Offering Rent Specials to Tenants Can Be a Costly Mistake: Here’s Why
The rental market is in a strange place right now — on the macro scale, rental vacancies across the country are lower now than they have been in years, but on the micro scale, it seems as though any given property manager you talk to is constantly scrambling to fill vacancies. The pressure to fill vacancies has gotten so strong that even in this "landlord's market," many property managers are filling their ads with special offers to try to lure tenants into their properties.
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It’s a remarkably common tactic, and it definitely works to inspire some people to move in — but in the long run, there’s a potential downside to offering specials. It’s well-hidden because specials are like painkillers: they cover up something wrong and make you feel like you’re okay when you’re really not.
How do you know they’re covering up something wrong? Simply put, because the demand is out there. So if your property is just sitting, it’s because there’s a deeper problem; ignoring it in favor of promising free rent, a new microwave or a gym membership doesn’t solve the underlying problem.
Indications of an Underlying Problem
If you feel inclined to offer a special in order to get someone in your property, stop and ask yourself: “Is the problem…”
- "…that my rentals aren't market-ready?"
- “…that my company doesn’t have an established position within the marketplace?”
- “…that my print advertisements are poorly designed (or non-existent)?”
- “…that my online advertisements are poorly designed (or not getting any traffic)?”
- “…that the landscaping/exterior of the properties is clearly uncared-for?”
- “…that the rental office looks ill-maintained, so anyone who see it will assume that the actual rental buildings themselves are similar in status?”
- “…that the rental office is only open on weekdays, during work hours, so many people simply never have time to come in for a talk?
- And so on.
Only if all of the other problems with your marketing and maintenance have been dealt with can a cleverly-designed special have a long-lasting change on your vacancy rates. If you’re using a special to cover up a marketing or maintenance (or other!) failure, it’s only going to get worse for you as time goes by.
To understand why, think about the type of tenants the special will attract. Will it be a tenant who can't really afford the place without the free rent special — so past due payments eventually increase? Or a tenant who is always looking for a handout and won't renew their lease without one — thereby increasing your turnovers? Clearly neither of these types is what you really want to attract.
That doesn’t mean “don’t offer any specials.” If you’ve got your bases covered from a marketing, maintenance, and customer service perspective, there’s absolutely nothing wrong with offering a modest special offer that doesn’t attract the wrong types of tenants. Think about offering discounts on services that only the right types of tenants would appreciate and could afford to take advantage of, like dry cleaning or organic shopping, etc.
And just so you don’t think we live in Never-Never Land and are out of touch with reality, we do understand that there are properties in locations where a landlord has no choice but to offer specials to fill their vacancies. Often, it’s because all your competitors are offering specials, and your phone won’t ring unless you play the same game. We’ve managed properties like these, so we do understand. In our experience we almost always have more headaches with these “special” tenants, though. We now try to avoid properties like these, where we can’t find a competitive edge to avoid having to follow along.
Don’t forget to check out your successful competitors. You’ll probably notice if you look carefully around your market that there are those landlords that never seem to offer a special — and yet never have to deal with significant vacancies. If you find one, take a careful look at what they’re doing, then copy what’s making them successful.
Landlords: Have you ever offered rent specials for your tenants? If so, did you achieve success or is it something you regret?
Let’s discuss in the comments below!