The Value of a Move In Concession

The value of dollars off move in specials and discounted rent concessions is often discouraged by marketing experts.  Some of the negative impact from concessions are:

-The value is short lived.

-Impacts renewal rates.

-Frustrates existing residents.

Matching the Market

In many markets, property managers experience competition where every property is utilizing concessions. The prospect enters the leasing center asking what deal, or special is available. Everyone else is offering dollars off.  The prospect implies they will take their elsewhere if the property doesn’t meet or beat the deal offered to them by the last location visited.

It is important to understand the competition, often rent discounts are limited to select apartments and not offered on every apartment available. A rent discount may be needed for the two bedroom facing the parking lot, but not the apartment with a lake view.

If a special or concession is used to secure a move in or a lease renewal, what can you do to keep that value in the residents mind throughout the year?

Linking Concession to Timely Payments

Some management companies will link timely rental payments with a concession. Failure to pay rent on time, takes away the dollars off monthly discount, plus the late fee. This reinforces the discount of a month’s fee rent applied over the term of the lease is saving the resident, a $700 monthly rental rate, is almost a $60 per month savings. Each month, the resident is reminded, if the rent is paid late, not only will there be a late fee, but also the rental rate jumps $58 because they forfeit the concession if the rent is not paid on time.

Renewal Value

time-to-renewRenewal invitations should outline the current year discounts included in the current rental rate as well as the savings offered in the renewal price.

The current market rate is $785.  The resident is currently paying $725.  An  evaluation of occupancy and the market place supports a rent increase of 5%, about $35 on a 12 month lease.  Simply quoting a renewal rate of $760 is going to bring the resident to the leasing center with hopes of negotiating a discount on the proposed rate.  If the renewal letter stated, “The current market rent for your apartment home is $785.  As a valued resident we are able to offer you the opportunity to renew at a rate of $760, 3% less than the market rate, offering you  an  annual savings of  $300.”

A simple discount of $100 per month is an annual savings of $1200.  The impact of saving over a thousand dollars per year, or the percent of this amount against the annual rent payment are attention getters, more so than “Save $100!”

One Time Concession Versus Monthly Savings

To avoid the perceived “huge” rent increase at the end of lease year, where the resident has benefitted from a months free rent applied over the lease term..some discounts are simply applied to the first months rent. “Get It Over With,” and get the resident on track with the established rental rate. This eliminates the large increase at year end, it also enhances the short term memory, “what have you done for me lately.”image A months free rent, or 50% off the first month absolutely decreases the financial impact of moving. It’s also a saving of 5% to 8% of the annual rental rate commitment.

Unless Management incorporates opportunities to remind our residents of these savings, the long term value of the concession is lost, as quickly as the signed lease is filed away.

Lori Hammond
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Lori Hammond

Thirty plus years experience in an industry best characterized as "no two days are the same" provides the foundation for Lori Hammond's experience in Property Management.With education and career experiences in Mid-Michigan, the audience for the blog Property Management Minutes is growing.Connect with her on , Linkedin, and on Blog.
Lori Hammond
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4 thoughts on “The Value of a Move In Concession

  1. Hi Lori,

    Great points about concessions! It would be nice if we could just get rid of them, and focus on the value of our communities, rather than discounting our worth, but I guess that’s the world we live in. So, here are a couple more ideas for dealing with these discounts.

    1. Create a coupon. To get some discounts at retail and grocery stores, you must present a coupon. This gives a tangible feel to the discount, and makes the customer (resident) realize that there is a discount being provided, and not just that the rent has been reduced. Write your market rate into the lease document, then provide coupons for the length of time you want to discount to apply.

    The coupons should be sequentially numbered, dated for each month, and have an “expiration” date, which I have always made the first day of the month. If they pay late, the coupon is no longer valid. Of course, you want to make sure you explain this at the time of move in.

    In order to prevent copies being made, I create a number that corresponds to the resident and the lease term. For instance, if I am going to give a $50 per month coupon to the residents in apartment 227, and start the discount in August, 2014, the coupon number is 227-0814, expiration date of 08/01/14.

    2. Discounts that ramp down. If I am going to give a month free on a 12 month lease, I ramp this amount down over the first six months of the lease, which means the customer will end up paying the market rate over the last six months, and the next rent increase will not seem so large. I usually do 40% in month one, 20% in month 2, and 10% for the next 4 months.

    RENEWAL TIPS:

    1. Reward tenure. Instead of just giving away another concession, pin it to action by the resident. I love to reward tenure with discounts, and this will easily survive any Fair Housing questions about why one person got a bigger discount than someone else. It also helps you provide a discount to seniors who usually don’t move as often, especially if your state has age as a protected class.

    For example, if the resident has lived in your community for 3 years, and the rent is going up by $50 per month, I give them a 30% discount of the increase amount, which will reduce their increase by $15. I cap these percentages at 50% of the proposed increase amount after 6 years of residency.

    2. Prove your worth. Plan for your renewal discussion by pulling service requests and assigning a value to them. For example, if you had to unstop a disposal, repair the A/C unit, and provide monthly pest control, talk to the resident about the 14 service requests you have completed, all of which were free of charge. Equate that to typical costs for the single family home owner in your market, and show the resident the value of the rent paid.

    Using the items above, let’s assume that a pest control call to a single family home is $30, a plumber to unstop the disposal would be $125, and the A/C call to take care of low freon would be $150. This would add up to $635 in services provided that the resident did not pay for.

    3. Create a “where does your rent dollar go?” graphic. Virtually all residents have no idea that they pay property taxes, property insurance, or even mortgage payments. They truly think we just stuff our pockets with their hard earned cash! As an example, when you create a pie chart that shows 40% of the rent to a mortgage company, 10% to the local taxing authority, 10% for all types of insurance, 25% to the cost of operations of the site, 10% to capital improvements and 5% profit, it makes the residents have a better understanding of the rent amount.

    Couple this information with facts such as a 2% increase in property taxes and a 2% rise in the cost of insurance, you help the resident understand the need for a rent increase.

  2. I love this article. It makes you really sit back and ask yourself ” am I correctly showing the value of the specials I am offering ” and that is something we don’t do often.

    Thank you for the reminders that we have to also remind the residents of the value throughout the year. Great information!

  3. Lori,

    You made a lot of good points. Let me add that offering a concession that the competition can’t match is a great way to go without offering reduced or free rent!

    Properties can consider using a 5 Day/4 Night Luxury Cruise Vacation for Two Certificate, to Mexico, the Bahamas or the Western Caribbean, up to a $1798 value, for $139-$169 per certificate! Includes all meals, entertainment & activities on a 4 star floating resort!

    Residents have around 175 dates to choose from with up to a 36 month redemption period. Certificates are transferable!

    With FREE marketing materials included, it’s a great tool for lease-ups, as a renewal campaign, to increase new leases, as a referral offer, or for resident giveaways. Travel incentives are preferable to other types of incentives, and residents have responded extremely well to a cruise incentive. It also gives properties a competitive edge over other properties.

    With a high perceived value, the cruise certificate offers residents the reason to lease, while maintaining rent values without discounts. If it’s time to raise rents, why not include a cruise vacation certificate to soften the blow and express how much they are appreciated as a renewing resident!

    It’s conducive to promote on social media, at special events, on the property’s website, by email or word of mouth. Who wouldn’t love getting a cruise vacation with their new lease or for a renewal!

    AIM Cruise Incentives is a member of NAA and on their National Suppliers Council, and a certified vendor with Compliance Depot. For a free marketing folder, email info@AIMcruise.com or call 866-541-9090