Who doesn’t love a good deal? Moving is already costly, so finding a place with a discounted price or one free month of rent while apartment hunting might seem like hitting the jackpot. These types of promotions or specials are referred to as rent concessions, and there are some important things you should know about them before signing your next lease.
What is a rent concession?
A rent concession is a temporary offer a property manager or landlord might make to attract or retain tenants. Generally, landlords will use rent concessions to avoid vacancies, and they are more common during the winter when fewer people are moving. More vacancies mean less income for landlords, so they will offer a rent concession to avoid losing money or spending time to find a new tenant to fill the vacancy. Rent concessions can take various forms, but the overall goal is to persuade tenants to sign or renew a lease. For example, a landlord might offer one month of free rent to a new tenant. While a free month of rent might seem like a great deal, it’s important to know that not all rent concessions are made equal.
Lease-up concessions
Lease-up concessions are usually used for newly built commercial buildings like high-rise apartments or mixed-use developments. Since the apartment building is brand new, there aren’t any current tenants renting the property, so management will offer a rent concession to fill vacancies quickly. The owner will want to reach an occupancy goal or full capacity so they can begin making a profit.
Marketing concessions
This type of concession is a marketing strategy used to give tenants the appearance of a saved cost or reduced price. The landlord might advertise an apartment with a rent price a bit higher than the average market rate of similar properties nearby. The rent concession offered will bring the rental rate in line with the current market. For example, an advertisement might state that a one-bedroom is usually $1,500 per month and is now being offered to new tenants for $1,200 per month for a limited time, but $1,200 is the average price of rent in the neighborhood.
Red flag concessions
Unlike other concessions, red flag concessions are ongoing to keep the property occupied. They are commonly used after an original lease has expired so tenants will renew, keeping the property occupied. They are called red flag concessions because they can signal larger issues with the rental property. For instance, a landlord might have a high tenant turnover rate because of ongoing maintenance or habitability issues, so they continue to offer concessions to avoid vacancies.
Different Types of Concessions
A rent concession can take various forms including a discount, monetary compensation, a service, or a physical gift. Since the goal of a rent concession is to attract or retain tenants, landlords often get creative. Some common rent concessions include:
- Reduced rent
- One month free rent
- Reduced or waived security deposit
- Amenity upgrades such as new appliances or decor
- Merchandise like a free television, iPad, or gift card
- Free use of garage, parking, or storage space for a year
- Free service such as gym membership
These are just a few examples of rent concessions landlords offer. To determine which type of rent concession is best for you, think about your needs and what you can afford in the long run. If you have a car, free parking space for a year could help save a few dollars each month, but how much is parking monthly after the year is over? Will you want to continue paying for the gym membership after the free trial? Ask yourself these types of questions so you can make the best decision for your situation.
What is net effective rent?
When searching for apartments online, it’s important to know that some landlords will include gross rent and others will use net effective rent when listing the price of rent on an ad. You could end up spending a different amount than expected based on which type is used. Gross rent is the total amount of monthly rent payments combined during a lease. Let’s say you pay $1,200 a month for a one-year lease. The gross rent would be $14,400. Net effective rent can be a bit tricker and is usually used with free month(s) rent offers.
Net effective rent is the total amount a tenant will pay, including the rent concession. If your gross rent is $14,600, but you are offered one month of free rent, your net effective rent would be $13,200. However, you won’t be paying the net effective rent amount each month; you’ll likely be paying the gross rent amount listed on the lease. If the net effective rent is advertised, it will catch the attention of renters because, at first glance, the number is usually lower. However, this isn’t always the case and some landlords will disperse the discount over time, so you could end up paying more. We’ll discuss this more in the following section.
How Rent Concessions Are Calculated Using Net Effective Rent
Let’s say a landlord offers an apartment with a net effective rent of $1,800 per month. To determine how much you would actually pay, multiply the net effective rent by the total number of months on the lease. Then divide that amount by the number of paid months on the lease. Refer to this calculation:
$1,800 per month X 12 months = $21,600 (total cost of the apartment for a one-year lease)
$21,600/11 months (with a one month free rent special) = $1,963 (actual rent price)
As you can see, in this example, the tenant would end up paying more each month than with a regular lease without one month free. Yes, the concept of net effective rent can be confusing, but this is another reason why reading the entire lease closely is so important! Before signing your lease, find out if the rental rate is based on gross rent or net effective rent. Then do your calculations from there to determine what you’ll actually end up paying.
If you decide to renew, your landlord will most likely offer the gross rent price in the new lease. During renewal, you will have to negotiate based on the gross rent price, not the net effective rent because the rent concession will expire after the original lease term.
Are Rent Concessions Negotiable?
Since landlords are eager to retain tenants, they are probably willing to negotiate rent concessions, so it doesn’t hurt to ask. If you pay rent on time and take care of the apartment, your landlord might be more willing to extend the rent concession, depending on the type of concession. Your landlord might decline to continue offering a discounted rental rate, but they might be willing to allow another free year of a storage unit. However, remember that rent concessions are meant to be temporary, so make sure you can still afford the apartment when the concession ends, especially if you received a discounted rental rate or a free amenity that is usually paid for.
How to Find Apartments with Rent Concessions
To find rent concessions on Apartments.com, rental properties will have a blue tag in the top right corner that shows their current concessions (months free, discounts, specials, etc.). Click on the blue tag for more details and the information will be listed under Move-in Special.
Saving money during the moving process is always a great feeling and knowing how rent concessions work can help you determine which promotion is best for you. Remember to look at your lease to determine if you will be charged gross rent or net effective rent. It might be better to pay for the regular rent amount than to sign a lease with a free month, depending on what your landlord includes in the lease. If you need temporary space for some extra items, renting an apartment with a year of free storage space could be perfect for you. Think about your needs and long-term finances so you can find the best rent concession for you. Good luck!
