Bricktionary

What does "net effective rent" mean?

This Hell's Kitchen two-bedroom is advertising a "net effective rent" of $6,508 on a 13-month lease with a gross monthly rent of $7,050.  

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With concessions on the rise across the city, more and more renters are starting to come across the term "net effective rent" in listings. But what does it really mean for your bottom line? The answer's pretty straightforward, and involves a bit of math.

In short, the net effective price is calculated by taking the total amount of concession, dividing it by the term of the lease, then deducting that amount from the monthly asking rent. "The term means that the landlord is offering a rent concession, usually one or two months of free rent, that is being factored into the advertised price," concurs Compass agent Sarah Rose Katz. "For example, if an apartment is $3,600 and the landlord is offering a free month of rent as a concession, then the 'net effective rent' will be $3,300." 

The only potentially tricky thing to keep in mind here is that month to month, you won't likely be paying the 'net effective' price every month, but rather the higher "gross" rent, which will be the rent legally listed on the lease. "Every landlord is different, but typically, either the second or last month is free and the gross rent is paid each month before that," adds Eugene Litvak of Compass. "Though in some cases, we have seen the rent amortized over the course of the year." In other words, while some landlords will spread out the discount for the duration of the lease, most will simply have you skip a month of rent up front or at the end of the lease, so you''ll want to plan your budget accordingly. 

Also, when it comes time to renew, you'll be negotiating (and face rent increases) based on the gross rent, not the discounted "net effective" price. On the bright side, however, Litvak tells us, "depending on market conditions, time of year, and individual landlords, this may or may not be negotiable."

 

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