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.
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.” 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.
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- Adding Up the Impact of Rent Concessions - January 12, 2021