Shopping For Specials? OC is the Place to Be!
Apartment hunting is no longer about scouting the best possible location or even bargain hunting. Today, many renters are shopping for the move-in specials that have become a proverbial sign of the times for the Orange County Housing Market.
Move-in specials are promotional deals geared towards attracting residents to an apartment complex. During a somewhat regular market with low vacancy rates, prospective residents rarely see more than a $500 Discount on a month’s rent, a decreased Security Deposit or even a month free on a year lease. These incentives are utilized much more frequently at larger apartment complexes that typically push or set market rents for the area than at smaller, middle-of-the-road apartment communities.
However in our current rental market, prospective residents are being offered much more than a rent reduction or decreased security deposit by apartment communities of all sizes. In fact, many, if not all communities have been affected by the economic downturn and have been forced to offer a combination of deposit reduction, rent discount and gifts.
A look around Fullerton finds one 196 Unit apartment complex buying Nintendo Wii Game Systems (a $300 Value) for residents in return for the signing of a year lease of a 1 Bedroom Apartment, on top of a awarding them a free month ($1,025 value). Looking at these concessions over the course of a year lease, the contract rent is $1,025 while the effective rent is actually $914. This is a discount of over $111 dollars per month over the year. Another community, this one a 50 unit complex, is purchasing a 42 inch HDTV (an $800 Value) with a reduced deposit of $400 in exchange for the signing of a year lease. Rents at this property have dropped from $1,400 for a 2 Bedroom/2 Bathroom to $1,275.
Heading south towards the coast, many complexes are offering the same specials, if not stepped up due to the higher rental rates. In our portfolio, we have noticed the steepest decrease in rents at our coastal properties. Specifically, our Newport and Costa Mesa locations have realized a decrease by as much as $300 in market rents per month. In our portfolio, these rent reductions have been paired with a special $500 off move-in promotional deal.
The market for high end, coastal rentals has experienced this crunch unilaterally. That said, many newer properties are: dropping rents, decreasing security deposits, introducing move-in specials and giving away gifts. One large Orange County landlord is offering a 2 Bed/2 Bath townhouse that used to rent for $2,150 for $1,500, with a half-off the first months rent and a decreased deposit. Over a year lease, the landlord loses approximately $8,550 with the specials and bonuses. And this special has yet to fill the space!
While prospective renters may enjoy bargain hunting, the incentive game has many owners and managers questioning the quality of their applicants. Often times, renters lured in through unusually low move-in costs, decreased security deposits or other such promotional deals are more likely to default on the terms of rental/lease agreements than those lured in on regular terms. Prospective renters shopping for specials might look for the best special near their price range and sign a lease based on the incentive alone and not think about their ability to pay the rent until they receive their first three day notice.
In order to realize the true benefits of the move-in special, which is eliminating as much downtime as possible by filling the apartment home with a qualified applicant, make sure that while rent decreases and incentives have been introduced, you maintain the same methods and requirements for verifying rental history, employment history and credit history as you would in an up-market. This is the key to eliminating future problem tenants and avoiding lawsuits: never compromise resident screening, remain consistent.
Be sure to stay on top of your market area to make sure that your rents and specials are competitive. If you have more vacant units or your units are staying vacant longer than your neighboring complexes, this could be a sign you need to make an adjustment.