Rent vs “True Rent” in NYC — what’s the difference?
If you think it’s just the literal amount you pay month to month, you’re not even seeing half the picture. Let me show you why.
When New Yorkers think about their rent, they tend to think of the amount they write their landlord every month. Unfortunately, it’s a bit more confusing than that.
In normal times, the amount you pay to live in your apartment over the course of your lease can be frontloaded with fees — mainly the broker fee. Spread out over your lease, these fees can raise what you pay by a few hundred dollars per month.
Landlords know renters don’t want to pay money just for the right to pay rent, so many will entice prospective renters with “no fee” apartments without revealing that they’ve just incorporated that fee into the rent price, so you still end up paying it.
To make a long story short, your rent price is determined by much more than the check you cut to the landlord each month, and it’s often intentionally confusing. So what actually determines your true rent?
The Three Things That Determine True Rent
Gross Rent vs Net Effective Rent
First, we need to distinguish between the terms “gross rent” and “net effective rent”.
“Gross Rent” is what you literally pay each month. It’s the number that landlords want you to focus on, it’s usually in line with what other similar apartments in the area are going for, and it’s the biggest factor in determining your “true rent”.
“Net Effective Rent” is the total amount you pay to live in your apartment over the entire length of your lease, divided up by the number of months you lived there. It’s affected by a number of factors, which we’ll get into below.
For the purposes of this article, I’ll be using “gross rent” to refer to the literal dollar amount you pay month to month to live in an apartment (what is more commonly called “rent”), and “net effective rent” to refer to the amount you pay to live there over the course of your entire lease divided by the number of months you actually live there (what you might think of as your “true rent”).
For example, if you pay a $3000 broker fee to live in a $3000/month apartment for 12 months…
…your Gross Rent is $3000.
…your Net Effective Rent is $3250. A $3000 broker fee plus 12 months of paying $3000 equals $39,000. $39,000 divided by the 12 months of the rent equals $3,250.
Fees
Next up: fees. Fees include anything you have to pay outside of your monthly rent, like broker fees, security deposits, amenity fees, pet fees, late fees, application fees and more.
Landlords usually don’t have a ton of wiggle room when it comes to setting a gross rent price, but they can get pretty creative with fees. For example:
- In NYC, landlords can’t charge more than one month of rent for a security deposit, but many will find ways to get around that or just charge you more for it and hope you won’t ask questions about it.
- There are even less regulations around things like amenity fees and pet fees.
However, I’m going to focus on the biggest fish in the fee pond, the broker fee. Broker fees were outlawed earlier in 2020, but that ruling has been blocked due to a legal challenge from a realtor lobbying firm. The hearing for the challenge has been pushed back due to the pandemic, but for the time being, brokers fees are still on the table.
As shown above in the net effective rent breakdown, broker fees can add a tidy sum to your gross rent month to month. I kept it pretty simple with a $3000 broker fee and a $3000 rent, but in reality broker fees can be much, much higher and can add on even more. The longer your lease or the more times you renew, the less your broker fee will add to your monthly net rent, but it’s always worth considering how it’ll affect your net rent before signing onto your initial lease term.
Concessions
Finally, there are concessions that landlords make to entice new renters to commit to their apartments. Concessions are generally fees that are waived or other benefits offered to new tenants, like waiving amenity or pet fees, or offering free months of rent.
These concessions (especially free months of gross rent), when spread out over the course of a lease, can lower your net effective rent price by hundreds of dollars.
How COVID is affecting True Rent
Rent
As I mentioned in my last blog post, gross rent is down across the board, and especially in Manhattan. As the primary factor in determining your net rent, this is huge.
For example, gross rent is down 20.04% in Downtown Manhattan, meaning that if you could afford $2400 a month prior to the drop, you can now afford an apartment that would have previously been listed at $3000 over a 12 month lease!
Fees
I know what I said earlier — no-fee apartments can, at times, be a trap due to landlords spreading the cost of the fee over your monthly gross rent payments. But the pandemic has changed everything, and many no-fee apartments are truly no-fee apartments right now.
Thanks to actually waived broker fees (that is to say, not broker fees that are incorporated into the monthly gross rent price) of one month, your $2400/month annual budget could now be stretched to cover an apartment that would have cost $2600 before the pandemic.
You should still look at the gross rent price and make sure you can afford it before committing, but many, many no-fee apartments are actually as good as they look right now.
Concessions
On top of that, landlords are waiving amenity fees, pet fees and application fees and are offering deeply discounted security deposit offers right now. The security deposit savings alone could end up being a major cost savings.
But the biggest discount to your net rent that can come from concessions is in free months of rent.
I’ve been seeing the biggest concessions in rent in Midtown and the Upper West Side, but rent concessions are up across the board.
That $2400/month gross rent you could afford Downtown Manhattan from earlier? With the neighborhood’s average rent concession going up 1.4 months, you could now afford an apartment that would have been listed at $2680 over a 12-month lease.
How smart renters can use this
There are tons of opportunities for smart renters right now, especially in Manhattan. Let’s recap all the savings we’ve figured out for that hypothetical renter looking at a $2400/month budget for a 12-month lease in Downtown Manhattan, and see what pre-pandemic prices this renter could afford without going a dime over their budget.
Gross Rent Budget: $2400
Lease term: 12 months
Discounts
Average neighborhood rent drop: 20.04%
Pre-pandemic net rent budget adjustment: +600/month
Average neighborhood broker fee waived: 1 month of $2400 rent
Pre-pandemic net rent budget adjustment: +200/month
Average neighborhood rent concessions: 1.4 months
Pre-pandemic net rent budget adjustment: +280/month
Without going a dime over their $2400 budget, our hypothetical renter can now start looking at apartments that, prior to the pandemic, would have been listed for a whopping $3480 a month, or more than a 45% increase!
While the pandemic may not literally be putting extra money in your pocket, it’s certainly fitting more of what you want in your apartment.
So what do you want in your apartment? More space? Better lighting? A kitchen you can actually cook in, an office or studio, or maybe just an extra room for your dog.
My DMs are open. Shoot me a message and tell me you came from here, and I’ll help you figure out what your post-pandemic budget actually is!
