Winter will be here before we know it, and as leasing dies down, owners and managers will need to work hard to avoid costly vacancies. One way to draw in renters is to offer concessions. Determining which concessions are the most beneficial can be daunting, especially for those in the small-balance market. How can you determine which concessions will provide you with the greatest return?
First and foremost, you must do your research. “You need to know what others are offering in the marketplace, and how you can position yourself to be competitive,” said Joe Killinger, co-founder and managing partner of LLC Property Management. “You don’t necessarily need to offer a dollar-for-dollar concession that your competitor is offering, but you should make adjustments based upon how your building compares to theirs.”
Concessions, like amenities, are area and demographic specific. “It is imperative for management to know their audience and abstain from generalizations about the ‘market’ versus knowing facts and figures about the submarket their assets compete in,” said John Wilhoit, real estate author and podcaster, who provides expert advice to multifamily property owners and real estate startups.
For small-balance multifamily owners and operators, it can be difficult to devote the resources needed for thorough market research. According to Wilhoit, the biggest difference between smaller and larger property assets is the ability to afford on-site management, and owners must address this. “This is accomplished by conveying to tenants and potential tenants that your smaller property can and will be more responsive than the bigger properties with respect to service and maintenance request,” he said.
The goal is to find the most effective concessions for the least cost. The most expensive concessions sometimes generate the best return. “For example, one month free on a 14-month lease can generate thousands of dollars in additional revenue at a substantial cost versus deploying non-responsive $50 and $100 concessions,” Wilhoit said.
It also pays to be creative with concessions to maintain or increase your net operating income. Offering highly qualified renters discounts on their deposits can be very effective, said Killinger, and doesn’t impact your net income at all. “We also like to offer items that may appear as a concession, but really can increase the income and value for the property,” he said. For example, installing a washer/dryer may cost around $1,200, but if you charge $50 more per month for it, the property value will increase.
Though concessions are typically used to attract new residents, they can also help with resident retention. According to Killinger, one month of lost revenue on a unit equates to slightly more than 8 percent of that unit’s potential gross revenue, so offering an early renewal bonus, for example, can provide renters with incentive to stay. Further, Wilhoit said that sharing the costs of relocation with renters in their renewal offer can remind them of the cost and hassle associated with moving.
For small-balance owners and managers, offering concessions can help maintain occupancy during slow leasing periods. The key is to determine which concessions offer a balance between low cost and high return, which requires careful research on the market/submarket, demographic, and competition your properties face. If properly analyzed, concessions can be a beneficial tool in not only attracting renters but also retaining them.