Everyone knows that residential real estate is a buyer's market these days. But how often do you hear that there's a renter's market as well?
Today, landlords are trying to lure tenants with unprecedented deals -- as a glance at the real estate ads shows. Management companies are scrambling to see who can serve up the biggest specials, whether it's a free month's rent, reduced security deposits or freebies, such as microwaves and television sets.
Incentives are "certainly something that's more commonplace in the industry these days," said Chris Devlin, president of the Apartment Builders & Owners Council of the Home Builders Association of Maryland. "This is what companies need to do to compete in the market."
Many people assume that apartment complexes will thrive in a slow economy, but that's not always true, Mr. Devlin said. Today, people in their twenties and thirties -- often the biggest population in apartment buildings -- are cutting expenses by moving back home or by rooming with friends.
Low mortgage rates have affected rentals, too. "People who haven't had a job problem are moving up [into a house]," said Amy Macht, vice president of Regional Management Inc., a Baltimore-based management company with 13 apartment complexes.
Indeed, properties that had 2 percent to 3 percent vacancy rates two years ago are now struggling with vacancy rates of 10 percent or more, according to Ben Frederick III, vice president of DTC Frederick Realty. The Baltimore-based firm appraises, manages and sells apartment buildings and other properties.
In this dreary picture, incentives are seen as lifelines, said Gary Talles, vice president of Pikesville-based Robbins Realty Management.
"It's like in a department store when you want to move items, you put them on sale," said Mr. Talles, whose company began offering new tenants a free first month's rent at its 15 local complexes a year ago, and recently lowered security deposit fees.
"When you put it in someone's mind that they can get a little bargain, it might make them likelier to move."
Customers expect discounts and freebies when they rent an apartment, just as they expect air conditioning and appliances, according to Jim Clauson, president of Baltimore-based Maryland Management Co. The company now offers a rent-free first month for about three-quarters of its 30 communities in the state. It also has reduced security deposits in many of its complexes.
"If you don't play the game, you don't end up with many tenants," said Mr. Clauson. When a prospective tenant calls a development today, he added, one of the first questions is likely to be, "What are your specials?"
Discounts can make a difference, said Kim Waters, rental agent for Middle Branch Manor Apartments and Townhomes, a 550-unit complex in South Baltimore owned and managed by Maryland Management Co.
About 24 new tenants signed leases in November after the complex began to offer a special that included a $150 security deposit (lowered from $250) and a free first month's rent, she said. In October, the complex had gained only 16 new tenants.
"A lot of people can't pay a $250 security deposit, so this is something that helps them to move in," said Ms. Waters.
Offering new tenants a rent-free first month is the most common special. But reducing the monthly rent is also a popular incentive.
Within the past six months, Town and Country Management Corp. has lowered rents for units in about three-quarters of its 27 properties in Baltimore, the Washington suburbs, and Virginia, according to Michael H. Rosen, the company's executive vice president and chief operating officer.
Some monthly rents are now as low as $309 for a one-bedroom apartment.
The discounts, which affect communities in Cockeysville, Ellicott City and Glen Burnie, among others, range between $10 and $100, said Mr. Rosen. They're an attempt to drive up the occupancy rates at the complexes, which are about 94 percent filled.
"Some people are giving a free television or microwave or a free month's rent, but I think today, with people being so budget-conscious, giving $40 off per month will make a bigger difference," said Mr. Rosen, noting that "it's better to have an apartment filled at less rent than to have it empty."
Although Mr. Rosen pooh-poohed free gifts, some landlords need them to play the incentive game. They may be unable to offer a free month's rent and unwilling to risk renting without security deposits.
The Mount Washington Management Group, for example, offers the choice of a microwave, a television set, a $100 gift certificate, or an exemption from paying the last month's rent on a one-year lease for new tenants at its Edmondale Apartments complex in Edmondson Village.
"We analyzed what people were looking for, as far as a free gift, a low move-in cost, or a rent reduction, and we thought that we could basically boil them all down to the same cost, so why not offer them all?" said Jon Hirsch, director of property management for the company. He noted that the vacancy rate at the 262-unit complex has risen to 15 percent over the past year.
The package, which Mount Washington began offering about two months ago, hasn't been a great success, admitted Mr. Hirsch. "Throwing a gift someone's way isn't anyone's idea of a long-term business solution," he said.
But the company, which is still paying the mortgage on the property, isn't prepared to offer a free first month's rent or to eliminate the security deposit.
"People are giving better deals, but that's the kind of thing that scares us," said Mr. Hirsch, who noted that exempting the last month's rent isn't quite as risky as foregoing the first. "Practice has shown us that a lot of the people who are looking for a no-money-down deal will die on you, they'll never pay you a cent."
Indeed, companies offering incentives agree that they're sometimes treading on thin ice. According to Gary Talles of Robbins Realty Management, some tenants "jump from one special to another, and won't pay the rent for any of them."
Often, a company can prevent that by checking a tenant's record with a former landlord.
Still, some landlords question whether incentives will bolster the market.
"The income is just not there for people to live independently," said Mr. Hirsch. "My hope is that ultimately some jobs will appear, parents will get tired of their adult children living at home with them, and the apartment market will come around again."