Understanding Move-In Freebies and Concessions in Apartment Rentals

In the United States rental market, particularly in major metropolitan areas, property owners and managers frequently offer various incentives to attract new tenants. These incentives, often referred to as move-in freebies or concessions, can range from periods of free rent to gift cards and waived fees. According to a report from Zillow cited in the provided data, more than 41% of apartment properties in the Dallas-Fort Worth area were offering some form of freebie to attract tenants as of late 2020. Nationally, that figure stood at 34%. These giveaways typically involve periods of free rent, gift cards, or other enticements, amounting to more than an 11% rent reduction in the Dallas-Fort Worth area.

The prevalence of these offers varies based on market conditions. During the pandemic, rental incentives in the Dallas-Fort Worth area soared from 23.7% in October 2019 to over 41% in 2020. This increase has attracted young renters moving away from home or into larger apartments to take advantage of the bargains. Zillow economist Joshua Clark noted that the "effective savings rate" is what renters would save on their typical housing costs over the course of their lease due to both lower rent prices and concessions.

Types of Move-In Incentives

Landlords utilize a variety of strategies to entice renters. The most common offer is a period of free rent, often one or two months. However, some luxury buildings offer more substantial incentives, such as three months or more of free rent. For example, Townhouse on the Park in Long Island City was offering up to 3 months of free rent. Other popular freebies include:

Gift Cards: Luxury apartment owners have been known to offer Amazon gift cards or Visa check cards.
Waived Fees: Some landlords offer lower security deposits to reduce the upfront cost for tenants.
Memberships: Yearlong health club memberships or discounts at on-site day care facilities are sometimes provided.
Services: In some cases, landlords offer concierge services to handle tasks like finding a dog-walker, hiring a babysitter, or making reservations. This service is being offered by Manhattan Skyline Management to keep good tenants happy.
Renovations: At the Octagon on Roosevelt Island, management renovated a tired playroom and is working on a water taxi service in response to resident requests.
Partnerships: Landlords may partner with local businesses to offer discounts or freebies on local products and services, keeping costs low while expanding ad reach.

Understanding the Financial Structure

Renters should understand how these concessions are structured. Sometimes, the value of the free rent is deducted from the asking rent to provide a lower monthly payment. This is often referred to as "net-effective" rent. The net-effective rent is calculated by taking the total amount of the concession (e.g., one month's rent) and dividing it by the term of the lease. The resulting amount is then deducted from the asking rent. However, the provided data clarifies that an offer of "one month's free rent" does not always mean a month without paying rent; it is more accurately a discount on rent.

In other instances, usually noted in the listing, a tenant is expected to pay the full gross rent every month and receive the advertised number of months free towards the end of the lease.

It is crucial for prospective renters to remember that while they may pay a discounted rent for the first year, landlords typically evaluate applicants based on their ability to pay the gross (sticker price) rent. This ensures the tenant can afford to stay in the building after the initial concession period expires. Once a lease expires and a tenant decides to re-sign, it is unlikely they will regain a concession of the same magnitude, or any at all. Depending on the state of the housing market, rent could increase to near pre-pandemic levels in subsequent years.

Market Context and Criticism

The use of freebies as move-in incentives is not a new concept but has seen a resurgence. The term "concessions" has returned to the rental market lexicon, a term last heard frequently in the early nineties. While these incentives can help keep buildings full, they have drawn criticism from some consumers. In Portland, readers expressed frustration that developers build unaffordable housing and then bribe potential residents with gift cards, while existing residents face rent increases. Critics argue that rather than offering perks, developers should focus on building housing that people can afford.

Despite criticism, the financial logic for landlords is clear. The cost to turn over a new apartment—including repainting, cleaning, and marketing—is estimated to be at least two months' rent. Offering incentives can be a prudent way to keep buildings full and avoid the costs associated with vacancy and turnover.

Considerations for Vacation Rentals

While the primary focus of the provided data is on long-term apartment rentals, similar principles apply to vacation rentals. Vacation rental hosts can make guests feel welcomed by providing freebies that leave a positive impression without significant cost. Examples include:

High-speed internet: A reliable Wi-Fi connection is essential for modern life, helping guests feel connected and comfortable.
Local maps and guides: Providing information on local attractions helps guests make the most of their stay.

These small investments can set a property apart and create an unforgettable experience for guests.

Conclusion

Move-in freebies and concessions are a significant part of the U.S. rental market, particularly in competitive areas like Dallas-Fort Worth and New York City. They offer tangible financial benefits to renters, such as reduced monthly costs or waived fees, and help landlords maintain occupancy rates. However, renters must carefully evaluate the terms of these offers, understanding the difference between gross and net-effective rent and the likelihood of securing similar concessions upon lease renewal. While these incentives can make housing more affordable in the short term, they do not address underlying issues of housing affordability, a point of contention among consumers and critics.