Most landlords will agree that a vacant unit ranks right up there as one of their least favorite things. The bottom line is simple: A vacant unit is money down the drain. There are, of course, times of feast when rental units rarely remain vacant for even a few days in between one tenant and the next. But then there are the other, slimmer times, when people are saving their pennies and staying put. In this case, finding a new, quality tenant is much, much easier said then done — it can take weeks (in some cases maybe even months) to find the right tenant.
And, of course, even if you are able to find a tenant, flipping a unit costs money. As discussed in our previous post, even those units that are left in good condition require some degree of re-investment — not to mention the cost of advertising and marketing available units.
Which all seems to make it clear that, at least in the current economy, retaining good tenants is the best way to go. Not only will it save you the expense of turning the unit, but it will also prevent a potential lingering vacancy from sucking away at your bottom line.
Sometimes, though, no matter how good of a job you’ve done taking care of your tenants and making sure that your property and their unit is in tip-top condition, a tenant just feels it’s time to move on. If a good tenant is really ready to go, chances are you won’t be able to do much to sway him or her. But if the tenant is on the fence, you may just be able to win them over for another lease period with an incentive.
When it comes to nudging tenants into signing on for another lease period, the most common incentives provided are rent breaks. How much you offer is a personal decision that you will have to make at your own discretion. Even $100 off rent for the first month of their next lease period might do it. But, chances are, in the case of a tenant who is seriously contemplating making a change, $100 won’t be enough to sway them. $500 or half off a month’s rent — now you’re talking. This is an amount of money that will make a significant impact for most people. It will likely allow them to catch up on bills or enjoy some sort of extravagance they are not accustomed to on a regular basis. This amount may just be the sweet spot. It’s also likely that you’re not losing much as it takes at least $500 to perform the standard “turn over” tasks and advertising.
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Those of you who have a really desirable tenant and a tricky local economy may even opt to offer a full month of free rent. Before making such offers, be aware that such an amount may actually be more than it would cost to turn the unit over and advertise it. However, also remember that, though you will lose a month of rental income on the unit, you have the assurance that rent payments will resume like clockwork the following month.
Rent incentives require a bit of strategy on the part of landlords. Before determining if an incentive should be offered and, if so, what amount, it’s important to consider both the desirability of the tenant in question and the general health of the local economy as it will pertain to your vacancy rates. Also remember to think long-term—don’t just consider how such an incentive will affect you on the month the lease begins anew but also how it will (presumably positively) affect you for the next lease period to come.
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