What Is Net Effective Rent?

If you are currently searching for a new apartment, it’s possible to come across listings that offer a month or two of free rent. While it may be exciting to see discounted rent, you should be aware of the potential long-term consequences of short-term cheaper rent. Below, learn all about discounted apartment rent, often called net effective rent.

What Is Net Effective Rent

What is net effective rent?

Net effective rent is your total yearly rent divided by the number of months on your lease, including the free ones. A reduced net effective rent comes from rent concessions such as one or two free months on a lease. A listing for an apartment with reduced net effective rent will also show the monthly gross rent, or “real” rent, alongside the monthly net effective rent.

If a landlord or apartment listing doesn’t provide you with much about your gross monthly rent, you can find out how much your actual rent is by multiplying your monthly rent, including your free months, by the number of months in your lease. Then, divide your rent by 12. The net-effective rate distributes the discount from one free month of rent across all the other non-free months of a lease, so you won’t pay zero rent one month and full rent the next month.

What are rent concessions?

Some landlords may offer rent concessions, or price adjustments including months of free rent, that are beneficial to tenants. Landlords and leasing offices may want to fill a vacancy quickly, so they’ll advertise better terms or negotiate the rental contract to entice a tenant to sign their lease. In addition to free rent, there are many different types of rental concessions, such as free amenities or the removal of security deposit requirements.

What are the pros of reduced net effective rent?

Reduced net effective rent saves you more money in an obvious way: You get a free month of rent! In execution, this doesn’t mean periods when you’re paying no rent but instead lower monthly rent for the entirety of your lease. And if your budget for a new apartment is limited, this discount can be vital to your apartment hunt.

What are the cons of net effective rent?

The main issue with net effective rent is that rent concessions usually only last through your first lease. If you decide to renew your lease following an initial lease includes rent concessions, you’ll most likely pay a higher monthly rent after resigning. 

Thus, if saving money is your long-term goal, you may prefer not to live in an apartment with rent concessions after your lease expires. Chances are that your landlord or property manager will increase your gross rent for the next year without offering new rent concessions. As such, your total annual spending on rent will increase and you may end up paying significantly more than you previously expected. Thus, if you’re looking at a listing with reduced net effective rent, consider that it might be a one-year solution instead of a permanent one if your budget is especially tight.

Do you have any experience moving into an apartment with rent concessions? Sound off in the comments!

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