Inspections are important to both parties in a sale. Avoid these common errors.
What is gross rent?
Gross rent is the amount of rent stipulated in a lease. When someone signs a lease, she’ll have to pay rent each month, and the gross rent is the combined amount of monthly payments. Gross rent will appear higher than the net effective rent because the landlord may be offering a deal like one month free that results in the gross rent being spread across fewer months.
When someone signs a lease to rent a home, the landlord may offer some concessions to sweeten the deal, usually in the form of a free first or last month. That allows landlords to advertise the rental at a net effective rent by calculating the total amount of rent spread across the entire length of the lease, including the free month. The net effective rent is the average rent across all months on the lease.
However, the actual amount the lessee pays each month is higher, because after the free month she still needs to pay a gross rent. The gross rent is stipulated on the lease, and it will be higher because it doesn’t take the concessions into consideration. The gross rent is the average rent across only the months the renter is required to pay rent.
Gross rent doesn’t take into account other costs, like broker’s fees, although it may occasionally include utilities.
The renter may be allowed to amortize the cost, thus missing out on the concession but paying less rent per month. Either way, whether the renter pays a gross rent per month or a net effective amount, at the end of the lease period she will have ended up paying the same total.
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Gross rent example
Zachary has been looking for apartments on an apartment-listing service online. He finds one he likes and notes that the listed rent is $916.67, with one month free. He asks the landlord to show him the building, and during the showing, Zachary asks the landlord what he’ll actually be paying each month. The $916.67 amount is actually the net effective rent across all 12 months of the lease, with the gross rent coming to $1,000 per month for the 11 months he actually needs to pay.