Net Effective Rent Calculator
You must consider many things when looking for a rental apartment in New York City. Location, amenities, the age of the building, and many other factors are essential before deciding if a listing is worth considering. However, perhaps the most crucial factor is the rental price. Typically clearly stated as gross rent, i.e., how much you rent you will pay each month. But sometimes, it’s a little more confusing when the landlord uses the phrase “net effective rent.” Below, we explain net-effective rent; you can use our calculator to estimate.
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Table of Contents
What Is Net Effective Rent?
Net effective rent is the rent a lessee pays on average each month of a lease period. It’s not what they will pay each month; instead, it is a mathematical calculation considering free months as if they’d been paid. For marketing purposes during a soft market, many landlords will offer a renter a free month, usually the first or last month of a 12-month lease. When that happens, the real rent remains the same, but the renter will pay it fewer times. Another common offer would be a twelve-month lease with the 13th free.
You’ll Probably Pay More Per Month
A renter needs to understand that net effective rent will likely be lower than the actual amount because it’s spread out over more months. In addition, net-effective rent does not include any relevant fees such as the application or broker’s fees. Another issue is that free-month concessions typically only last for your initial lease term. Once you renew it, you’ll be paying the real rental amount every month, which raises the annual costs of your rent.
If you’re careless and mistake net effective rent for your real rent, this can put you in a “gotcha” situation where you pay more than you expected each month. As such, it pays to take a little time to calculate what your real rent will be when a listing only mentions the net effective rent.
How to Calculate the Real Rent from a Net Effective Rate
Let’s say you’ve found a listing where the net effective rent is quoted as $3,550 on a 13-month lease, with the first month being free. To calculate the full cost of your lease, use the following simple calculation:
- Net-effective rent x 13 months
This gives you a total cost of $46,150
Now, to work out the actual cost of the listing on a standard 12-month lease with no free-month concession, you would divide $46,150 by 12 to give you $3,845. You now know how much you will need to pay each month once the free month has ended.
While it can be a hassle to perform this calculation each time you see a listing with net-effective rent, it’s something you’ll have to get used to. Listing only the net-effective rent is very common in NYC because it makes a listing look more affordable than it is.
What Happens to the Free Month When the Lease Is Up?
However, this would also depend on market conditions. Once your lease is up, and it’s time to renew, your landlord is unlikely to offer you another free month on the new lease. Using the above example again, you’ll now be paying $3,845 monthly or $46,150 annually. And that’s provided the landlord doesn’t increase the rent.
If this is beyond your means to pay, you’ll have no choice but to vacate the apartment once the 13-month lease is up and look for a new place. Naturally, this will cost you more as you’ll need to pay the application, moving costs, and broker fees again.
If you’ve been a good tenant who’s always paid your rent on time, hasn’t caused any drama, and has shown that you can take care of the apartment, then you have a higher chance of success. The only silver lining is that if the landlord doesn’t want to lose you, they may be willing to negotiate the rental price. It’s always worth asking, which you should do through a formal letter where you lay out your arguments for why the rental amount on the new lease is unacceptable.
Always Read Your Lease Before Signing
Receiving a rental lease agreement can be exciting, especially when it’s your first apartment. But don’t let the excitement go so much to your head that you sign the agreement before reading it in full. Lease agreements are legally binding contracts, and once both parties have signed, it can be complicated to get out of them without causing a lot of drama.
So, once you receive your lease agreement, take a deep breath, sit back, and read each paragraph carefully. Pay close attention to the rental terms, the monthly rent amount, additional fees, and payment instructions. Whenever there is a contradiction between what the agreement says and what the landlord has told you verbally, have them put this in writing. If you are unsure of something, ask your landlord for further clarification.
Lastly, always understand your NYC tenant’s rights and responsibilities. These laws protect you against any harassment, discrimination, or unlawful practices by a landlord.