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What does 'net effective rent' mean? Here's how to calculate your real monthly rent

By Brick Underground  | April 22, 2021 - 9:30AM 

Net effective rent reflects concessions like a free month or two, which a landlord may offer to encourage you to sign a lease.

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Landlords often offer concessions like a month or two of free rent to encourage you to sign a lease, especially in pricey new developments—and especially when there are lots of rentals to fill, like there are now. When landlords do this, you may see the term "net effective rent" in the listing to indicate a discount has been applied. But what does it really mean for your wallet? The answer involves a bit of math.

To calculate the net effective rent, you take the total amount of concession and divide it by the length of the lease, then deduct that amount from the monthly asking rent. Too confusing? You could use Brick Underground's calculator, below.


[Editor's note: A previous version of this post was published in April 2020. We are presenting it with updated information for April 2021.]


Usually, a concession is one or two months of free rent, however Elizabeth Kee, a broker at CORE, is seeing even more generous concessions like four months free on an 18-month lease or eight months free on a three-year lease.

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Brick Underground's

Gross Rent Calculator

What's this?

Some New York City landlords offer a free month (or more) at the beginning or end of a lease. The advertised rent is the net effective rent.  The net effective rent is less than the amount you will actually have to pay --- known as your gross rent --- during your non-free months.

Brick Underground's Gross Rent Calculator enables you to easily calculate your gross rent, make quick apples-to-apples comparisons between apartments and avoid expensive surprises. All you'll need to figure out your gross rent is 1) the net effective rent, 2) the length of your lease, and 3) how many free months your landlord is offering.  [Hint: Bookmark this page for easy reference!]

To learn more about net effective versus gross rents, read What does 'net effective rent' mean?.

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If the landlord is offering partial months free, enter it with a decimal point. For example, 6 weeks free rent should be entered as 1.5 months.

Per Month

Net effective rent means the concession "is being factored into the advertised price," says Sarah Rose Katz, an agent at Compass. "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." 

Pro Tip:

To rent an apartment in New York City, most landlords require you to earn an annual salary of at least 40 to 45 times the monthly rent. If you don't—or if you’re an international employed person, self-employed, non-employed with assets, retired, or an international student or US student—you’ll need to find a guarantor for your lease who earns at least 80 times the monthly rent and lives in New York, New Jersey or Connecticut. Or you can turn to Insurent Lease Guaranty.  Accepted at more than 4,700 buildings across the city representing over 475,000 apartments, Insurent Lease Guaranty is a quick and easy way to get the apartment you want. Click here to learn more.

The advertised price is what gets your attention, and the potentially tricky thing to keep in mind here is that typically, you won't be paying the net effective amount each month, 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, a broker at Compass. "Though in some cases, we have seen the rent amortized over the course of the year."

Pro Tip:

Pocketing a free month's rent is a hollow victory if you have to choose between overpaying or moving when your lease is up. For expert help finding buildings offering the most valuable concessions, negotiating with landlords and leasing agents, and generally getting the best possible deal, put your search into the smart and capable hands of Triplemint. A tech-savvy real estate brokerage founded by a pair of Yale grads in response to the frustrating apartment-search experiences of classmates and colleagues, Triplemint will charge a broker's fee of 10 percent of a year's rent on open listings instead of the usual 12 to 15 percent if you sign up here. Bonus: The agents at Triplemint are delightful to deal with.  

In other words, while some landlords will spread out the discount for the duration of the lease, most will let you skip a month of rent up front or at the end of the lease, so you''ll want to plan your budget accordingly. 

New renters are not usually familiar with the differences in gross rent vs. net effective rent. In a StreetEasy survey, 40 percent of renters say they were confused by the term net effective rent. That confusion prompted StreetEasy last fall to change its listings. The listings site now shows more clearly shows concessions related to net effective rent and any lease modifications, such as a 13-month lease vs. a 12-month lease, for example. The gross rent is shown at the top of the listing as well.

Be aware that when you search on StreetEasy, and other sites for that matter—your results will pull in listings when either the net or gross rent fits your criteria.

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. That's especially important considering that many landlords have been courting renters with lower rents and free months in order to sign leases—those freebies will go away when the rental market recovers.

 

Brick Underground articles occasionally include the expertise of, or information about, advertising partners when relevant to the story. We will never promote an advertiser's product without making the relationship clear to our readers.
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