Using Apartment Leasing Concessions for Wisely …IF you must.
Here’s a surprise…an article from me on how to offer apartment leasing concessions! You don’t see that very often, and most of you know why. As a long-time opponent, I’m convinced that they make absolutely no sense. In a battle of concessions, communities are essentially competing to see who can give away the most free rent. How counterproductive is that!? It only serves to weaken the market for everyone and devalue our properties at the same time.
So by now you’re probably asking yourself why I wrote a book on how-to on concessions. The answer is that for many of you, they are a necessary evil. If you are in one of those intensely concession-driven markets, you may have no choice but to concede, just to keep your head above water. And if you have to concede, then it’s best to choose your concessions wisely—to make sure they do the most good for your occupancy and the least damage to your bottom line.
Unbreakable Rules for Offering Apartment Leasing Concessions
The most important thing to remember when offering a apartment leasing concession is…drum roll please…be strategic. Only offer a leasing concessions on the apartments with high vacancy or notices to vacate. It sounds obvious, but you’d be surprised at the number of managers who offer automatic, across-the-board concessions, even on apartment types that are easier to lease. Don’t make that mistake. It’s bad enough that you have to give away any freebies—but giving them away when you don’t have to is really a waste!
The second unbreakable rule of concessions is not to give something for nothing. Make residents “earn” their concessions by attaching conditions that is favorable to you. For example, if you are giving away a free month’s rent; extend the lease term by a month. Set signing and move-in deadlines that residents must meet to receive the special (to improve your numbers quickly). And, as extra protection, have them sign a “concession addendum,” stating that they agree to pay back any concessions given to them if they break their lease.
Types of Apartment Leasing Concessions
When it comes to concessions, you have many options. You can offer free rent, apartment upgrades, gifts, services…the list goes on. While offering apartment upgrades is undoubtedly the best choice for the long-term value of the property, it is not always the most effective. In fact, most of the communities surveyed for this article seemed to agree that money talks louder than new carpet or ceiling fans.
Free Apartment Rent
Even if you opt for this easy, direct route, you must still make some important decisions—like how much to offer and when residents get it. Below are some options.
Go with the classic “______ Month’s Free Rent.” Usually, the amount of free rent is tied to the length of the lease signed (i.e., 1/2 month free on a six-month lease; 1 month free on a 12-month lease). For it to be most effective, at least part of this free rent will need to come at the front of the lease. Several of the communities we surveyed noted that offering a “last month’s free rent” promotion didn’t work.
Offer whatever the other guys are offering. Run a “we’ll match our competitors’ specials” offer.
Take a flat amount off the term of the lease. One property came up with the clever idea of offering “$2,010 off in 2010.” (How you actually dole out the savings can vary—see the following bullet points!)
Reduce rental rates. Instead of giving a month or two away up front, some properties spread the “free” sum across the term of the lease. For example, instead of giving away two months at $600 on a 12-month lease, you could reduce the monthly rate by $100.
Prorate the free rent. Offer a 15/10 discount, in which residents receive 15% off the rent for the first three months, then 10% off for the next three months. They pay the full rental amount for the remaining six months of the lease.
Provide a coupon or voucher book, with each page worth a set amount. Residents can use the coupons or vouchers as they want throughout their lease term.
Not all concessions take the form of free rent. Some apartment communities opt instead to give away gifts. This can be a more economical approach than free rent. For one thing, you may be able to get by with offering a gift that slightly is less valuable than free rent. Don’t count on saving much money with this ploy, however. Future residents are going to be savvy enough to recognize that the free toaster at
your property does not equal the month’s free rent at the place down the street! You’re better off looking for a gift that retails at approximately the same amount as the free rent you would otherwise be offering, then negotiating like crazy to get a volume discount. You might even want to work with one of your existing vendors, who already gets a fair amount of business from you.
The kinds of giveaways you can offer are limited only by your imagination—and your budget, of course! Below are some ideas that have been used by other apartment leasing teams:
Paid moving expenses (up to a set dollar limit)
i-Pad or anything “i”
Pre-paid debit card
Free weekend trips
1-year membership to a local health club
Service vouchers that can be used with a network of participating vendors, such as maid service, dry-cleaners, pet grooming, etc.
Tickets/gift certificates for professional sporting events, cultural events, museums, parks, spas, restaurants, stores, etc. (One property offered $500 worth of these tickets, but allowed the resident to choose among the various types of events)
Leasing Concessions as Extras
If you are looking for things to give away, you may not have to look very far. Many communities offer fee-based amenities and/or services that would make excellent concessions. Consider the following:
Free garage or carport for a year
No pet rent for a year
Refunded application fee (usually used in conjunction with another concession)
Reduced security deposit
Free additional storage for a year
Free heating during the winter months
Free cable for a set number of months
Free washer and dryer for a year
One room furnished free for a year
A pre-set amount of free washer and dryer use, for properties with shared laundry facilities rather than washer/dryer hookups (This works especially well if your laundry facility uses smart cards rather than quarters)
Apartment upgrades—carpet replacement, crown molding, a new appliance, extra phone line, etc.
There’s no rule that says you have to pick just one type of apartment leasing concession. You can put together “packages” that best suit your community and your market. For example, you might offer $25 off the monthly rent plus a gift certificate to a local theme park. Or two weeks’ free rent plus new countertops in the kitchen. You might also offer a menu of apartment leasing concessions that residents can choose from. For example, with a 13-month lease, residents might get to choose one free month’s rent OR a free weekend trip OR $500 worth of services. With a six-month lease, they could choose from a $100 rent discount OR three months’ membership at a local gym OR free garage parking for three months.
What about Lease Renewals?
We all know that it’s much less expensive to keep an existing resident than to find a new one and turn an apartment. It seems only sensible, then, that we’d offer our renewing residents at least as good a deal as we offer everyone else. Even so, the views on offering renewal concessions are mixed. Several of the communities I surveyed said they didn’t offer any concessions for renewals. Several others did offer concessions, but they were typically less than what was offered to new residents (for example, renewing residents might get $50 to $150 off their first month’s rent, complimentary carpet cleaning, or a night out on the town).
A couple of properties said that while they did not offer concessions to their renewals, if residents were aware of and asked for a current move-in special, they would give it to them rather than lose them. Only a few properties actually offered their residents concessions that were comparable to those offered for new leases—ranging from a free month to $500 off the first month to a $500 gift certificate.
Not to belabor a point…but in a soft market, it is more important than ever to close the back door. Before you make any decisions about concessions, be sure you look carefully at where your money will do the most good. If, by spending a little more on existing residents, you can win the renewal battle, you may not have to invest so much in the concession war—where there are no true winners.
The Leasing Professionals Guide to Eliminating Concessions, Raising Rents and Selling Rent Increases Every Time
By Tami L. Siewruk THE BOOK:This comprehensive program starts with thedefinitive book on raising rents, eliminating concessions and selling rent increases in multifamily communities, sourced from over 30 years of multifamily experience and across-the-board expertise. From presenting financial terms in a way that you can finally wrap your brain around all the way to putting the finishing touch on a rent-raising renewal, this book will fully reveal the when, where, and how behind successfully raising rents, eliminating concessions and selling rent increases and will equip you to immediately begin achieving record revenues for your company and community! All for ONLY $49!
Tami has held leasing, marketing, management and business development positions up to and including Vice President of Property Management. Having begun her career on the front lines, she has maintained a career-long passion for staying connected to the day-to-day challenges faced by apartment professionals at every level, and for connecting them with the resources they need to succeed! Her other guiding passion—and special talent—is for spotting trends, and framing them within the context of our industry to not only identify their implications to our future, but to spotlight ways that we can immediately begin capitalizing on them. She is also a Marketing Technologist with a solid understanding of the complications and challenges of today’s multimedia internet marketing.
Tami speaks not only from a rare level and breadth of real-world experience in all facets of property management, but also as an owner and developer of award winning apartment communities in four states. As President of Siewruk Development, she has completed a 192-unit apartment community in Austin, Texas; and in partnership with Conine Residential Group & The Huizinga Group, developed 305 units in Dallas, Texas. She currently works as a full time consultant and is working on phase two of a small rental community covering two islands in the Bahamas.