It can be tough to attract tenants and fill out your Miami property vacancies. If your marketing efforts have not resulted in new prospects or you’re suffering from high turnover rates, you can manage this by using a rent concession.
Remember that as a landlord you are under pressure to make an income especially when the unit has been vacant for a while. An unoccupied unit can run up maintenance costs. Making money through a rent concession is preferable to losing money daily from advertising and upkeep expenses.
How Do You Define Rent Concessions?
Property managers may arrange to change the leasing terms to retain tenants. This is known as a rent concession. Landlords will promote a rent concession to capture the attention of prospective renters and hold on to the existing renters. They have the option of using rent concessions once, monthly, or annually.
Landlords may opt to use a rent concession to ensure the rental home remains occupied. A common example of a rent concession is giving out a free first month's rent to gain the interest of new tenants.
What are the Different Types of Rent Concessions?
Rent concessions can be done through discounts, rebates, or monetary compensation. As a Miami landlord, you can offer rent concessions but tenants can also request them. This can open the option for new agreements depending on the needs of a tenant and the decision of the landlord.
Examples of rent concessions:
- Discounted rent over a one-year leasing contract
- Free or prorated rental fee for the first month of renting
- Waived or minimal security deposits
- Waived fees in the form of pet fees or other move-in charges
- Upgraded rental unit through new appliances, renovated interiors, and an updated design
- Repainted walls
- Landlord contribution in the moving costs
- Broker fee payment
- Free charges when using parking spots, Internet, or laundry amenities
As a landlord, you will be exposed to 3 types of rent concessions whether you’re leasing or purchasing a rental property:
This is applicable for new builds and is popular among commercial properties. It’s employed as a strategy to land as many tenants as possible and keep vacancies down.
Red flag concessions
This can refer to a problematic situation where property only uses concessions to prevent vacancies. It’s essential to be aware of this to avoid being burdened by this issue when looking to refinance or purchase a property.
Older investment properties, such as remodeled buildings, commonly use this strategy. This method advertises the property above the average rent rates.
By doing this, the tenant can feel rewarded when the concession brings the market rate down to be in line with the current market rate. This is permitted when the building has good occupancy levels and is priced reasonably within the market.
When are Rent Concessions Applied?
Rent concessions are applied when:
Attracting Potential Tenants
Sometimes the market is in a downturn and it’s hard to acquire new tenants. At other times, a property owner may open a new property and want to gain back ROI quickly, therefore they’ll offer concessions to get occupants in the rentals.
There may be times that landlords find it hard to land renters. They need to find occupants for their empty units. Offering a concession could make their property more competitive and draw in more prospects.
Since finding new tenants can be exhausting and takes marketing effort, landlords can choose to retain tenants by offering a concession.
Are There Drawbacks to Offering Rent Concessions?
Rent concessions can be effective but there can be a couple of disadvantages when using them. Once you apply for rent concessions, tenants may come to expect them.
An example of this would be:
- Offering parking with no fees. Once their tenancy ends, they might ask for the same concession upon lease renewal. Otherwise, they might not sign up for another rental period.
- If a tenant requests to pay the lowered rent rate after the month is up because they had discounted rent for the first month.
- If tenants abandon the property.
- If you waive the security deposit. If there are property damages, you might not have the amount to cover for repairs unlike if you collected the security deposit.
That’s why it's important to still conduct extensive tenant screening before renting out your property or offering concessions. Showing good faith through giving out rent concessions is a good strategy so long as you also protect your business interest.
How to Mitigate the Risks of Rent Concessions?
The best way to keep yourself protected while implementing the rent concession strategy in your Miami rental is to create a solid leasing agreement. Be specific about the details of the rent concession and its inclusive dates.
You can also outline the circumstances that can cancel out the rent concession. Notify the tenant before the end of the concession period to prepare them for the regular rent amount payment once the discount period is over.
When conditions and policies are mapped out in the lease, rent concessions can be an effective tool to attract and retain tenants.
Rent concessions are excellent strategies for Miami landlords to gain profit and avoid the costs of vacant rental properties. To protect your investment you should indicate the parameters of the concession in the lease agreement and perform thorough tenant screenings.
If you would like help managing your rental properties reach out to the professional and trusted team at Income Realty Corporation today!