10 Real Situations When You Should Offer Rent Concessions
Finding quality tenants and keeping your property rented are crucial factors in making money on your rental home. To attract those quality renters and keep them living in your home for years, sometimes you have to offer something special in return.
Rent concessions are adjustments to your lease agreement or compromises that you provide to encourage potential tenants to rent your home. Here's a deeper look at rent concessions, when to offer them and potential downsides.
What are rent concessions?
Rental agreements spell out the amount of monthly rent, security deposits, fees and any services or perks included with the home. A rent concession is an adjustment that a property owner makes to the lease to entice tenants to choose their rental.
Rent concessions are usually temporary, often for the length of a lease. Concessions may include waiving rent for a month, offering rent discounts or paying for expenses like moving. Offering concessions usually help you fill vacancies quickly.
While it's money out of your pocket, rent concessions are often less expensive than having an empty unit and not receiving monthly rent payments. Vacancies are a major expense of owning a rental home. The longer your home sits empty, the more costly it is for you.
When should you offer rent concessions?
Property owners have the discretion to set rent concessions, including how long you're offering them. You can also negotiate with potential tenants to come up with rent concessions that are most attractive to them and also work for you.
Rent concessions tend to be a short-term cost reduction or a material item or service that you offer in exchange for a tenant signing a lease. Here are 10 types of rent concessions you can offer.
1. Free rent for a month
Letting your tenants live in your rental home rent-free for a month is enticing. The free month may either be the first month after signing the lease or the last month before the lease expires, encouraging renters to renew the lease. Specify in the lease agreement which month will be free, the day that rent is due every other month and that once the original lease ends, they'll be responsible for paying the full amount for the next lease term.
2. Reduced or prorated rent
Offering a rent discount may encourage a tenant to move into the home early, by a date you specify. For example, reduce monthly rent by $50 or $100 for the first 12 months of a lease, as long as the rent is paid on time. Another option is to give the tenant a free month but prorate it so they're paying a discounted amount each month. Just include all the specifics of the reduced or prorated rent in your lease agreement.
3. Lower or waive the security deposit
A security deposit is like a safety net. It's a fee that property owners charge tenants before they move in to cover any damage to the home or unpaid rent. As a rent concession, consider reducing the security deposit amount or waiving it completely. If a tenant doesn't need to come up with extra money to rent your home, they'll likely sign the lease quicker.
4. Waived pet fees, pet deposits or pet rent
About 40 percent of renters have pets, according to the Urban Institute, and that adds to the cost of renting a home. Most property owners charge pet deposits — which can range from 40 percent to 85 percent of the rent, according to Petfinder — along with a one-time pet fee of a few hundred dollars and a monthly pet rent of $25 to $100. Waive some or all of these pet fees, and pet owners will likely jump at the chance to rent your home.
5. Covered moving expenses
Another rent concession is to pay the tenant's moving costs or provide funds they can use towards these expenses. This might include renting a truck or storage container or paying a moving company. The average cost to move ranges between $800 to $2,200, HomeAdvisor estimates. Helping cover these expenses will ease the burden of moving and attract tenants.
6. Rental property upgrades
Updating and modernizing your rental home will attract tenants and likely increase the value of your home. New light fixtures, new appliances, landscaping and a fresh coat of paint are inexpensive upgrades that will end up paying for themselves through lower vacancy rates and consistent rent payments flowing in.
7. Let tenants update the décor
Of course, tenants want to make their living spaces their own, but most property owners don't allow renters to paint walls, add adhesive tiles or make other décor changes. An attractive rent concession is to allow them to paint a room or perform minor upgrades. Be sure to stipulate in your lease agreement which updates are allowed, acceptable paint colors and that any changes need to be approved by you beforehand.
8. Offer free items or services for the home
Anything that makes a tenant's experience of living in your home better is a great rent concession to offer. Providing free items, such as patio furniture or a television, will draw renters, especially if they can keep the items after they move out. Offering services, like a free year of Netflix or Spotify, is another option. Don't forget to put everything in the lease agreement.
9. Paid utilities
Renters pay about $200 to $400 a month for utilities. Offering to pay some or all of these bills for a certain period would help your rental home stand out and encourage tenants to sign the lease quickly. For example, you could pay the water bill or offer free Wi-Fi. Be sure to include details in the rental agreement about which utilities you're covering and for how long, and provide notice for when the renter needs to transfer the bills into their name.
10. Free access to amenities
Another rent concession is to provide free access to amenities that renters would have to pay for. For example, if there's a neighborhood pool, gym or tennis court or they'll have to pay for parking, let the tenant access these perks for free. It's always a good idea to put any amenities you're providing in the rental lease agreement.
Disadvantages of rent concessions
The biggest advantage of a rent concession is that it helps keep vacancies to a minimum. But there are some disadvantages of rent concessions. For one, they're tough to take away. Tenants may be upset when their discounted rent or free amenities end once their lease expires and they choose to move out. Then you're stuck with having to find a new tenant.
If you waived or discounted a security deposit or pet fees, there's a risk that a tenant will damage the property or not pay rent. The rent concessions may attract renters who are only after the freebies and might stop paying rent or break the lease terms.
Even though you want to get a renter into your home quickly, don't take shortcuts in the screening process. Make sure rent concessions, including the details and time frames, are spelled out in your lease.
When to use rent concessions
Getting your home noticed and enticing a tenant to move in and stay awhile is the No. 1 priority for rental property owners. Always having a tenant ensures rent payments will continually come in so you can cover the expenses of owning the home. Rent concessions help attract tenants and will likely end up offering a solid return on investment.