If you’re a relatively new housing provider, chances are you’ve never heard the term rent concessions.Rent concessions are incentives or discounts offered by landlords or property managers to either get or keep tenants. They’re usually used when vacancy rates either rise or are about to.
We saw them a lot just before the Great Recession, when the only requirement to qualify for a mortgage seemed to be the ability to fog a mirror. Everybody who could bought property instead of renting it.
That resulted in many landlords getting creative in ways to attract new tenants. In fact, I remember seeing banners on apartment buildings that said things like “Free Big Screen TV” or “Free Cable”.
What are typical rent concessions?
-
Free Rent – This may be one month free with a one year lease. A piece of wisdom earned the hard way? Always make sure this is the last month of the lease, not the first. I had several tenants move in for the free first month, then never pay a dime of rent thereafter.
-
Reduced Rent – You may want to offer a discount for the first few months of the lease. This tactic may be useful during winter; offer reduced for the season to entice new tenants to move in despite the cold and snow, then bake in a rent increase as things warm up.
-
Waived Fees – If you charge extra for parking or pets, you may want to waive them.
-
Gift Cards or Move-in Bonuses – Offer cash or a gift card with the signing of a one-year lease.
-
Utilities – Think Internet. That’s a monthly expense for a tenant. One service, paid for by the housing provider, could be shared throughout the building. Heat and electric expenses are more difficult to control unless there’s a locked box over a thermostat so only the housing provider can regulate temperatures.
Fortunately, Minneapolis remains one of the most affordable metro areas for rents. Median households spend 20.3% of their income on rent. Compare this to cities like New York, which requires 42% of their income for rent.
While this appears to bode well for Minneapolis, rising inventory of homes for sale and increased availability of new construction apartments offer would-be residents more choices. On the other hand, continued cooling of the labor market could slow wage growth, which would serve to put more expensive rentals out of reach for many.
Since the start of the pandemic, multifamily rents nationwide have increased by 29.5%. In many cities, that makes it tough to keep up.