{"id":177236,"date":"2024-09-04T09:10:27","date_gmt":"2024-09-04T15:10:27","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=177236"},"modified":"2024-09-04T09:10:30","modified_gmt":"2024-09-04T15:10:30","slug":"private-landlords-should-never-offer-concessions","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/private-landlords-should-never-offer-concessions","title":{"rendered":"Concessions Are Rising, But Private Landlords Should Never Offer Them"},"content":{"rendered":"\n

Are you worried about your local rental market cooling off, fearing that you will have a property sit on the market for too long? <\/span>Well, chances are you are priced too high, and <\/span>offering rent concessions<\/span><\/a> as a private landlord will not <\/span>be able to<\/span> help you speed up the application and leasing process.<\/span> <\/span><\/p>\n\n\n\n

Though rent growth is only slightly softer than last year, far more property managers are offering short-term perks. <\/span>According to<\/span> a <\/span>July rental market report <\/span>by Zillow<\/span><\/a>, one-third of property managers are offering concessions as the rental market cools.<\/span><\/p>\n\n\n\n

Before BiggerPockets, I worked for two <\/span>different<\/span> property managers: one mom-and-pop that served investors like you and <\/span>me,<\/span> and one that was an onsite apartment community (200+ units). <\/span>Working for the mom-and-pop, I have <\/span>never<\/span> seen an investor use concessions.<\/span> On the other hand, when working for the apartment community, almost every <\/span>single<\/span> tenant had some sort of move-in special or concession.<\/span><\/p>\n\n\n\n

The use of rent concessions will be <\/span>really<\/span> dependent on the asset class, and I do not believe that private landlords should be exploring them as options. Here\u2019s why.<\/span><\/p>\n\n\n\n

About Rent Concessions <\/span><\/h2>\n\n\n\n

According to Zillow\u2019s report, rent concessions are up from year-ago levels in 45 of the 50 largest metro areas. U.S. rents were up 3.4% year over year in July, which is a relatively average increase, but <\/span>zooming out a few more years since the beginning of the pandemic<\/span>, U.S. rents have increased by 33.4%. <\/span><\/p>\n\n\n\n

The <\/span>interesting<\/span> thing about this 33.4% rental increase is that the non-seasonally adjusted rental vacancy rate was 6.6% in June<\/span>, according to Zillow\u2019s numbers<\/span>.<\/span> The pre-pandemic average vacancy rate for this time of year was also <\/span>at<\/span> 6.6%. <\/span>This<\/span> tells me that landlords offering concessions are not hurting based on increased vacancy numbers; instead, they are looking to maximize <\/span>NOI<\/span><\/a> by <\/span>continuing to <\/span>increase<\/span> rates while offsetting the tenant concern of not having enough funds for move-in. <\/span><\/p>\n\n\n\n

The increased use of rent concessions to combat such massive rental increases in the last three to four years comes as no surprise as a way to fill vacant units that have potentially priced out a large portion of the tenant pool. With over one-third of rentals on Zillow offering a rent concession, this is <\/span>a very common<\/span> tactic, but is it right for you as a private landlord? <\/span><\/p>\n\n\n\n

What About Large Multifamily Assets? <\/span><\/h2>\n\n\n\n

A <\/span>big<\/span> factor to consider here is that many property managers at large <\/span>multifamily<\/span><\/a> complexes <\/span>are using<\/span> Zillow for their rental listings, impacting the percentage of properties Zillow is reporting to offer concessions. Big complexes use move-in specials to decrease tenants\u2019 out-of-pocket expenses at move-in, which makes it a more affordable option right out the gate. They typically only charge a $300-$400 deposit, which, in my opinion, dramatically increases investors\u2019 risk.<\/span><\/p>\n\n\n\n

As a private landlord, I typically see <\/span>first<\/span> month\u2019s rent, last month\u2019s rent, and a <\/span>security deposit<\/span><\/a> equal to one month\u2019s rent due at move-in. With the typical U.S. asking rent of $2,070 as of July, according to Zillow numbers, would it be more enticing to pay $300-$400 upfront or $6,000+? The answer is simple on this one. <\/span><\/p>\n\n\n\n

The manager of these assets will <\/span>not<\/span> be <\/span>as pressured as<\/span> a private landlord to fill a vacancy urgently due to the nature of many other units bringing in revenue.<\/span> Their goal is<\/span>, of course,<\/span> to keep the vacancy rate as low as possible, but that does not mean <\/span>that<\/span> there is not a lot of turnover, making rent concessions an attractive tool to shorten days on <\/span>market<\/span> (DOM).<\/span> <\/span><\/p>\n\n\n\n

The two most common reasons I see properties offer concessions, whether <\/span>it was<\/span> the one I managed or competitors in our market, were units that had been on market for 30+ days, or units that were outdated and ready for turnover. Many times, tenants were looking for just one more reason to commit to leasing a unit, and offering a discount on your first month\u2019s rent mitigates a lot of stress around moving costs. <\/span>I <\/span>do<\/span> think this is a no-brainer marketing strategy that a large multifamily property manager should implement, as it fills your vacancy rate and increases the property\u2019s NOI, <\/span>making<\/span> the overall value of the property <\/span>increase<\/span>.<\/span> <\/span><\/p>\n\n\n\n

What About Private Owners?<\/span><\/h2>\n\n\n\n

My stance is that<\/span> private<\/span> landlords should not offer concessions, as I do not think they will be all that impactful when it comes to a private landlord like you or me searching for a long-term tenant for our single-family homes (SFHs) or small multifamily properties.<\/span> The rental market has been <\/span>pretty<\/span> stable for SFHs, and small multifamilies that offer concessions have never even been in the picture until recently.<\/span> Decreasing your rental rate always fills the <\/span>longest<\/span> DOM properties, and I still believe that is true today for a traditional long-term lease.  <\/span><\/p>\n\n\n\n

Offering<\/span> $600 off the move-in cost or reducing the rent by $50 a month results in the same financial impact over a year. However, maintaining a consistent rental rate increases the likelihood of attracting a reliable tenant who can afford the rent long-term. <\/span>Let the tenants <\/span>who <\/span>are in need of<\/span> blazing deals rent at the apartment complexes rather than at a private landlord\u2019s property, as they may not be looking to stay for a long time or <\/span>worse<\/span>, the duration of your <\/span>lease agreement<\/span><\/a>.<\/span> <\/span><\/p>\n\n\n\n

When <\/span>it comes to thinking about<\/span> renewing your lease, you may have tenants who received concessions at move-in now expecting similar offers.<\/span> This<\/span> can put you in a difficult position, potentially leading to either lost income for the next month to keep your tenant or provide enough frustration that it can lead to turnover. <\/span><\/p>\n\n\n\n

Regardless of the approach, it’s crucial to <\/span>clearly<\/span> communicate that the concession is a one-time offer to help prevent any confusion or future attempts by tenants to negotiate similar deals.<\/span><\/p>\n\n\n\n

Offering concessions with move-in specials might signal to potential tenants that the property is not in high demand or has issues, potentially lowering its perceived value. <\/span>This<\/span> is the biggest fear I have as a single-family landlord, and I would much <\/span>rather<\/span> drop my rental rate to stay competitive as long as I am finding a qualified tenant. I want my properties to stand out, but not because of the perceived fear that they have known issues, and I am offering a move-in special to compensate. <\/span><\/p>\n\n\n\n

As a private landlord, you want to offer the highest level of housing quality possible and should feel confident your tenant has the same perception for their quality of living there. <\/span>Therefore, moving a tenant into a property with known issues at a discounted rate will <\/span>not<\/span> end well for <\/span>anyone<\/span>.<\/span> <\/span><\/p>\n\n\n\n

Final Thoughts <\/span><\/h2>\n\n\n\n

Though the data tells us that rent concessions have become <\/span>more popular<\/span> in recent years, I still do not believe they will impact private landlords for single-family or small multifamily properties <\/span>that dramatically<\/span>.<\/span> Lowering your rate will start to improve the number of views, tours, and applications to your properties from the quality tenants <\/span>that you<\/span> are trying to attract. Leave the move-in specials and discounted rent for the landlords willing to take on additional risk on the operational side of <\/span>things,<\/span> and move your goal toward financial freedom at a safer, more calculated pace.<\/span><\/p>\n\n\n\n

\n \n\n
\n
\n \n\n

Find the Hottest Deals of 2025!<\/p>\n\n\n\n

Uncover prime deals in today’s market with the brand new Deal Finder created just for investors like you! Snag great deals FAST with custom buy boxes, comprehensive property insights, and property projections.<\/p>\n\n\n\n

\n Snag a Deal<\/a>\n <\/div>\n\n <\/main>\n <\/div>\n\n
\n \"\"\n <\/div>\n <\/div>\n<\/div>\n\n\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

Are you worried about your local rental market cooling off, fearing that you will have a property sit on the market for too long? Well, chances are you are priced […]<\/p>\n","protected":false},"author":613743,"featured_media":177231,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4433],"tags":[],"class_list":["post-177236","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-opinion"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/177236","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/613743"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=177236"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/177236\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/177231"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=177236"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=177236"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=177236"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}