Across the country, more landlords are attempting to entice tenants with concessions including months of free rent.
In New York City’s borough of Manhattan, landlords were offering to cover part of the rent and other discounts and freebies for 36.2% of units on the market in December, according to a report from realty firm Douglas Elliman Real Estate and real-estate appraisal firm Miller Samuel.
The figure was even higher in other parts of the city, such as Northwest Queens (50.2%) and Brooklyn (46.1%). A year ago, the shares of apartments being listed with such offers were 26.4% 13.7% for Manhattan and Brooklyn respectively.
Beyond free months of rent, other concessions landlords offer include $100 gift cards and covering the broker’s fee (which can be as high as 15% of a year’s rent) at lease-signing, the New York Times reported.
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But this isn’t just happening in the Big Apple. Landlords all across the country have been offering record numbers of concessions to lure prospective tenants, experts say.
Why renters should think before they leap at a concession
While these concessions might excite renters and nudge them to sign the contract, they can become headaches for unwitting renters.
A month of free rent can seem like a sweet deal, but it can also cause renters to find themselves in an unaffordable apartment. “If you’re only looking to stay for the duration of the lease, you can get a good value,”said Shane Leese, data scientist at real estate website RentHop. “But if you’re looking to stay longer-term, you could end up paying more.”
Often times, landlords will convert the “free month of rent” into a monthly deduction off the monthly rent. For renters, that means a wider range of apartments could fall within their price range — but when it’s time to renew, they will likely be expected to pay the actual price for rent or more if the rent is raised.
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Take a studio apartment in Manhattan
If a Manhattan studio is listed for $1,500 per month with a month’s rent free, for example. There are two ways that could play out for a renter. In one scenarios, that unit’s monthly rent without the discount would be $1,636 per month, and the landlord would distribute the benefit over the span of the lease, with the renter paying the $1,500 a month for 12 months.
Or, the rent would be just $1,500 per month, and for one month during the 12-month lease, the renter won’t have to pay.
The difference between the two is significant: In the first scenario, the renter would be paying $18,000 over the course of the lease in rent, but just $16,500 in the second. And if a landlord chose to raise the rent when it came time to renew, in the first scenario the new rent would be based off the rate of $1,640 per month, as opposed to $1,500 per month .
Consequently, renters would likely be better off finding an apartment that would actually be within their price range before any concessions were offered.
And if a renter does choose to go for an apartment where the landlord is offering a concession such as free rent, it would be more productive to save or invest that money rather than spending it on something like a new TV, Leese recommended.
Landlords struggle to fill luxury condominiums
This trend is being driven by the construction of new multifamily apartment buildings, a report from real estate website Apartment List concluded. Most of these are luxury condos, said Sydney Bennett, senior research associate at Apartment List. “The luxury end of the market is overbuilt,” she said. “Landlords are really hesitant to lower rent. So offering one free month can be more attractive than lowering rent.”
Landlords might also be inclined to offer these concessions in winter months because it’s a slower season, Leese said.
If a landlord is offering concessions, view it as a bargaining opportunity
Such concessions are an indication that a landlord may be open to negotiation on the lease terms, Leese said. Rather than necessarily just accept a free month, renters should bargain.
Sometimes, landlords will be willing to lower the monthly rent in exchange for a longer lease term. That could be especially attractive to landlords during the winter months, because an 18-month lease would mean that the apartment would be up for renewal in the busier, more competitive summer months. “You’re helping them out a lot, so it gives you more of a position for negotiating a better rent for yourself,” Leese said.