Tenant Low Move-in Rate/No Deposit

10 Replies

We're looking into buying a 60+ unit complex where their current marketing is for prospective tenants to pay about half a month's rent with no deposit to get them moved in.  I've been a property manager/investor for 13 years, but haven't managed anything bigger than 4 units and never needed to use this strategy.  And it seems, from previous experience, that the less money that tenants put down the more of a wreck their apartment and account balance are when they move.

I just wanted to know if this is really necessary in order to keep the place at relatively 100%, but especially how do you recoup any money for move-out damages?  Do we just get to eat that loss along with the initial half month's rent? 

Thanks in advance for your input.

@Alec Siebert regardless of if you collect a deposit, they are still responsible for damage. You just give them a bill. Many people will want to leave the property in good state to protect their credit and to build references. I think what some people like is that they don't have to return any money. In many ways no deposit is better than a half months rent free, because deposits are returned. Your place is doing both, so I wonder why? Maybe their screening standards are very high for credit. Assuming you are attracting people with great credit, that becomes the incentive to pay rent and leave it in good condition.

I have never heard of offering a first month discount. This is either a really pathetic owner that has absolutely no business scenes or it is slum housing with very high turnover.

I would either pass on the property or buy it and put and end to that practice immediately. The present owner needs to pull his head out of his butt and set his standards a little higher.

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I once lived in an apt complete where monthly rent was like $700 for a br and the security deposit was like $300.  I did get it all back.  The complex had like 15 bldgs, club house and pool.  It was well kept.

HORRIBLE, HORRIBLE IDEA.  Did I mention a HORRIBLE IDEA!!  So in essence all you are getting is a half months rent for them to move in.  So when the destroy the apartment you have no financial recourse, sure you can send them a bill or add it on to the eviction but that will get you nothing but attorneys fees.  No security deposit means you are stuck paying for all the repairs.  

With all that being said if you do the proper screening of your tenants you may not have a problem but even good tenants go bad sometimes and it is nice to have that security deposit to recoup at least a little of the loss.

There are a fair number of corporate apartment complexes around here that operate in a similar fashion, which is just another reason I don't want to compete with them on MFH. I assume they can eat the occasional loss when they hold 100k units, and can operate on a low profit, high volume model.

This is known as a Rent Concession and comes in several variations; 

  • move-in for $1 Buck
  • first month rent free

Use to see lots of these in Los Vegas and was a prime reason I exited that market.  What this is telling you is that 

  • at least the prior owner / PM was fighting a high vacancy factor
  • OR it could be a neighborhood / community vacancy problem

I'm glad most of you agree with my instincts.  The good thing is that this property is not in very good shape, but is in a recently developed area that is still growing, giving us the opportunity to buy low, fix problem areas and reap the rewards later.

It is fairly common to give rent concessions for larger complex's.  I see first's months rent free signs all the time.  The "fine print" is that they still collect the normal amount of money up front.  They usually require one month's rent and deposit before they let you move in.  It's all in the verbiage.  The "first" month is free, but in order to move in, you must pay the deposit plus second month's rent, so you can take that however you want.

Also, a lot of them are "One Month Free" wherein the "last" month on the lease is free.

The only HORRIBLE idea is one where you don't collect (or collect very little) money up front.  If you aren't collecting at least the entire deposit and a full month's rent before they get the keys, that's a bad idea.  I still believe in the thought that if they can't afford to pay deposit + one month rent up front, they can't afford to rent your property.