Attracting a tenant to your New Jersey rental property can be challenging at times, especially if you’re new to the business. And that’s why some landlords turn to rent concessions to help them land their first tenant.
Simply put, a rent concession is a temporary offer that a landlord might make in order to attract or retain a tenant. Rent concessions are also known as short-term incentives. The goal of giving them is to minimize the vacancy period, which can prove to be costly in the long term.
While rent concessions may mean reduced incomes, they are usually worthwhile in the long run. In this article, we’ll help you decide whether or not you should offer a deal to find new tenants for your New Jersey rental property.
What are the Different Types of Rent Concessions?
Landlords can provide rent concessions in a variety of ways. You can offer, for instance, free amenities, a rent rebate, or even waive a fee. Others are as follows:
- Waiving the first month’s rent. You may still, however, require your tenant to pay other move-in costs such as a security deposit.
- Waiving the security deposit for new tenants.
- Offering access to free laundry or parking facilities.
- Allowing the tenant to personalize their home to fit their tastes and preferences. An example of this includes repainting some rooms to their favorite colors.
- Accepting pets if you were previously prohibiting them in your rental property. Note that a “no pet” policies does not apply to tenants with service animals.
- Offering a rent discount for tenants on a longer lease agreement.
- Upgrading the rental space.
Usually, rent concessions are offered discretely. A tenant can request them before moving in. You may also see the need to offer one to a good tenant whose lease may be coming to an end.
When Should You Offer a Rent Concession?
When looking to fill a rental vacancy, rent concessions can be a great option. However, the timing must be right. The following are instances when rent concessions can be the most effective:
When Finding Tenants Becomes Challenging
Is the market in a downturn? Or, are you opening a huge commercial space? In these instances, finding a tenant can prove rather daunting, and offering a rent concession can help you reduce vacancies.
When Looking to get a Tenant to Renew their Lease
Do you currently have a good tenant, but their lease is coming to an end? If they have been paying rent on time and caring for your unit, then it makes perfect sense to offer them a concession in order to get them to renew their lease. After all, good tenants are sometimes hard to come by. So, when you have one, do everything it takes to hold onto them for as long as possible.
When Your Rental Property has been Sitting Vacant for a While
As you probably know, vacancies are profit-killers. Not only are you not generating passive income, but you also lose money every month your New Jersey rental property sits vacant without a tenant. Because, even without a tenant, you’ll still have to pay for expenses such as property taxes, maintenance costs, and potential mortgage payments.
Things to Consider When Offering a Rent Concession
If you decide to offer an incentive or a discount, consider several things. For one, you should understand that offering a rent concession will have an impact on your bottom line. Now, this can have some implications when it comes to financing even when the concession is only temporary.
When lenders underwrite a loan for the purchase of a rental property, they look at the potential income it’ll generate. Offering a concession will therefore mean reduced incomes for you, and this could have an effect on how you refinance the loan.
If there is a potential to face such difficulty, then consider opting for incentives that boost your property’s value. Examples include updating dated appliances or doing a minor remodel. This not only improves your property’s value but can also give your property an edge over the competition.
Tips for Offering a Rent Incentive
If you decide to offer rent concessions to your New Jersey tenants, then keep the following two tips in mind:
Thorough Documentation
Make sure you have documented them properly whether or not they’re short or long-term offers. When it comes to a rent discount, for instance, it can be tempting to simply list the discounted rate as the new rate. However, for the sake of your accounting, list the discounts in addition to the standard rate.
This will be beneficial in two main ways. One, it will act as a reminder to tenants that the rate is discounted. And two, it helps with accounting and simplifies things should you need to change the offer in the future.
Quality of the Tenants
When it comes to leasing renewals, only give a discount to a tenant that has proven that they can abide by all the terms in the lease agreement. Great tenants are what keep you in the business. They pay their rent on time, take good care of your property, and get along with everyone.
Consequently, they help you maintain stable cash flows, save you money on repairs, and save you headaches. Therefore, it’s in your best interest as a landlord to have them renew their lease.
Cons of Rental Concessions
The greatest benefit of rent concessions is that you’ll be able to reduce your vacancy rates. However, rent concessions aren’t without their cons. They are as follows:
- Some concessions can be difficult to take away. If, for example, you offered your tenant free parking for a year, then not offering it for the next term may make them upset.
- Offering a waiver on the security deposit can put your property at risk of damage.
- You may have difficulty refinancing your mortgage.
- You may attract the wrong type of tenant.
Summary
Filing vacancies quickly is key to running a profitable rental property. If you are still finding that daunting, Lone Eagle Management can help. Get in touch with us to learn more about our management services!