A concession is not a marketing expense. It is a rent reduction with a delayed reveal date.
That sounds like a bookkeeping quibble. It is not. Where a concession gets recorded determines whether you see it at all, and whether the income you are buying is the income the property actually collects.
The same fact, recorded three ways
One free month can appear in three different places. It can be netted directly into rental revenue, so the top line arrives pre-discounted and the concession is invisible. It can sit on its own line between gross potential rent and effective gross income, where an underwriter can actually see it. Or it can be recorded below the revenue line as a leasing or marketing expense, where it looks like a controllable cost that a sharper operator could trim.
The third version is the expensive one. It moves a rent problem into a line the model is allowed to fix. The pro forma cuts marketing spend, the model rewards the discipline, and the property still has to fill the same units in the same submarket on the same terms.
The arithmetic is not subtle
One month free on a twelve-month lease is an 8.3% discount. Two months is 16.7%. A unit advertised at $1,500 with one month free collects roughly $1,375 per month across the lease term. That $125 is the gap between the rent roll and the bank statement.
Scale it. On a 150-unit property where 40 leases signed in the trailing year carried one month free, about $60,000 of rental income was never collected. Capitalize that gap at a 5.5% cap rate and the valuation difference runs a little over one million dollars. The property is not worse than it looks. The income being capitalized was simply the advertised number rather than the collected one. The arithmetic is illustrative, and it moves in one direction only.
The timing trap
Concessions do not spread themselves evenly. Most management systems book the discount in the month the lease is signed, not across the lease term. A trailing three-month window pulled from a slow leasing season can show almost no concession activity. The same property measured across its heaviest turn months tells a different story. Annualizing the quiet quarter is how a concession burden leaves a model without anyone deciding to remove it.
Using trailing three-month income does not protect you here, and neither does the rent roll, which reports face rent by design. Two documents, both accurate, and the discount can still fall between them.
The subtle half: waived fees
Free rent is the visible concession. The waived fee is the one that hides better. Application fees, administrative fees, pet rent, parking, amenity charges, the first utility billback. These sit in other income, and other income is usually the line a pro forma escalates by a tidy three percent a year. A property waiving fees to close leases while the model grows fee income is running two opposite assumptions at once. Ask which one the market is currently voting for.
The renewal problem
A concession granted to win a resident generally has to be granted again to keep them, unless conditions in the submarket have changed. A model that phases concessions to zero by month twelve is not describing an operating improvement. It is making a supply absorption bet. Name what would have to be true for it to work: deliveries slow, absorption catches up, and competitors stop discounting first. That is a only a forecast and may or may not align with reality. It is certainly not a business plan either.
The context matters here. RealPage Market Analytics reported that 16.5% of stabilized US apartment units offered concessions in June 2026, with the average discount reaching 11.1%, the deepest monthly discount in more than 25 years and equal to nearly six weeks of free rent on a twelve-month lease. That discount level compares with a decade low of 5.5% in mid-2016. The spread between advertised and collected rent is wider today than most models assume.
Where this shows up as real money
I have watched this surface weeks before a closing. A buyer underwrote the rent roll’s face rents on a property in a submarket carrying a heavy delivery pipeline. The appraisal came back on net effective rents, because that is what a lender sizes to. Supportable proceeds landed materially below what had been modeled, and the choices narrowed to more equity, a more expensive piece in the capital stack, or a renegotiation the seller had no reason to grant. Nothing about the building changed between signing and appraisal. Only the definition of rent did.
What to ask before you trust the trailing income
Ask for concessions by month for twenty-four months, not a trailing total. Ask whether concessions are netted into revenue or recorded as an expense, and precisely where. Ask for concession dollars on new leases and on renewals separately, because those two numbers answer different questions. Ask for the net effective rent on every lease signed in the last ninety days and set it against the face rent on the rent roll; the spread between those two figures is where the model should start. And when you review rent comps, confirm whether they are quoted face or net effective, because measuring your net effective rent against someone else’s advertised rent will make a property look stronger than it is.
Closing thoughts
Concessions are not a red flag. They are a rational response to supply, and a well-run property in a competitive submarket will use them. The failure point is carrying advertised rent into a model, capitalizing it at exit, and calling the difference value creation.
The question worth sitting with is not whether the property is offering concessions today but rather what the rent roll would look like the month it stopped.
Vessi Kapoulian
Breaking down multifamily underwriting one step at a time to create educated and empowered investors
P.S. If you would like a second set of eyes on a deal or want to sharpen your underwriting through a risk lens, feel free to connect with me.
P.P.S. And if you want to go deeper into analyzing multifamily investments step by step, my Mastering Multifamily Underwriting book and the Mastering Multifamily Underwriting program walk through this process in plain English, from acquisition to exit.
Source: RealPage Market Analytics, US Apartment Concessions, June 2026.