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Rental Concessions Landlords May Consider

Written by on Tuesday, 23 September 2003 7:00 pm
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Here's a chance to get inside your landlord's head to see what he or she may be thinking about rental concessions that may be offered to you in the current economy.

The information could help you negotiate a rental contract to better fit your budget, but keep in mind, the information is not carved in stone, rather concessions your landlord may or may not be considering.

"No matter what they choose, renters should always be aware that market conditions dictate concessions and also what happens when that lease expires. A concession now does not guarantee that same deal at renewal time," said Kathy Thibodeaux, CEO of the Tri-County Apartment Association in San Jose, CA.

Caroline S. Latham, CEO of RealFacts, a Novato, CA-based multifamily housing market research organization, recently released information explaining how concessions affect property owners' bottom line and why they may or may not choose to use them.

In the past year and a half, the soft economy has forced some lenders to attempt to stem the tide of rising vacancy rates with rental concessions.

"There is no one best method of offering concessions, or accounting for them. The choice may depend on the owners' investment strategy," Latham said.

Reduced security deposit

Some landlords offer, say, a "$99 move-in special," instead of requiring a full month's rent as a deposit. For the tenant, that means a move-in cost savings of hundreds of dollars.

Landlord's using this concession do so, however, with the risk that they may fail to recover money for damages to the unit, especially if the tenant skips before the lease is up.

"There are, of course, legal methods for recovering such damages, but the security deposit makes it quick and low cost," Latham said.

Good tenant screening can mean nil to the bottom line, she added.

The concession may be a good deal for someone who needs a cash boost at move-in time, said Thibodeaux.

Free perks

Landlords can also choose to drop the extra charges levied for some amenities including washers and dryers in the units, broadband communication, garage parking, etc. Fee amenities typically are chosen only by a small percentage of all renters and while the fees will lower the gross scheduled income, it won't show up on the gross scheduled rents.

Short-term, cash-poor renters may like the idea that they can have clean clothes, sheltered parking and other extras without the cost.

Rent reduction

The third type of concession may be popular among renters who want a long term lease -- a rent reduction in return for signing a lease of a certain duration.

Latham said common examples are two or three weeks free rent for signing a six-month lease and four to six weeks free rent for signing a one-year lease.

Some landlords offer the free weeks up front. Without the concession, the unit might remain vacant all month anyway. The unit is economically vacant for the first month, as it would have been if it had remained physically vacant, but thereafter it is rented at full price for the life of the lease, says Latham.

Other companies prefer to pro rate the concession over the life of the lease, reducing each month's due rent by the appropriate fraction. This approach reduces the impact of a few bad months by spreading it over a longer period. It may take up to a year to burn off the concessions. During that time the market may warrant fewer such concessions, but the landlord will already be locked in.

"Many people want to keep the rent as low as possible for as long as possible and would choose the concession that is spread throughout the term of the lease. That may be a good strategy where it is somewhat unlikely that there would be a huge bump in the rent at the end of the lease," said Thibodeaux.

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  About the author, Broderick Perkins

Individual news stories are based upon the opinions of the writer and does not reflect the opinion of Realty Times.
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