Free Rent & Net Effective Rent Calculator
Calculation Results
Total Lease Savings: $0.00
Total Rent Paid Over Term: $0.00
Net Effective Monthly Rent:
$0.00
This is the average monthly cost after accounting for free months and credits.
Understanding Free Rent and Net Effective Rent
When searching for a new apartment or commercial space, landlords often offer "concessions" to attract tenants. The most common concession is free rent (e.g., "one month free on a 12-month lease"). While your lease contract will state a "Gross Rent" (the sticker price), your actual financial burden is lower when you spread those savings across the entire term. This lower average is known as the Net Effective Rent.
How to Calculate Net Effective Rent
The calculation follows a simple logic: total the amount of money you will actually pay over the life of the lease, then divide that by the total number of months in the lease.
- Identify Gross Rent: The monthly price on the lease.
- Calculate Total Gross: Gross Rent × Lease Term (Months).
- Calculate Total Savings: (Gross Rent × Free Months) + any other credits.
- Find Total Net Cost: Total Gross – Total Savings.
- Calculate Net Effective Rent: Total Net Cost ÷ Lease Term.
Realistic Example
Imagine you sign a 15-month lease for an apartment with a monthly rent of $3,000. The landlord offers 2 months of free rent as a move-in special.
- Gross Rent for Term: $3,000 × 15 = $45,000
- Savings from Free Rent: $3,000 × 2 = $6,000
- Total Net Rent Paid: $45,000 – $6,000 = $39,000
- Net Effective Rent: $39,000 ÷ 15 = $2,600 per month
In this scenario, while you pay $3,000 in the "active" months, the apartment truly costs you $2,600 per month on average.
Important Tips for Tenants
Upfront vs. Pro-rated: Some landlords allow you to pay the Net Effective Rent every month. Others require you to pay the full Gross Rent but give you specific months (usually the 1st or last) entirely free. Ensure you know which method is being used so you can budget your cash flow correctly.
Renewal Increases: Beware that when your lease expires, the landlord will typically base the rent increase on the Gross Rent, not the Net Effective Rent. If your rent was $3,000 but you were paying an effective $2,600, a 5% increase will be calculated on the $3,000, making your new rent $3,150.