The National Apartment Association explains that real estate companies and apartment complexes often offer a range of incentives to encourage people to lease an apartment from them. These bonuses may take the form of free rent for a period of time, a cash bonus or other incentives.
If you want to compare the effective rent costs of multiple apartments, you need to take into consideration these incentives because they may make an apartment with a higher stated rent actually have a lower net effective rent (NER) than an apartment with a lower stated rate.
Gross Rent vs. Net Effective Rent
Before you learn how to calculate the net effective rent, you need to understand how different it is from the gross rent.
What Does Gross Rent Mean?
Gross rent usually refers to the actual amount of money payable to the landlord per month for the entire lease term before you deduct any incentives offered. You can find it in the rental agreement. The total sum of the monthly gross rent paid by the lessee during a 12-month lease period is known as the annual gross rent.
What Does Net Effective Rent Mean?
On the other hand, the Guarantors Agency says that net effective rent is what you actually pay throughout the lease term, when you factor in all the incentives that the property owner offers to attract tenants like yourself. It is an important metric to use to determine whether you are getting a good deal as a renter.
For example, if you live in New York City, you could be lucky to get an apartment whose landlord is offering renters a one-year lease with the last month free. In NYC, landlord concessions of that kind would be an amazing incentive.
So, to calculate net effective rent on an apartment, you need to factor in any discounts or promotional offers alongside your monthly leasing rate to determine the actual cost per month throughout your lease term.
How to Calculate the Net Effective Rent
You can always use a net effective rent calculator to find the relevant values. But there’s also the manual option. Below are the steps you can take to calculate the net effective rent on an apartment.
Research Rent Amounts
To get the full or gross rent for each apartment you're considering renting, you'll need to spend time getting as much information as possible on the monthly gross rent cost, as well as all incentives and discounts. This could include free months, gift cards to local establishments, cash back or gift card offers given merely for considering a particular apartment.
Use various websites to check rent rates and offers. You can also call around when necessary to double-check any offers a rental property might not yet be advertising on these sites by reaching out to real estate agents, property managers and other connections you may have. Often, apartment complexes will advertise these rental rates on the main page of their individual websites.
Calculate Monthly Rent
Once you have an apartment complex's full offer, you can begin calculations.
Start by adding the value of any promotions or discounts for the term of the apartment rental. For example, suppose the offer includes one month of free rent and $50 cash, and the standard cost of rent equals $450. In that case, the total amount of incentives would be: $450 + $50, which is equal to $500.
Second, multiply the monthly rent by the number of months in the term of the lease to find the gross rent you would pay. For this example, if the lease equals one year, calculate: 12 x $450 to find that the total rent equals $5,400. Then subtract the discounts from the total rent to find the net rent. In this example, you would calculate $5,400 – $500 = $4,900 in net rent.
Lastly, divide the net rent by the number of months to find the monthly net effective rent on the apartment. In this example, you would calculate $4,900/ 12 to find the monthly net effective rent; that value equals $408.33.
Compare Similar Rental Property Offers
Perform the same calculation for multiple apartment complexes to get the best offer. This will take extra time, but you can get the best deal by shopping around. You'll likely also take into account other features, such as security gates, amenities and proximity to your workplace and local restaurants and shops.
This article was written by PocketSense staff. If you have any questions, please reach out to us on our contact us page.