Key Takeaways
- Rental incentives can help Austin landlords reduce vacancy time and compete with other available rentals.
- Short-term deals may protect long-term rental rates, but they can also reduce immediate income if used unnecessarily.
- Landlords should only offer rental deals when market conditions, vacancy length, and applicant demand justify the cost.
The rental market has become quite competitive when looking for qualified tenants. Many landlords are faced with the question of whether to provide incentives to help find a new tenant faster when a vacancy exists.
At Bigham & Associates, we understand that the answer to that question is not as black and white, but very dependent on the conditions of the rental market and current demand levels in Austin, TX, where many factors, including growth in population, changes in housing trends, and shifts in market conditions, will affect the demand for rentals.
In this article, we will assess the possible outcomes for landlords offering leasing incentives to attract tenants into rental properties in Austin. Also, we will discuss the pros and cons, market dynamics, practical solutions, and resources related to providing leasing incentives.
Comprehending the Rental Market in Austin, TX
Landlords must begin by thoroughly understanding the bigger picture of Austin’s rental market before implementing lease incentives. Historically, Austin has been one of the fastest-growing MSAs in the U.S. Numerous employment sectors, such as technology, health care, education, and government, continue to attract employees from all over the country to call Austin home.
The predominant demand drivers (corporate relocations, university enrollment, remote workers, start-up employment growth, and lifestyle migration) directly correlate to these employment sectors.
In conjunction with these factors leading to a growth in population, Austin has experienced a considerable amount of construction activity related to the development of new rental properties. This added supply, including new apartment communities, multifamily projects, and rental inventory, has increased competition in many parts of Austin.
As rental supply continues to increase, renters now have more options available than ever before. This shift can often result in increased use of lease deals, especially in cases where property owners are competing against professionally managed apartments offering aggressive marketing and promotional activities.
What is a Rental Deal?
A rental incentive is a promotion offered as part of a rental agreement to encourage prospective tenants to lease a property. Examples of rental incentives include:
● One month of free rent.
● Reduced security deposit.
● Waived application fees.
● Discounted fees for moving into the property.
● Gift certificates or bonuses for moving in.
● Free parking.
● Discounts for utilities.
● Flexible lease terms.
The goal of rental incentives is typically to increase occupancy and therefore decrease the amount of time that a property is vacant.
Rental incentives should not be confused with permanent rent reductions.
Reasons Why Landlords Offer Rental Deals
While Austin continues to be a desirable city in which to live, there are numerous reasons that landlords may consider offering rental incentives, including:
● An increase in residential rental inventory.
● A slowdown in leasing that occurs during certain times of the year.
● Competition from other apartment communities.
● Longer periods of time that properties are vacant.
Benefits of Offering Rental Incentives
Reduce Vacancy Time
One of the greatest advantages of utilizing rental incentives is the ability to reduce the amount of time that a property is vacant and, therefore, to reduce vacancy times. On average, an Austin renter comparing two like properties will prefer the unit with a better incentive.
Enhanced Competitive Position
Similar to the first benefit, an ever-growing number of Austin renters are also looking at comparative listings on the internet. However, apartments that offer “half off first month’s rent” will likely attract attention more easily than other identical priced units.
Incentives can help individual rental properties compete with professionally managed apartment communities that are already using aggressive promotions.
Rental Price Stability
By increasing their ability to maintain long-term prices, property owners who use short-term promotions for the reasons noted can offer steady revenue flows versus decreasing rent over long periods of time. This approach allows property owners to protect themselves from rental income fluctuations over time.
Before using incentives as part of your leasing strategy, it also helps to review practical DIY landlord tips so you can avoid pricing, marketing, or management mistakes that may lead to longer vacancies.
Wider Range of Potential Tenants
The ability of some tenants to obtain sufficient funds upfront (when moving) to pay for their new apartment is frequently challenged as a result of the higher costs of relocating. Flexible incentives are another way of reaching qualified tenants and improving their ability to find suitable housing.
The Drawbacks of Offering Incentives
Rental Units for Price-Sensitive Renters
Some applicants may be especially responsive to rental concessions, particularly when upfront move-in costs or monthly affordability are major factors in their housing decision. Furthermore, these applicants typically want to move quickly, show less commitment to renewals, and become more price-conscious as they move into the new unit.
Creating a Future Perception
When property owners provide regular incentives, the renters will expect to receive a discount when they renew their lease. Owners should avoid appearing desperate or inconsistent.
Short-Term Revenue Loss
Concessions can reduce short-term revenue, especially during the first month of the lease. If not necessary, property owners might lose additional monthly income.
However, they are not providing enough leasing-related benefits. In some areas of Austin, there may be no need for promotion to achieve results.
Effects on Property Image and Perception
Luxury properties and premium properties can potentially diminish their brand by providing too many discounts.
When it is appropriate to offer deals:
● The property has been vacant for too long.
● Competing listings are offering discounts.
● Required move-in dates are difficult.
● Higher rent requires protection.
When landlords should not use incentives:
● Demand for rentals remains strong.
● Prices are already competitive.
● There is concern about the quality of tenants.
● Property is something special.
Bottom Line
If you are considering using a deal to fill an Austin, Texas rental property with new tenants, it is important to think through the costs and benefits carefully. Incentives can reduce short-term income, but they can also lower vacancy time, strengthen your competitive edge, and help preserve long-term rental rates.
Working with a professional property management company can help you decide when a rental deal makes sense and when a different leasing strategy may be more effective.
