Concessions

Types of Concessions

The most common concessions in rental real estate include free rent periods (one or two months free on a 12-month lease), reduced or waived security deposits, move-in specials or cash credits ($500–$1,000 off the first month), waived application or administrative fees, free parking or storage for a limited period, and upgrades or improvements at the landlord's expense (new appliances, fresh paint, upgraded fixtures). In commercial real estate, tenant improvement allowances (TIA) and free rent periods of several months are standard concessions built into lease negotiations.

Impact on Effective Rent

Concessions directly reduce the effective rent — the actual revenue received per month over the lease term. If you offer one month free on a $1,500/month apartment with a 12-month lease, the tenant pays $16,500 over 12 months instead of $18,000. The effective monthly rent drops from $1,500 to $1,375, a 8.3% reduction. This distinction matters because the face rent ($1,500) is what appears on the lease and in market surveys, while the effective rent ($1,375) reflects your actual revenue. Lenders and appraisers look at effective rent when underwriting.

When to Offer Concessions

Concessions are appropriate during lease-up of a new building when you need to fill units quickly, during seasonal slow periods (winter in most markets), when competing with newer or recently renovated buildings that offer superior amenities, when vacancy rates are rising market-wide, and when retaining a quality long-term tenant who might otherwise leave for a competitor. Concessions should be a deliberate, time-limited strategy — not a permanent fixture. If you find yourself offering ongoing concessions, your property may have a pricing, condition, or positioning problem that discounts alone won't solve.

Concessions as a Market Signal

Rising concession activity in a market signals softening demand. When landlords across a submarket begin offering free months and reduced deposits, it indicates that supply is outpacing demand and rents are under pressure. For investors, this creates both caution and opportunity. Caution because your own properties may face pressure. Opportunity because sellers of underperforming properties may be willing to negotiate lower prices. Track concession trends through multifamily market reports, competitor mystery shopping, and conversations with local property management companies.

Accounting Treatment

From an accounting perspective, concessions should be amortized over the lease term, not recognized in the month they are given. If you offer one month free on a 12-month lease at $1,500/month, you recognize $1,375/month in revenue for 12 months — not $0 in month one and $1,500 for months 2–12. This straight-line approach more accurately reflects the economic reality of the lease and produces consistent financial statements. For tax purposes, consult your CPA, but the general principle of amortizing concessions over the lease term applies. When underwriting an acquisition, always adjust the seller's reported income for any concessions to see the true effective revenue.