Topic: The True Cost Of A Free Months Rent

All Multifamily competes for tenants by giving concessions. The most common type of Concession is the Free Months rent.
It is usually given in the 2nd month.

While the free month Consession is attractive to all demographics. It's most attractive to lower income folks.
Unfortunately that's where the biggest problem is. The lower income demographic is less financially secure.
Within the demographic there are
a) stable folks
b) folks who try to be stable but have turbulent lives and employment, and
c) folks who take advantage.

Let's see the effect for a $1,200 month unit and what happens when we get the tenant takes advantage followed by a stable tenant.

We collect a first months rent and a security deposit equal to a months rent. A total of $2,400.
So far so good.
Month 1 we have been paid.
Month 2 is free.
Month 4 we don't receive the rent.
Month 5 we start eviction and in Month 7 they are evicted.
We now have the stable tenant.
They pay first months and a security deposit, another $2,400
Month 8 has been paid.
Month 9 is free.
Month 10-12 is paid for a total of $3.600.

In 12 months we received $8,400 (2,400+2,400+3,600)

In a low occupancy building where tenants are difficult to find, $8,400 is better nothing as long turnover is not expensive.

However a $100/month discount consecution when paid on time is better. 
Financially, its the same to the tenant .
But, to the property its a significant advantage.

Looking at the same scenario.
We receive 1st month's rent and security deposit, a total of $2,300.
Month 1 is paid.
Month 2 we don't receive rent.
Month 3 we don't receive the rent and start the eviction and month 6 they are evicted.
We find the stable tenant.
They pay the first months rent and a security deposit. A other $2,300
Month 7 they have paid.
Month 8-12 is paid. A total of $4.400.

For 12 months we received $9,000 (2,300+2,300+4,400)

(If we had a stable tenant in the first place, there would be no cost difference between the "free month" and the $100 a month discount.)

The advantages to the property:
1) The property is going to attract a more stable tenant.
2) The incentive discourages folks who want to take advantage as they prefer the "free month" properties.
3) The discount encourages the tenant to pay the rent on time.
4) The cash flow is better, during the free month, we don't have costs without income.
5) Every month the tenant sees on their invoice that $100 discount, so they the concession we provide them is reinforced. 
6) And In the scenario above where we selected port tenants, we received $600 more, not a significant difference, but it does contribute to the cost of the turnover.

The $100 discount is usually always more beneficial than the free months rent.

The biggest lesson here is to look at the full cost of every incentive for the demographic you are marketing to.
Don't just look at getting a "tenant".