What Is Net Effective Rent?
Essentially, “net-effective rent” is the total gross rent for the entire term of a lease divided by every month period, including free months, discounts, other promotions, incentives or concessions by the landlord, sometimes it even includes brokerage commissions.
NER helps both the Landlord and the Renter
In a competitive market owner/landlord can attract more Tenants for their space and at the same time the Tenant also pays reduced effective rent. It a non-standard method of effective leasing.
Formula: Net Effective Rent = Contract Rent - Allowances and Tenant Concessions
Let's say an apartment owner markets a vacant unit in their building by asking $1,000 a month in rent. However, to incentivize a tenant to sign a two-year term, they're offering free rent for the first month. As such, the tenant would pay $1,000 a month for 23 of the 24 months, for a total of $23,000 in gross rent during the lease term. That yields a net effective rental rate of $958.33 a month.