The Real Cost of Vacancy Part IV: How “Free Rent” Destroys Valuation

In this episode of the Ironclad Underwriting Podcast, Jason Williams and co-host Frank Patalano break down the true financial impact of concessions in multifamily real estate. As part of their mini-series on the real cost of vacancy, they explain how concessions inflate economic vacancy, quietly erode effective rents, and can wipe millions off a property’s valuation if misused. Through real-world examples, math walkthroughs, and candid asset management stories, they make the case for using concessions sparingly, strategically, and with a clear exit plan.

Topics Covered

• Economic vs. physical vacancy and why concessions widen the gap
• Why two months of free rent equals a ~16% annual rent discount
• How concessions directly reduce NOI and property valuation
• Short-term “burn-off” concessions vs. long-term/perpetual concessions
• Real examples: free rent, TVs, gift cards, waived fees, parking, and internet
• Concession creep and the danger of always running “specials”
• Competitive pressure and how market behavior distorts true market rent
• When concessions make sense (lease-up, distressed occupancy, seasonality)
• How to think about concessions during underwriting and pro forma modeling

Notable Quotes

• “If you give two months free rent, you’re basically giving a 16% discount on the rent for the year.”
• “That $300,000 in lost rent at a six cap is a $5 million hit to your valuation.”

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