The tenant market in 2021 is tough, which means you’ll need to become slightly more creative to attract their attention.
To navigate the tough market conditions, you may have to offer unique incentives – such as free rent for one month. Another alternative is to give a rent discount that is applied evenly over a specific period (often the entire lease period). In both cases, the tenant gets roughly the same discount.
At first glance, it might seem that the concessions are resulting in a net loss of revenue. But when you weigh them up against the long-term costs associated with vacant rental units, you’ll agree it is a good strategy – so long as you’re attracting high-quality tenants, that is.
Consider hiring a property manager to property screen tenants before renting the unit to them.
Why Should You Offer a Rent Concession?
Because who doesn’t like freebies? Rent often represents a significant chunk of change for tenants, and a one-month concession can help your property stand out from the competition. It can also minimize the excessive expenses associated with extended vacancies – for instance; however, you still have to pay the cost of utilities, taxes, and ongoing maintenance costs.
If the market for renters is highly competitive in your area, offering a one-month incentive could do wonders for your bottom line.
However, if you find that dozens of prospective tenants are competing for your rental unit, offering incentives is unnecessary. According to these San Jose property managers there are, of course, exceptions to this rule. You may want to offer incentives to current tenants based on responsible habits (such as paying on time), so they might renew their lease. Concessions are highly effective at attracting tenants and ensuring tenant retention.
The Implications of Rent Concessions
It is worth considering a few things before you choose to provide rent concession.
Property owners should understand that concessions such as one-month free rent can significantly alter their bottom line. This could influence how renters look at your income, including rent concessions.
Lenders like to collect as much data as possible about the rental unit’s capability to generate revenue. Concessions are often subtracted from your rental income, which could prevent you from getting a good interest rate or make it more difficult to sell the rental property.
Instead of offering rent concessions, it may be worth your while to boost your property’s value to attract high-quality tenants. A small renovation or remodel could do wonders for your rental unit while allowing you to charge a reasonable rent.
Disadvantages of One-Month-Free Rent
Although it’s easier to attract tenants by offering one-month-free rent, especially since it improves tenant retention, there are a few disadvantages worth mentioning.
Some tenants will want you to keep offering more concessions throughout their lease. For example, if you give one-month-free rent, they might ask for the concession to be applied to their new lease. If you don’t agree to the concession, they may decide to move out.
Moreover, decreased rent also means decreased funds available to cover property damage, mortgage payments, and other unforeseen circumstances.
Finally, there is a fairly high risk of attracting the wrong type of tenant. The rental concession may attract individuals who are in it purely for the sake of the one-month rent. These tenants may stop paying the rent or break the lease terms, prompting your property manager to initiate the eviction process.
Pro tip: Hire a property manager to conduct a comprehensive tenant screening with criminal, credit, and eviction reports so you can find the best tenant for your rental.
Alternatives to One-Month-Free Rent
Try to offer alternatives that don’t hurt your bottom line, like allowing pets, covering moving expenses, and allowing the tenant to update the décor. You can also offer free items or services such as one year free of Netflix or Spotify. You can also offer to pay the utilities for one month, which means the renter saves nearly $400 or more.
In any case, make sure to include the details related to your concessions in the rental agreement.
If you haven’t hired a property manager already, click here to learn more about our services and how an experienced property manager can share some of your burdens.