Net effective rent

What is net effective rent?

Net effective rent is the rent a lessee pays on average per month of a lease period. It is not the actual amount she pays per month, but a mathematical calculation that takes into account free months on the lease as if they’d been paid for. The net effective rent may appear on rental listings to guide potential renters toward the listing with the promise of lower payments.

Deeper definition

When a lessee signs a lease, she commits to paying a designated dollar amount per month of the lease period, which is called the gross rent. While many leases are 12 months long, the leasing party might offer the renter a free month, usually the first or the last, out of the 12 months. When that happens, her gross rent remains the same but she pays it fewer times.

The renter’s net effective rate is the total gross rent for the entire lease period divided by every month in the period, including any free months. Although the sum total will be the same amount as the gross rent across the entire lease period, on a per-month basis the net effective rent is actually lower, because it’s spread over more months.

The net effective rent is purely for mathematical purposes; the renter doesn’t actually get to pay that amount unless her landlord agrees to amortize her rental payments, although in that case she would miss out on the free month. Additionally, it doesn’t include any relevant fees, including the application fee or broker’s fees.

While you probably can’t pay your rent with a credit card, with one of these cards you might be able to get enough cash back to put a dent in your payments.

Net effective rent example

Brittany signs a lease for an apartment that states that she’ll pay $2,000 a month. Her landlord also gives her the last month free. Her gross rent is $22,000 for the lease period: $2,000 a month for 11 months. Her net effective rent, $22,000 divided by the 12 months she’ll actually live in the new apartment, is $1,833.33 per month.

Other Real Estate Terms

Gross rent

Gross rent is the actual amount you pay for rent each month. Bankrate explains.

Fixture

Fixture is a common real estate term it pays to understand. Bankrate explains it.

Installment contract

Installment contract is a common term that every consumer should know. Bankrate explains it.

Comparative market analysis (CMA)

A comparative market analysis shows how much homes nearby cost. Bankrate explains.

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