Jul 16, 2010 Matt Roesly
As SmartDep Security Deposit Replacement continues to add new property managers and owners, we are learning about different marketing specials that help landlords to increase the occupancy of their rental unit portfolio. We've seen numerous marketing ideas such as free wi-fi for the unit, a free flat screen HDTV for the unit, free utilities, and a free month's rent. The first three ideas make sense because the property manager is purchasing these products at a discounted group rate and pitching the potential tenant on the perceived value of the benefit. The difference with the free rent special is that the perceived value and the true cost are exactly the same. If a property manager gives a free month's rent at $1,000.00, it is costing the company $1,000.00 of income. When it comes to marketing, we all agree that the perceived value of our product should be higher than the cost for the product.
The truth behind apartment complexes offering tenants free rent for the first month is that they want to lower the tenant's move-in costs. The upfront cost of your first month's rent combined with a full security deposit can be quite burdensome for tenants. The easiest way to differentiate your rental unit over a competitor is to tell the tenant their move-in costs are $1,000.00 less than the apartment down the street.
I would suggest a slightly different strategy to any firm that considers taking the free rent approach. Instead, offer the unit without requiring a security deposit. Typically security deposits are equal to one month's rent so let's use an example of $1,000.00 to see how this approach differs. If you give away free rent, you are losing $1,000.00 in income but you still collect $1,000.00 in the security deposit. The $1,000.00 of free rent is lost forever but when the tenant moves out, you discover $200.00 in unit damage. You then deduct $200.00 from their security deposit and return $800.00. In this example, you lost $1,000.00 in rent but were able to easily recover the $200.00 in damages. Now, let's say you eliminate the requirement of a $1,000.00 security deposit but collect $1,000.00 in rent the first month. The tenant's move-in costs are the same as the first example but you've collected the $1,000.00 of rent. Twelve months later, the tenant moves out and you discover $200.00 in unit damages. Using this strategy, you will have to invoice the tenant for damages and collect. There will be times when collecting is a challenge but you have already made $800.00 more than in the first example.
In both examples, the tenant's move-in cost is $1,000.00 and that's what is most important to them & how much do they have to come up with to move in. The perceived value of your marketing promotion is very similar because the move-in cost is the same. If you're trying to lower the move-in costs to gain new tenants, there is a better way than giving away free rent.