Vacancies are always worrisome to landlords. This is because there is no money coming in but you still have bills to pay. So, low vacancy rates are essential to running a profitable investment property.
What should you do if you’re having trouble finding new tenants? This is where rent concessions come in. In this blog, you’ll learn everything you need to know about offering tenants rent concessions.
What is a rent concession?
A rent concession is a compromise or adjustment that a landlord makes to the terms of the lease agreement to attract renters. It’s usually temporary and intended to benefit the tenant to make them renew their lease.
One main use of a rent concession is to help minimize vacancies. A good number of landlords, for instance, consider waiving the first month’s rent to help them find a new tenant quickly. That’s because savvy landlords know that vacancies are profit killers.
Admittedly, offering a rent concession means losing money. That said, it usually means saving more in the long run.
What are the various types of rent concessions?
Rent concessions can take different forms. They can range from a rebate to a discount to a physical service. You can use the rent concession to try and retain a current tenant or attract a new one.
You can also use them as often or as little as needed. They can be offered on a one-time, monthly, or even yearly basis.
Generally, landlords are the ones that give out rent concessions. That being said, it isn’t uncommon for tenants to request them. This often gives rise to a negotiation based on your preferences and the needs of your tenant.
To find the best concessions for your needs, consider giving out a survey to your tenants. The follow are just a few of the common rent concessions landlords can use in their quest to minimize vacancies:
This can go towards helping a tenant move from their previous home to yours. You could decide to pay for things such as the costs of packing and transportation. The purpose here is to help the tenant offset some of the moving costs, as moving can be incredibly expensive.
This is a popular concession, especially in areas where parking space may be scarce.
Free access to amenities
Does your apartment have amenities like a parking space, a tennis court, or a gym that a tenant may otherwise have to pay for? If so, you can offer them free access to such amenities as a rental concession.
You can also choose to upgrade your tenant’s rental. Common upgrades include light fixtures, a vanity, a tiled floor, or a new countertop.
Reduced security deposit
You may also decide to collect a reduced security deposit if a tenant chooses to rent your home. So, instead of asking for $1,500, you may decide to only collect $1000.
Just like a security deposit, you might also choose to reduce the monthly rent. For example, instead of requiring the tenant to pay $1,000, you may require them to pay $910 instead.
You should especially consider doing this for every rent they pay on time.
A free month’s rent
Typically, this helps act as a hedge against a tenant moving out early. You may require your tenant to pay rent normally for the first eleven months, and then nothing for the last month.
This mostly applies to new buildings, particularly commercial buildings. The goal is to lease the newly constructed property quickly so that it reaches capacity and becomes profitable.
When should a landlord use a rent concession?
Usually, landlords use rent concessions when looking to attract potential tenants to fill their vacancies. It’s most effective if you’re experiencing a slow market, having difficulty finding renters, or when opening a new, large rental property.
Along with attracting a new tenant, you might also use it to encourage existing tenants to renew their lease. Being able to retain your current tenants is one of the best ways to keep your rental profitable.
What are the disadvantages of rent concessions?
While rental concessions are designed to attract renters quickly, they do have their downsides. Some concessions might be hard to take away from them.
Some tenants might want to keep the concessions even after the agreed-upon period has expired. For instance, if you’ve offered your tenant free parking for one year, they might still expect the same concessions after signing a new lease. And if you fail to do so, the tenant could choose to move out.
Equally, if you offered them reduced rent, the tenant may want to continue paying it for subsequent months. As a landlord, use your discretion to negotiate with your tenant.
Another disadvantage of rent concessions is that they can be risky. Without a good screening procedure in place, you might end up renting to a difficult tenant who causes property damage or makes inconsistent rent payments.
For most landlords, keeping their rentals occupied is their top priority. However, that can be daunting in certain situations which is where rental concessions come in. By offering some of these concessions you can protect your long-term profits and reduce vacancies.
That being said, you must draft solid lease agreements that clearly define the limits of the concessions. If you want help with this or would like assistance with other aspects of property management, hire a qualified property management company to do it on your behalf.
The experts at McGuire Property Management will be able to answer any questions you have and ensure that your rental business is operating smoothly.