When moving to a new home in a competitive rental market, there’s a good chance you’ll come across the words “net-effective rent.” If you’re hunting for apartments online, you’ll likely find it in the description section of a listing, alongside a discount (a partial month free, a whole month free, or even multiple months free). This can be confusing, and make it unclear as to what the price of rent actually is for your dream home.
Net-effective rent is the total amount of rent that you’ll pay for a lease after a promotion, or when your landlord is giving you some sort of discount. This practice by landlords is quite common in competitive rental markets as they look for ways to advertise their communities. Knowing how to talk about net-effective rent and other concessions helps you get the best deal when looking for an apartment.
Gross rent is the total amount you’ll pay for your entire lease if you aren’t getting a discount. Presumably this was the total price of rent before the discount was in place. Net-effective is your new monthly rent price with the advertised savings factored in. The math looks a little different for each.
If your landlord doesn’t offer discounts, you can calculate your gross rent by taking your monthly rent amount and multiplying it by the number of months in your lease term.
If your rent is $1,000 and your lease term is 12 months, then your gross rent comes out to $12,000.
For this example, we’ll pretend that the property owner is offering three months free.
You’ll calculate the net-effective rent by first multiplying your rent price ($1,000) by the total number of months in your lease minus the amount of free months (12-3=9). This first step gives you the total amount you’ll pay over the 12 month period ($9000).
Then you’ll divide that number by the amount of months in your lease (12) in order to calculate how much you’ll spend per month after the discount is factored in. ($9000/12=$750).
After completing this last step, you’ve successfully calculated your net-effective rent of $750/month.
Don't want to do the math? Lucky for you, online calculators exist.
Understanding how to calculate net-effective rent can help renters in a couple ways.
The first is the obvious, the more you know about monthly expenditures in advance, the better you can plan other spending for the month.
While you may think that having net-effective rent can be easier on your budget, sometimes you’ll need to be careful with how you balance your books in order to maintain stability.
For example, a landlord may not require you to pay rent for three months when you move in, but then charge a higher cost than the net-effective rent advertised for the remaining nine months. This is still net-effective. While you might not have to pay rent for three months, you’ll need to ensure you can pay rent for the remaining nine of your lease.
The second is the more you know about pricing overall, the more you can advocate for yourself.
Many real estate transactions are up for negotiation and knowing how to translate discounts in different ways may help you get the best deal for your situation. There are also certain moments where this knowledge is especially useful. At lease renewal, it’s important to know which rent price your landlord could be using to base price changes off of.
Similarly, when looking through online listings, knowing how different numbers can be listed gives you the full picture of the bargain you might (or might not) be getting.
The best part about concessions provided by owners like rent discounts, offering security deposit insurance, and other reduced or waived fees is that you don’t have to choose just one! Building knowledge about all of the different ways you can save money during your lease can help you save serious cash.
To save even more money with net-effective rent, consider searching for no-fee apartments and you're likely to find a property owner who uses Rhino. Rhino is the renter-friendly security deposit insurance and will save you more money upfront when moving. This is vital when you need extra cash during the leasing process.
To learn more about Rhino, visit our site for renters here.