How to use the net effective rent calculator
- Enter the monthly rent listed in the lease and the lease term in months.
- Enter the free rent given, in months, and any one-time credits such as a gift card or waived fee.
- Enter any one-time costs you pay up front, and optionally the other monthly costs you want included.
- Read the net effective rent per month and the share below the listed rent. Compare apartments by this number.
Formula
Rent paid = rent x (lease months - free months)
Net cost = rent paid - credits + one-time costs
Net effective rent = net cost / lease months
Discount = 1 - net effective rent / listed rent
This is the simple average used in leasing. It does not discount later payments for the time value of money.
Worked example
A one year lease lists $2,000 a month with one month free. You pay 11 months of rent, $22,000. Divided over 12 months, the net effective rent is $1,833.33 a month, which is 8.33% below the listed rent.
If the lease had no free month but gave a $1,200 credit and charged $300 of fees, the net cost would be $24,000 - $1,200 + $300 = $23,100, or $1,925.00 a month.
Why listed rent can mislead
A building may offer a month or two free to attract tenants while keeping the listed rent high. That keeps the headline rent up for comparison sites and for rent increases later, but the real cost to you is lower. Net effective rent puts different offers on the same footing. A longer lease usually spreads the concession over more months, so it lowers the figure less per month.
Watch the renewal
The concession usually applies only to the first term. When you renew, you may pay the full listed rent, so the net effective rent for the next year can be higher than your first year cost. Think about how long you plan to stay and what the renewal terms are.
More rental tools
See whether the rent fits your pay with the rent affordability calculator, compare owning with the rent vs buy calculator and add moving costs in the moving cost calculator. Landlords and investors can use the rental property calculator.
Assumptions and limits
- Rent is the same each month. If it steps up during the lease, enter the average.
- Free months are treated as money not paid, wherever they fall in the lease.
- Refundable deposits are not counted.
- The time value of money is ignored, so a free month at the start and one at the end look the same.
Frequently asked questions
How do you calculate net effective rent?
Take the total rent you pay over the lease, subtract credits, add any one-time costs, and divide by the number of months in the lease.
Is net effective rent the same as the rent I pay each month?
No. You still pay the full listed rent in the months you owe it. The net effective figure is an average that includes the free months.
Does one month free on a 12 month lease save 8 percent?
Yes, about 8.33 percent, since one of twelve months is free. A longer lease would give a smaller percent for the same free month.
Should I include utilities and parking?
If they differ between apartments, yes. Put them in the other monthly costs box to compare the total monthly cost.