What is a Rent Concession & When Should You Offer Them?

Published by
Marc Rutzen
on
December 20, 2023
What is a Rent Concession & When Should You Offer Them?

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.

What is a rent concession?

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.

Is a rent concession a discount?

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.

What are some examples of rental concessions?

A few of the most popular concessions offered in real estate include:

1. Months of Free Rent

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.

2. One-Time Discounts

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.

3. Prorated Rent Discounts

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.

4. Cheaper Security Deposits

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.

5. Free Amenities

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.

Pros & cons of offering a rent concession

Based on your revenue and vacancy rate, it’s important to weigh the pros and cons rental concessions.

Pros of Rent Concessions

  • Attracting Tenants: Concessions can entice new renters in a competitive market
  • Reduced Vacancy Rates: Helps fill apartments faster, minimizing lost revenue from empty units
  • Increased Retention: Incentives can encourage current tenants to renew their leases
  • Flexibility: Offers a way to adjust for market conditions or tenant needs
  • Marketing: Makes your property stand out in a sea of rental listings

Cons of Rent Concessions

  • Reduced Revenue: Concessions can lower the overall rental income
  • Market Perception: Frequent concessions may make a property look less desirable
  • Tenant Expectations: Tenants might expect similar discounts in the future
  • Short-term Solution: They address immediate vacancy but don't guarantee long-term retention
  • Financial Planning Challenges: Frequent concessions can make budgeting and financial forecasting more difficult for property managers

What is a concession charge?

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.

When should you offer lease concessions?

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:

  • Reduce High Vacancy: To attract tenants in a competitive market or when many units are unoccupied.
  • Match Market Trends: If competitors are offering concessions, you might need to as well.
  • Manage Slow Seasons: When fewer people are looking to rent, every tenant attracted matters.
  • Retain Current Residents: Renewing leases is much more cost effective than attracting new renters due to turnover costs.
  • Market Unique Properties: If a property has unique features that might not appeal to a broad market, a concession may help.

Key Takeaways on Rent Concessions

  • A rent concession reduces rent or fees as an incentive to sign or renew leases.
  • Examples include free months of rent, one-time discounts, prorated rent, lower security deposits, and free amenities.
  • Pros include higher profit and greater retention. Cons include short-term loss, poor market perception and current residents expecting concessions.
  • Concessions can help attract new tenants and reduce the risk of lease defaults from existing ones.
  • Determining when to offer concessions depends on market trends and the difficulty of filling vacancies.

Marc worked in real estate for 5 years before launching multifamily analytics startup Enodo, which he sold to Walker & Dunlop (NYSE: WD) in 2019. At W&D, he served as Chief Product Officer, developing products that helped source billions in loan volume. Outside of work, he enjoys reading, running, and spending time with family.

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