Net effective rent
What is 'net effective rent'?
When looking for a new place to live you're likely to come across two terms - 'net effective rent' and 'gross rent'. It can get confusing figuring out how much rent you'll pay each month, so we're here to clear it up.
- 'Net effective rent' is the rent you pay after factoring in any incentives or concessions given by the landlord
- 'Gross rent' is the rent owed before any deductions
Why does it confuse people?
It's common practice for landlords to offer free rent for a month to entice you to sign a lease. If you just got a free month, then started paying your rent it would be simple.
But often the landlord recalculates the monthly rent to factor in the free month. That means you pay a lower (net effective) rent for the first year, then the rent goes up at the end of the year. The change often catches people out.
Some landlords simply give you a free month at the beginning or end of your lease. This makes it simpler and means rent increases won't come as such a shock.
Keep in mind that when you search for an apartment on some sites, your results might pull in listings when either the net rent or gross rent fits your budget.
How to calculate 'net effective' rent:
Let's say the total rent for a 12-month lease is $12,000, but the landlord's offering the first month 'rent free' as an incentive.
The net effective rent is calculated as follows:
$12,000 (total rent due) - $1,000 (incentive) = $11,000
$11,000 / 12 (length of lease in months)
Net effective rent = $916.67 per month
So, in this example, the net effective rent would be $916.67 per month instead of the full $1,000 per month gross rent.
At the end of the year, the rent will go up to the full $1,000. (or that will be the starting point for negotiating a new lease).