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What's So Special About Free Rent?

What's So Special About Free Rent?

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In a recent seminar at Columbus Apartment Association, Kate Good, National Speaker, Marketer and Creative Consultant for the multifamily industry, gave a speech regarding the current effects of the economy on the multifamily housing sector.  I read pieces of the speech and was enthralled by the data collected by Ms. Good and the points about the changing face of the renter.  However, one of the observations, the increase of specials and concessions offered in today's market was very concerning.  .  According to Ms. Good, approximately 70% of communities nationwide are offering concessions, everything from one month to four months free.  You can view this blog written by Chrissy Wills at http://kategoodblog.blogspot.com/.

I have spoken to many people in the industry and found they are divided about specials and concessions offered by communities.  I guess you can say they are "necessary evils".  I say this because renters are researching communities more effectively now than they did even five years ago.  As prospects click on the homepage for apartment communities they are immediately greeted by pop-ups about free rent.  Now, I am seeing the internet coupon used.  By the way, I think internet coupons are a smart way to track traffic.   Without specials and free rent, some potential renters are skipping the community altogether.  It's the WIIFM effect. 

In my opinion, giving away so much free rent undermines the integrity of the pricing scheme at the community.  Why not re-evaluate the rent scheme and compete with your competition on market rent instead of effective rent?  I see a lot of management companies using price optimization systems such as Rainmaker LRO  and Yieldstar .  I think this is great.  So, why the need to add specials when these programs are suppose to optimize rent?  I think we need more communication (and accurate data) among management companies to ensure that the market is sustaining a true price value.  After all, management companies are spending valuable money and resources to make sure they can convert lookers to leases.

So, if specials are needed but are not wanted, what can we do to attract prospects to the community?  What will make one community stand out from the other?  Can there actually be value in location and amenities without tagging on concessions?  I encourage you to share your opinions about this blog and I welcome your comments.  I am truly excited to hear what communities are doing to increase the value of their products. 

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Sarita LaTorre

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  2. #2462
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We provide sign spinners to dozens of communities throughout the country. We had a community insist on using "Now Leasing" on their sign (as if there was a point when they are not leasing). After a few weeks of below average results and a healthy dose of encouragement, they produced a sign that read: "Free Rent - 2 Months!"

The traffic immediately increased from about 1 walk-in a day to 3.

Same thing for another community who was using "New Apartment Homes." They switched over to "Rent Today-Save $200" and the traffic increased.

People like numbers. It's easy to visualize "Free Rent-2 Months" or saving $200 if you act today.

Buy-one-get-one and the 30% at Macy's are great examples.

You gotta get 'em in the door to have a chance at closing them.

  Ryan Dick
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  2. #2463
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But you have to consider the kind of traffic that these banners attract. Will they renew? Will they look for the next deal? Sure people like a bargain, but sometimes there is a reason items are in the bargain bin. Is that how we want our property to be perceived?

  Whitney Garrity
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  2. #2464
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Thank you all for your comments. I agree that we need to get the prospects through the door. However, does this affect your renewals when you have to meet NOI the next year? Are we planning to keep rent the same to save a resident? There is a certain image that some communities are trying uphold. Are there other alternatives to free rent? I absolutely believe in teasers to get the renter through the door. I do not think we can survive the current economic downturn without specials and concessed rents. After all, people are looking for a bargain. My opinion is if we need to dicount rent 3 months worth, should we take a closer look at effective rent?

  Sarita LaTorre
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  2. #2465
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You're not just looking for traffic, you're looking for traffic you can qualify. Otherwise you're just wasting your time.

  Whitney Garrity
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  2. #2466
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Very good points!

I tell prospects something I heard from Toni Blake when she came to speak to my company. "Choose your new home for what you GET, not for what you get free!"

If they think about it, they will know what is important to them. If 'free' is what they want, I'm sure they can find it. If a year round indoor pool and 24 hour fitness center is what they want, they will find that too (hopefully right here!)

That makes it our job to find out what they want, then find a way to help then get it. This is why I keep a list of my neighborhood apartment communities and their features so I always have a way to provide for any prospect.

I may not be able to give them a jacuzzi tub or a washer and dryer, but I know who can, and if I go out of my way for them, they might just remember that the next time they know someone looking for a place just like mine!

  Rose M
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  2. #2467
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Rose - Great points! I firmly believe (as both a consumer and a proud participant in this industry) in the quote you offered by T.B. and will give my prospects a bit of the same advice. When faced with an objection by a prospect that is:"well, property b is offering me free rent..." I answer the dangling statement with "There's a reason" and I leave it at that.
Concessions are a slippery slope. They throw the numbers, throw the residents the next year when their rental rates skyrocket, and they throw you staff into a false sense of dependency as they believe they need the concessions to sell.
Love this posting, Sarita!

  Tara Smiley
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  2. #2468
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Unfortunately when you offer a big incentive the demographic that you get in gets harder to qualify as most often they can't afford to rent. If you are offering 2 months free you are more likely to get people in that are having financial difficulties and will be out anyway in 2-3 months.

Tara I do exactly the same as you do, as a matter of fact I had one the other day, the person was offered lower rent, no security deposit and 4-6 weeks free I think it was. When he asked me why we weren't offering the same, I simply said, 'we don't have to' and I left it at that. He took a week to think about it, ignored my look and lease special and ended up renting with me with no specials as he waited too long for my lnl.

You have to have some type of deal, prospects will not bite if there is no carrot. It simply doesn't have to be 2 months free rent. My community is most certainly not offering that and yet we outmatched my comps that were offering no security deposit and 6 weeks free rent.

  Vala Vieregg
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  2. #2469
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Hi Everyone! Just getting into this great discussion concerning the blog post. Allow me to update the statement I made in Columbus, OH about communities offering up to 4 months free....I found a Vegas property offering 5 months free! Out of control!

Yes, many markets are currently concecession driven. This is a scary situation and a downward spiral. Just last week, I was asked to consult with a community that was trying to respond to the difficult market. Once their October move outs have turned in their keys, they will see their occupancy drop into the low 80's and their economic occupancy sitting very uncomfortably at 79%.

We discussed what to do. A concession would certainly attract traffic, lease apartments and keep the contracted rent amount higher than if we dropped the prices and removed concessions. This was an important position when we discussed the challenge we are seeing with renewals.

I have many of these conversations with owners in about 20 different markets this year. My advice, keep the contracted rental rate higher, offer a concession to attract and close traffic and....here is the kicker....require a longer term lease. Get these residents locked in for 14 - 20 months. We will not see rents increase in 2010 (okay there are a few good markets out there but they are not the majority) and concessions will start to decrease as the markets stabilize due to the slow down in new product. The trick is to stop the churn and stabilize. The result, you avoid offering concession on that apartment until 2011 and by then, the market may not require this free rent offer. Longer leases allow you to do this and removes fear that the renter may have concerning their rent increasing after a 12 month lease agreement.

Bottom line, each market and every community is different and there are a lot of factors to consider including the long and short term goals of the ownership. This week alone, I will be leading 6 calls with management companies via my...

Hi Everyone! Just getting into this great discussion concerning the blog post. Allow me to update the statement I made in Columbus, OH about communities offering up to 4 months free....I found a Vegas property offering 5 months free! Out of control!

Yes, many markets are currently concecession driven. This is a scary situation and a downward spiral. Just last week, I was asked to consult with a community that was trying to respond to the difficult market. Once their October move outs have turned in their keys, they will see their occupancy drop into the low 80's and their economic occupancy sitting very uncomfortably at 79%.

We discussed what to do. A concession would certainly attract traffic, lease apartments and keep the contracted rent amount higher than if we dropped the prices and removed concessions. This was an important position when we discussed the challenge we are seeing with renewals.

I have many of these conversations with owners in about 20 different markets this year. My advice, keep the contracted rental rate higher, offer a concession to attract and close traffic and....here is the kicker....require a longer term lease. Get these residents locked in for 14 - 20 months. We will not see rents increase in 2010 (okay there are a few good markets out there but they are not the majority) and concessions will start to decrease as the markets stabilize due to the slow down in new product. The trick is to stop the churn and stabilize. The result, you avoid offering concession on that apartment until 2011 and by then, the market may not require this free rent offer. Longer leases allow you to do this and removes fear that the renter may have concerning their rent increasing after a 12 month lease agreement.

Bottom line, each market and every community is different and there are a lot of factors to consider including the long and short term goals of the ownership. This week alone, I will be leading 6 calls with management companies via my program "Kate On Demand" to walk through the various factors and design a strategy that best serves the property, customer and owners.

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  Kate Good
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  2. #2470
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I agree with Vala. The offer of free rent will turn a lot of heads but many of these people think they can afford to live there when they may not be the best long-term renters. Ideally, an income requirement should be a factor and pro-rating the rent should be discussed.

Everyone wants to think they're saving money/getting a deal. When they may actually end up paying more long-term for this apartment than a less expensive one.

  Ellen Thompson
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  2. #2471
This comment was minimized by the moderator on the site

Just caught this Sarita. We had a nice discussion going back in Feb. as well. I think it will always be a topic for debate. [url]http://www.multifamilyinsiders.com/home/multifamily-blogs/You-mean-like-the-brown-meat-at-the-grocery-.html?blogger=theapartmentnerd[/url]

  Mark Juleen
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