The value of knowing what competing rental properties are offering tenants in your market cannot be understated. To remain competitive and ensure your building remains at a stable occupancy, rent concessions (also known as “leasing incentives”) can be a powerful tool because these incentives can attract new tenants to your building. In this post, we’ll discuss some basic details regarding rent concessions, including real market examples, sources for information on rent concessions, and identifying how to maximize your rental property’s earning potential.
What Are Rent Concessions?
A rent concession is any reduction in price or rent or any other benefit(s) provided to a tenant or buyer as an inducement to buy or lease. Put plainly, it’s when a landlord offers a (usually) short-term incentive to potential tenants to rent at the landlord’s property. Rent concessions may not be necessary in all markets at all times. Some markets with very low vacancy rates and high demand for multi-family rentals may not require incentives to attract new occupants. Boston’s vacancy rate is currently stable at below 4%. However, in markets where vacancy rates may be higher, where there’s an oversupply of rental units, or where there are many new units coming onto the market—as is the case in Boston—landlords will commonly offer rent concessions to potential (or even existing) tenants to compete with other similar properties in their market.
Common examples of concessions include initial rent reductions for one or more months, free rent for one or more months, free parking, extra services such as free internet or cable access, unit upgrades such as superior quality finishes or new home technology installation (think Google Home or Amazon Alexa), and social perks such as access to private events, a pool or gym facility. It is important to note that most properties tend to offer rent concessions as a short-term lease-up solution or one-time offers to new tenants, as long-term rent concessions can indicate instability in a property and appear as a red flag to lenders. Long-term rent concessions can impair the profitability of a rental property, so informed and astute accounting is required.
Sources for Information on Rent Concessions
Now, to obtain information about rent concessions in your designated market, you need local property management firms. These companies often conduct their own research or pay for data related to this topic; hence, they can be a great local resource for rental property owners. Another approach is to survey apartment listings on websites, such as craigslist.org under the “Housing” section, to determine what competing properties are doing in your market. A quick google search should reveal many other websites that perform similar role, and it should be easy to find several websites that serve your area.
Should You Offer Concessions at Your Rental Property?
After you’ve completed your initial investigation into your market’s current rent concession offerings, the next step will be to identify your rental’s competing properties and place within the market. To this end, you should ask some relevant questions. What’s your vacancy like? Is there a need to offer rent concessions? Are your rents above or below market rates? How much free rent can you afford to offer, if any? What services or amenities are competing properties offering? How is the condition of your property compared to others in your competitive market? Do you need to modernize or upgrade some elements of your rental property, or would a remodel or addition to your property constitute a superadequacy relative to your market? The information generated by the potential inquiries may seem like a lot to consider, but one of the best things you can do to address these questions is talk to local experts. Local real estate agents and leasing brokers will have a good understanding of the dynamics at play in your market and can best advise you on an appropriate course of action for your rental property.
For many small-scale or family-run rental properties, sometimes dealing with things like surveying the current market for rent concessions can seem burdensome and unnecessary. Yet failing to do so could put your property at a disadvantage and lead to a lower income stream. In some instances, if you find yourself unwilling or unable to keep up with the demands of your specific market, it might be a good decision to sell your property rather than deal with the highly competitive rental market. Selling your rental property to another investor could bring back a strong return on your initial investment and free up capital for you to reinvest in other ventures, or simply cash out and enjoy your profit. If you chose to take this route and sell, Boston Seller Solutions is always ready to assist you in the selling process.
Benefits of Possessing the Right Information
Being well informed and up to date on your local rent concessions market (or lack thereof) can give you an upper hand in ensuring your multifamily rental property remains competitive and profitable. While it can appear to be just another time-consuming step in the property management process, proper research into the matter can lead to a lower vacancy rate and low tenant turnover. A well-run rental property can offer its owner a reliable income stream for years on end, and surveying local rent concessions is an important element of a good property owner/manager’s market research.
