If you have a solid marketing strategy in place yet find your Phoenix rental property has a high turnover rate. Or if you simply want to increase your retention rate, then it is the best time to take a good look at your pricing strategy or better yet, consider rent concessions.
Rent concessions might be a difficult subject, but we at Keyrenter Premier believe they can be an important tool. This is why we have put together the following article.
What are Rent Concessions?
Rent concessions are discounts or reductions that an owner makes to the original terms of the lease. They are better known as tenant credit, write-off, or rent discount. They are offered to attract interested renters, fill vacancies, or keep existing renters for the long term to maintain a high occupancy rate.
It is better to offer rent concessions than have an empty rental property. The sooner the unit is booked, the sooner you can collect your pay and better project the return on your investment. It may seem that offering rent concession results in reduced revenue, but things like property maintenance are more expensive in a vacant Phoenix rental.
What Are the Different Types of Rent Concessions?
There are various ways that a landlord can apply these adjustments. It can be through discounts, rent rebates, fee waivers, and even the free use of amenities.
But no matter what form it’s offered, the goal is to entice interested tenants to take action whether to finally sign the lease or a high-quality tenant to renew it.
Of all the ways to provide the adjustment, the most common is through rent reduction. Alternatives are sometimes used by landlords such as waiving security deposit, remodeling rental space, applying rental discounts for long-term tenants, and giving permission to paint or make any changes inside the unit.
There are a lot of creative ways to offer rent concessions but they are commonly divided into 3 categories – lease-up, red flag, and marketing.
This type of concession is commonly used for newly-constructed commercial spaces or apartments that you need to fill up quickly to jumpstart your business and start collecting returns on your investment.
Red Flag Concession
Any rental concessions depend on supply and demand. Rental property owners provide adjustment options to investors or possible renters to sell the property or keep it occupied. When refinancing or purchasing a rental property, be cautious and check all details before closing the deal.
To reduce the vacancy rate, some landlords will apply discounts after careful analysis. When a red flag concession is applied, it can be a sign that trouble is brewing. Interested tenants can clarify things with the landlord before agreeing to sign the lease. As a landlord, be ready to address these concerns.
If you have properties that need to be unlisted for remodeling and upgrades, you need to get back the money lost on those days. Marketing concessions, unlike ‘Red Flag’ ones, give you no reason to worry because the space is reasonably priced and appropriately occupied.
Your Phoenix rental property can be priced slightly above average market rent, however, offering it for a discounted price or furnishings to a specific number of renters can fill your vacancies quickly.
When Is the Perfect Time to Compromise?
Rent concessions are considered a good marketing strategy to reduce vacancies and keep a high occupancy rate. This is because you will encounter slow seasons when turnover is high or situations where you just have to delist a property to fix major electrical issues, losing revenue in the process.
Depending on the unique needs of the prospective tenant and property, you can be creative in making a compromise. Offering a discounted rate is a good solution after re-listing the property and enticing tenants.
Offering a reduced rental rate is also a great motivation to have your long-term tenants renew their leases. Keeping them at an adjusted rate will reap more benefits than having a vacant space. The rental business will still prove to be profitable this way. Take care of your high-quality renters and incentivize their loyalty.
What Are the Disadvantages of Using Rent Concessions?
As a landlord, your goal is to have a steady cash flow and reap the benefits of your investment. Having a vacant space or apartment unit can disrupt your income stream and affect profitability.
Compromising with prospects and existing tenants alike is a good way to reduce vacancies and maintain a high occupancy rate. This can also be a good avenue to keep your property, revenue-generating.
There are also some pitfalls when offering discounts or free use of some amenities. When taken away or reverted to the original agreement, tenants might leave or not renew the lease.
If you offered a discount and had to resume the original lease agreement, new tenants might have second thoughts about being happy and staying long-term and looking elsewhere. If free use of amenities was offered as an incentive, tenants may expect that it was permanent and use it to dispute the agreement or ask that you extend the duration of the concession.
Changing the agreement back to its original terms or taking the concession away may cause conflict between you and your tenant. High-quality tenants can leave and new ones might reconsider staying long-term.
So, to avoid this kind of disagreement and false assumptions, always protect all parties by putting it in writing. Be specific by including the start and end date of the concession. Be reasonable and have weekly or monthly price breakdowns when necessary.
If you encounter challenges in getting high-quality tenants and retaining existing ones, it is best to partner with Keyrenter Premier. We can help you manage your Phoenix Rental Property from screening tenants to taking care of them and taking on other landlord responsibilities.