Finding tenants to move into a property isn’t always easy, as there could be lulls depending on location, the time of year, or the rental price. Some landlords will provide incentives to possible renters rather than have an apartment or home sit empty for a month or two while searching. These incentives often come in the form of rental concessions, which can make the property more attractive and ensure that the owner doesn’t miss out on rental income.
This guide will walk you through the benefits a landlord can grant on a rental property lease.
What Are Rental Concessions?
Rental concessions are any compromise a landlord or property manager makes on the lease terms to make the unit more attractive to tenants. The perk is often temporary, like an introductory offer on a credit card, meant to encourage a renter to sign a lease.
Rental concessions will typically offer a financial benefit to renters, forcing the landlord to cover some of the upfront costs. When handled properly, though, these compromises can reduce overall expenses for the property owner.
3 Reasons for Granting Rental Concessions
Property owners give rental concessions for a few different reasons. Often they involve the landlord not wanting the place to sit empty, and thus making a calculation that a concession will lead to a better return in the long term. Some reasons for granting concessions include:
You’re Having Trouble Attracting Tenants
A landlord struggling to attract tenants to a home or apartment might see concessions as the only way to get someone living there. The longer the property sits empty, the more it will cost the landlord, so it’s sometimes worth providing an incentive to a renter in exchange for their name on a lease.
You Need to Rent Quickly
Concessions could become necessary when a landlord needs to rent a unit speedily and can’t afford to have it sit empty for a month. If a past tenant moves out or is evicted unexpectedly, you might find yourself in a rush to get someone else in there to offset your costs.
You Want to Charge More for Rent
Landlords can use certain incentives to offset higher rent charges for tenants. For example, you might agree to waive pet fees or provide new appliances in exchange for higher monthly rent on a long-term lease.
The goal is to keep someone in the rental unit as long as possible, but it all starts with getting a renter to sign a lease. By giving up a little, landlords can achieve more cost certainty moving forward.
6 Types of Rental Concessions
When looking at potential rental concessions you can use to attract tenants, you’ll want to select options that do the least amount of financial harm. Some incentives that you could offer your renters include:
1. One Free Month
Perhaps the easiest way to attract renters is to give them the first month for free. If the property will be sitting empty anyway, not charging for the first month doesn’t put you out any money but ensures you have someone in the unit long-term if you get the tenant to sign a lease.
2. Lower Rent
You can lower the rent to attract tenants if giving one month for free isn’t possible. Even a slight rent reduction makes renters feel like they’re getting a good deal, and you can always increase the rent in future years if your tenants decide to stay long-term.
3. Reduced Security Deposit
Moving is expensive. When forced to pay a security deposit and the first month’s rent on top of the other fees, renters can find themselves in a challenging financial position. You are taking on some risk by reducing the damage deposit, but a $200 or $300 reduction isn’t going to make a major difference to your bottom line if the property is damaged.
4. Moving Cost Assistance
Another way to help renters get into the property is by offering moving cost assistance. This one-time help could involve paying for a moving truck or storage locker during the moving process. Providing this assistance will only cost you a little but greatly benefits tenants as a rental concession.
5. Renovations and Upgrades
Renters are sometimes more likely to move into a place if it’s due to receive upgrades. Letting prospective tenants know that you’ll soon install new carpet, fixtures, or appliances enhances the appeal of the place from their perspective and could help in overall tenant retention.
6. Free Amenities
The amenities you can offer for free depend on the type of building, but incorporating extras such as cable, electricity, and heat into the rental cost can attract tenants. If the building has parking stalls, a pool, tennis courts, storage units, or a fitness center that would typically cost the renter a monthly fee, you can waive some of these as an incentive.
No two situations are the same, so your rental concessions will depend on your financial situation, what the rental unit has to offer, and what the potential tenant considers to be a perk. Go over your finances thoroughly to determine which incentives you can handle and which would be too much.
The Downside of Rental Concessions
Although offering rental concessions can bring benefits, they aren’t a perfect solution. There are always risks involved, because these incentives are reducing your investment profits. Common pitfalls include:
- Difficulty Ending the Concessions
A problem you might encounter with rental concessions is that the tenant may want to keep them. Who would want to lose their free gym membership or cheaper rent, after all? Be ready for some pushback from your tenants when you remove the concessions during lease renewal.
- Additional Financial Risk
If you reduce the rent or damage deposit, that financial risk falls on you. You’ll want to go over the numbers thoroughly before granting economic concessions to ensure you can afford the incentives you’re offering.
- Attract the Wrong Tenant
There’s always the chance that you’ll attract the wrong type of tenant when advertising concessions. Some individuals are only in it for the freebies, so you run the risk of bringing in a renter who isn’t afraid to break a lease or who can’t afford the rent in the first place. A good plan for tenant screening should keep this to a minimum.
- Hinder Refinancing Opportunities
When attempting to refinance, your lender might recalculate how much the property is bringing in after concessions, leading to higher interest rates.
These drawbacks might not be fatal flaws as you decide whether to offer concessions, but they’re worth considering before making the offer. The goal is to earn as much as possible every month, and sometimes a short-term concession is the clearest path toward doing that.
Speak With a Washington, D.C., Property Leasing Specialist
Finding renters can be a challenge, with the constant pressure to track down interested parties, contact references, and negotiate lease terms, including possible concessions. It’s a lot of work if you don’t have help.
The good news is that Nomadic Real Estate has a leasing team that can help secure quality tenants for any residential properties you own in the Washington, D.C. area. Contact us today to discuss your residential real estate leasing.