Property managers, landlords, and investors all understand the importance of maintaining high occupancy in rental properties. To consistently attract and retain tenants though, sometimes you have to offer rent concessions, also known as specials.
Well-crafted rental concessions can help motivate renters to sign or renew a lease with you. In this post, we explain what rent concessions are and the benefits/drawbacks of offering them, including how to calculate rent concessions and which ones are most common.
A rent concession is an incentive offered by property managers to attract tenants or encourage them to renew their leases. These concessions can take various forms, such as a reduction in the monthly rent, waiving certain fees (like application or parking fees), offering free months of rent, or providing upgrades and amenities at no extra cost.
Why would landlords offer rent concessions?
Rent concessions are typically used in competitive housing markets or during periods when it is difficult to fill vacancies. They help make rental properties more appealing to potential renters, and help convince existing residents to renew their leases.
Yes, a rent concession in real estate is a type of discount, although it is often worded as an adjustment to rent or fees. Good specials can help convince renters who are on the fence about signing (or renewing) a lease.
What are the most common types of rental concessions?
Most concessions are offered upfront or prorated (meaning distributed) over the lease term.
Upfront concessions offer a discount at the beginning of the lease.
Prorated concessions, like reduced monthly rent, are distributed over the term of the lease.
Another type of concession that is becoming more popular is cash back or rewards programs, such as those offered by Stake.
A few of the most popular concessions offered in real estate include:
1-month of free rent is the most common concession, but in times when the rental market softens, 1.5 months or even 2 months of free rent are also common. Renters will often sign a lease if they know their first month(s) will be free.
A concession like “1-month free rent when you sign a 12-month lease!” can be attractive for otherwise strong tenants who may not have an entire month’s rent on hand, but can also help convince current residents to renew.
Many concessions include upfront discounts, such as “$500 off your first month’s rent”. These concessions are similar to months of free rent in that they discount rents upfront or offer benefits like gift cards or rebates to induce residents to sign a lease.
Prorated rent discounts are appealing for renters who need to move mid-month, as well as for current residents who want to renew on a month-to-month lease. With prorated concessions, you only charge for the time they spend in the unit.
Not all concessions are rent-based, reduced security deposits are another great incentive.
The idea of hefty rent deposits may deter some tenants – reducing these fees can be the difference between a vacant unit and a signed lease.
Reduced security deposits or pet fees could make all the difference.
Do residents love your unique amenities? If a resident is on the fence about whether to renew, try offering free amenity access for a time. These fees can really add up, and eliminating just a few could incentivize current residents (or prospective tenants) to sign a lease.
Based on your revenue and vacancy rate, it’s important to weigh the pros and cons rental concessions.
A concession charge is what a resident has to pay back if they can’t pay their lease. If a resident doesn’t pay, this clause would mean they have to pay back the full concession.
Putting a rental concession charge (or concession fee) in your lease agreement could help mitigate the risk of default if you need to evict.
Knowing when to offer concessions is important, but fortunately this is largely a function of market conditions. Lease concessions should be considered when you need to:
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