As a landlord, your main goal is to rent your property for a value that will ensure you bring in a steady stream of revenue. In order to do this, you need to ensure your property is never vacant and you regularly renew contracts with tenants you are happy with. Of course, you can keep them happy by providing excellent service, but you can also ensure they stay with you through rental concessions.
But what are rental concessions? And how do you introduce them to your tenants? We have all the answers for you in this rental concessions guide we have put together, specifically for landlords.
What are rental concessions?
Rent concessions are basically what the name suggests. They are special discounts or offers that landlords and property managers offer tenants looking to move into one of their properties or current tenants considering renewing their contracts. There are several different types of rental concessions, and they help keep properties from remaining vacant.
The concessions offered by the landlord or property manager can either be a one-time offer to try and get a new tenant into the property for the first time, or they can be longer-lasting to encourage current tenants to renew their lease.
5 examples of rental concessions
Considering offering a rental concession, but unsure what sort of things you should offer? Why not try one of the following five examples:
Moving cost assistance
Many know about the stress that moving house can cause, and it has even been ranked as one of the most stressful life events you can go through. Not only does it take a lot of time and effort to pack and unpack all your belongings, but moving the boxes from one property to the other is the most expensive part of the process.
Due to this, there is no doubt that potential tenants will jump at the chance of moving into your property if they know they’ll be getting some assistance with the moving process. You can offer to pay for the price of a moving company, or you can even offer to help move some of the boxes yourself.
Reduced rental rate
When tenants look for somewhere to rent, price is one of the main deciding factors. If you see two properties with similar qualities, you would obviously choose the lower-priced one. So, if you have a property at the same price as your competition but can’t seem to get a tenant, you may want to consider a rent reduction as a starting concession.
You don’t have to reduce the rent for the entire contract, but you can offer a percentage of the original price for around three to six months. Often tenants have to spend more at the beginning of a tenancy anyway when it comes to security deposits and other fees, so a rent reduction can seem very attractive.
This may not be the most common concession, as you will have to pay for amenities out of your own pocket, but it can work out if you have a high-priced rental property. Sometimes people may not rent your property because it is quite expensive, but if you offer free amenities in the price, it can increase prospective tenants' interest.
Some amenities you may offer for free can include WiFi, a parking space, or even some of their utilities such as gas and electricity. Some landlords may even cover the fees for access to the local gym. What you offer is up to you, but ensure it is something that your competition doesn’t offer.
A free month of rent
While we have already suggested that you can reduce the overall price of the rent for a few months, nothing is more attractive to prospective tenants than an entire free month of rent. It will very quickly gain the interest of many tenants because free is always better than a reduction in price.
Landlords can offer this option to both new tenants and existing tenants, trying to motivate them to renew their leases for another year. You may suggest that they get the first month free, or you can offer them to choose any month in the year. However, most landlords tend to offer the last month free as it is the most popular choice.
Reduced security deposit
Saving for a security deposit can be the most off-putting aspect of moving into a new property, which is why many people don’t move out of their old rentals, even if they are unhappy. That’s why reducing the price of the security deposit can be an attractive aspect of a property to potential tenants, as it means they can move in quicker.
How much you reduce the security deposit is up to you, but it is good to keep in mind that a security deposit is vital to ensure you can pay for any property damage when the tenant has moved out. The best thing to do in this case is to screen for your tenants thoroughly first before you offer the concession.
How to calculate rental concessions for your property
When you offer a rental concession, you need to ensure it isn’t taking too much away from your annual income. Therefore, you may want to do some quick calculations to figure out how much of a rental concession you can offer for your property.
Figure out how much your gross rent is each year without any discounts, and then calculate the net effective rent, which will be the total with any concessions or discounts applied. You should then look at how much the rental concession will dig into your total revenue and estimate what you will get in return. If the return outweighs the cost, your rental concession is valid.
The advantages of rental concessions
Increase tenant retention
If you have a great tenant who is thinking of leaving and renting with someone else, you may be disappointed and want them to stay. You don’t want to have to go through the process of finding another great tenant, so offering a concession can help ensure that the original tenant never leaves you. It will increase your retention, keep the tenant you like in your property, and you won’t have to worry about any vacancies.
Attract potential renters
When you first invest in a property and it's time to rent it out, you may struggle to find a tenant in the first place, especially if there is a competitive market. Therefore, you want to market your property to attract potential renters. By originally offering a concession such as a month's free rent, you easily beat out the competition, and you have a bigger pool of quality tenants to choose from.
Fill vacancies faster
Sometimes you don’t have time to wait for a ton of tenant applications, and you need to fill the vacancy immediately so you can continue earning money. A concession can easily help you get a tenant much more quickly because the chances of other properties offering one in your area aren’t as likely. It prevents you from losing money for a few months if you were to wait to find someone.
The disadvantages of rental concessions
Renters may struggle once the discount ends
A tenant can easily feel obliged to go for a concession because it is attractive, even if they don’t have the funds or resources to cope with the rent once the discount has ended. For example, if you offer 10% off the rent for the first six months, they may have gotten used to this and don’t know how to budget to fit in the extra rent when the concession has ended.
May condition tenants to expect something for free
If you start a tenancy with something free, such as a free month’s rent or WiFI for the first six months, then a tenant may take advantage of you further into the tenancy. For example, they may expect you to offer other things for free that a landlord wouldn’t usually pay for, or start paying rent late or at a reduced price because they think you’ll be lenient.
You lose money you may not have had to spend
While you would have estimated the return on your concession, this doesn’t always work out. The tenant may take the concession and leave after their tenancy. Or you may try to raise the rent prices along with the market, and they don’t accept. Therefore, you have provided a discount using your own money, and you aren’t getting anything back, so you’re actually losing out.
Concessions aren’t always necessary, and many landlords don’t offer them, but they can be effective when you have a vacancy. If you find it difficult to gain a quality tenant, you can go over this landlord’s guide to rental concessions and choose the best option. As long as you aren’t losing money from your annual revenue, it can turn out to be a great solution.
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