Imagine you are cruising, watching rental listings for about $ 2,300, which is close to the top of your budget. You click on an apartment you love, but it costs $ 2,377, just a little more than what you want to pay. But look – the listing description says something about “ineffective rent at a 13-month lease.” What does “ineffective rent” mean, and what is the deal with a 13-month lease?
What Is Ineffective Rent?
Basically, “ineffective rent” is the total gross rent for the entire lease period divided by each monthly period, including free months or other promotions. Extracts ineffective rents rent concessions, as one or two free months in rent. They’re a way to entice tenants to listing – but they can be one of NYC’s rental purchases.
New in StreetEasy: Simpler Rental Pricing With Concessions
Operating concessions and ineffective rents can be confusing. That’s why StreetEasy listings now show a transparent price for some rentals with an offered dealership. Beginning September 2, 2020, new rental listings at StreetEasy will obviously state whether the unit includes any concessions, such as one or two months free for a given term. The listing will also show the gross rent – aka the “real” rent – along with the net effective rent, as calculated based on the specific concession. That way you will know if a special offer is valid, and what that offer means for how much you are likely to pay.
You Are Probably Paying More Every Month Than The ‘Network Effective’ Rate
The main thing to know is that the number shown as the “ineffective rent” is most likely lower than the amount for which you will write a check for each month.
Ineffective rent is calculated by dividing the total cost of a lease with a concession across all the months of the lease, even if one or two of those are free. See the math below for an illustration of how this works, but basically the “ineffective” rate distributes the discount of one free month’s rent among all other non-free months of rent. Again, the total rental amount is correct, but with one of those months free, the rent bill for every other month will actually be higher than the ineffective rate.
The other thing with ineffective rents is that the concessions that create them usually last only for your first lease. If you renew your rent on the apartment without any other concession, you will definitely pay the higher monthly rate, and your total annual expense for rent will increase. If you don’t save, you can pay significantly more than you might have expected.
How To Calculate The Actual Rent Of Net Effective Rate
Say the unit you like offers an inefficient rental of $ 2,377 per month on 13-month lease with one month free. The total cost of the full lease would be $ 2,377 a month times 13 months, or $ 30,901.
But the real exchange rate for that apartment with a standard 12-month lease, without a concession, would be $ 30,901 divided by 12, or $ 2,575. Depending on the terms of your lease, you may need to write a check for $ 2,575 per month, not $ 2,377, and skip one month in total.
To find the actual rent for an apartment advertising an ineffective rate, multiply the ineffective number by the total number of months of the lease. Then divide that number by the number of paid months of the lease.
Let’s say an apartment offers an ineffective rent of $ 1,977 for a 12-month lease with one month free. To find out how much you would probably pay, do this calculation:
$ 1,977 per month times 12 months in total equals $ 23,724
$ 23,724 in total for rent divided by 11 months paid equals an effective monthly rent of $ 2,157
Yes, it is confusing and makes housing seem cheaper than they will probably feel per month. Some landlords may allow you to write a check for the ineffective rate, but more likely, ineffective rent means your actual monthly expense will be higher.
What Happens With A Discount Rent When The Lease Ends?
When your first rental of the apartment is over and it’s time to renew, the landlord probably won’t offer the same one- or two-month concession for free. So in the first example above, you would pay $ 2,575 a month – or more if the landlord raises the rent – for the next year.
If you are unable to pay the new cost, this means that you would need to relocate after the end of 13 months, and therefore you would have to pay moving charges, possible deductions from your security fees, and so on. That is, unless you can negotiate an agreement with your landlord – because in the end they will also have to work hard to find a tenant, risking vacant housing and no income for a month or two.
Read Your Rental Before Signing Up And Be Clear About What You Need
Read each lease carefully to understand what the actual monthly rent payment is and when any lease concessions expire. If you are a good tenant in a building owned and operated by a small company or family, the landlord might consider keeping the rent at or near it. If you’re in a building operated by a larger company, it wouldn’t be wise to expect that. However, it is in the best interest of all landlords to fill their homes and reduce costs for cleaning, repairing and advertising the property.
[This article has been updated and republished.]