove advantageous when you have trouble filling your vacancies, but they might not be so appropriate in a hot rental market when you get lots of applicants anyway. However, they can prove useful in a hot rental market if it helps you retain great tenants and avoid costly turnover costs. Use them strategically to land tenants when necessary but always keep tenants you love.
Disadvantages of Rent Concessions
Rent concessions can backfire. If you waive a security deposit, you might get hit with property damage tenants leave behind. Also, tenants might expect rent concessions to remain in place when it comes time for them to renew. Going too deep with your concessions might eat into your revenue more than they contribute to it.
Why Should You Offer Rent Concessions?
When is a good time to offer rent concessions as part of a lease agreement? Rent concessions are usually a technique you use to attract more prospective tenants to fill your vacancies faster. This is not the only time a rent concession might help you, however.
Lease a New Property
When you are leasing a new property, you might resort to rental concessions to incentivize new tenants in picking your building over others. Getting your overall vacancy filled as fast as possible is crucial to meeting your occupancy goals and maximum possible profit.
Increase Marketing Potential
If all you want is to expedite how fast your units get noticed by prospective tenants, then doing rent concessions might be the ticket. Price your units competitively, and then offer your concessions in strategic alignment. Just remember that not every rent concession needs to include free rent. You can choose things like helping out with moving costs, discounted parking, and free access to certain amenities.
Keep Current Tenants
Rent concessions can help you land new tenants, but they can also help you keep existing tenants in place. When you have tenants filling your vacancies, and you already know they're good tenants, then you want to keep them in place as long as you can. Turnover costs can be considerable in some circumstances, so anytime you can keep a reliable and trustworthy tenant, do what it takes to keep them around.
Things to Consider Before Offering a Rent Concession
Before you consider offering your rent concessions, think about how they might impact things like a lease term or rental income.
Think of the Impact on Property’s Value
Financers will look at your property's ability to generate revenue when valuing it for potential sales or as collateral in future loans. Rent concessions help you generate revenue, but they also detract from the potential revenue. This could result in a lower property value and make it harder for you to find the financing you need.
Make Sure to Document Concessions Properly
Document all your rent concessions properly. Transparency is essential here. If you offer discounted rent as a concession, then mark it as such so tenants never assume it's the permanent rate. Otherwise, they might be in for sticker shock at renewal time, and that can backfire.
Many property owners successfully use the rent concession tactic to fill their units or keep tenants. Whether it's reduced rent or just a tenant-friendly lease term, you too can fill vacant units or retain good tenants with these ideas. If you need professional property management, 33 Realty help with any of this, then please contact us.