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What does 'net effective rent' mean?

Read the fine print. Net effective rent isn't what you're going to actually be paying each month.

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With landlord concessions continuing to be prevalent, especially in new development, higher-cost apartments around the city, more and more renters are coming across across the term "net effective rent" in listings. But what does it really mean for your bottom line? The answer is pretty straightforward, and it involves a bit of math.

[Editor's note: This story was first published in 2016 and is being presented again here for readers who may have missed it.]

In short, the net effective rent 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," says 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 [on a 12-month lease], then the 'net effective rent' will be $3,300." 

The potentially tricky thing to keep in mind here is that typically from month to month you won't be paying the "net effective" price, but rather the higher "gross" rent, which will be the rent 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," says 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 facing rent increases) based on the gross rent, not the discounted "net effective" rate. 

 

 

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