How to calculate net effective rent
Net effective rent is the average monthly rent after spreading concessions such as free months across the whole lease.
The formula
Net effective rent = gross rent × (lease months − free months) ÷ lease months
Worked example
A 12-month lease at $2,400 with one month free: $2,400 × 11 ÷ 12 = $2,200 a month.
How to use this calculator
Enter the advertised monthly rent, the lease length and the number of free months. Add the value of any other concessions. The net effective rent calculator shows the net effective rent, the total paid over the lease, the amount saved against the advertised rent and the discount.
What the result means
The monthly figure is an average, not a bill. In the example, you pay $2,400 for 11 months and nothing for one month. That is $26,400 over the lease, which averages $2,200 a month. Use the average to compare apartments. Use the gross rent to plan your monthly budget, because that is the amount due in every month you pay.
One free month on a 12-month lease is a discount of about 8.3%. Two free months is about 16.7%. Some listings advertise the net effective rent instead of the gross rent, so check which number you are looking at. If the concession is a waived fee, count it only if you would otherwise have paid that fee.
More examples
All of these use a gross rent of $2,400.
| Lease | Free months | Net effective rent |
|---|---|---|
| 12 months | 1 | $2,200.00 |
| 12 months | 2 | $2,000.00 |
| 14 months | 2 | $2,057.14 |
| 18 months | 1 | $2,266.67 |
Adding another concession
Suppose the 12-month lease with one free month also comes with a $500 move-in credit. Total rent is $2,400 × 11 = $26,400. Subtract $500 to get $25,900. Divide by 12 and the net effective rent is $2,158.33.
Comparing two apartments
Apartment A is $2,400 with one month free, so $2,200 net effective. Apartment B is $2,250 with no concession. A costs $26,400 over the year and B costs $27,000. A is $600 cheaper, even though its advertised rent is higher.
What changes the result
- Free months. More free months lower the net effective rent.
- Lease length. The same free month is worth less per month on a longer lease, because it is spread over more months.
- Other concessions. Credits and waived fees lower the total, so they lower the average.
- Gross rent. Every dollar of gross rent still counts in the months you pay.
Common mistakes
- Budgeting for the net effective rent when the monthly payment is the gross rent.
- Comparing one apartment’s net effective rent with another’s gross rent.
- Ignoring the renewal. A 5% increase on $2,400 is $2,520, which is about 14.5% more than the $2,200 you averaged in year one.
- Assuming the income requirement uses the lower figure. Landlords often require income of 3 times the rent, so ask which rent they use.
Related calculators
Check what you can afford with the rent affordability calculator and the 3x rent calculator. Use the rent increase calculator to see what a renewal would cost. If you move in mid-month, the prorated rent calculator works out the first payment.
Frequently asked questions
Do I pay the net effective rent each month?
Usually not. You normally pay the gross rent and skip the free month.
Why does it matter at renewal?
Renewal increases are usually based on the gross rent, so the real jump can be larger than it looks.
How do I include other concessions?
Subtract their value from the total rent over the lease, then divide by the lease months.
What is the difference between gross rent and net effective rent?
Gross rent is the monthly amount written in the lease. Net effective rent is the average monthly cost after free months and other concessions are spread across the lease.
Is a longer lease with the same free month a better deal?
Not per month. One free month on a 12-month lease at $2,400 averages $2,200. On an 18-month lease it averages $2,266.67.
Which month is free?
It depends on the landlord. Some give the first month, some a later month, and some spread the credit across the lease. Ask before you sign and check that the lease says the same thing.