Gross Rent vs Net Effective Rent in REPE Interviews
Gross rent versus net effective rent for multifamily and commercial interviews: concessions, how brokers present rent, and how to underwrite without getting trapped.
REPE · 5 min read
Brokers advertise face rents. Landlords live with concessions. Net effective rent is how you see what the lease actually pays after free months, discounts, and other giveaways. REPE interviews use the distinction to test whether you rebuild income from the rent roll or trust OM headlines.
The short answer
"Gross or face rent is the stated contractual rent before concessions. Net effective rent spreads concessions over the lease term so you see the economic rent. If a lease is $2,000 per month with one month free on a 12-month term, net effective is about $1,833, not $2,000. I underwrite income on net effective when concessions are recurring, not on brochure face rent."
Simple math
Net effective (monthly example)
Net Effective Rent ≈ (Face Rent × Lease Months − Concessions) ÷ Lease Months
Example: $2,000 × 12 − $2,000 concession = $22,000 over 12 months → ~$1,833 per month net effective.
Face rent
$2,000
1 mo free
$2,000
Net effective
~$1,833
That 8% haircut compounds across a lease-up. If half the building turns every year and every new lease needs a month free, Year 1 GPR is not "asking rent × units × 12."
Why OMs blur this
Teasers quote asking rents and occupancy that imply income the rent roll will not deliver once concessions, loss-to-lease, and vacancy loss are honest. Marketing wants a high face rent for comps and pride. Underwriting wants cash rent collected after incentives.
Your job is to rebuild:
- In-place face rents by unit or suite
- Concessions by lease (free months, gift cards, parking deals)
- Net effective by cohort
- Mark-to-market on new leases at achievable net effective, not fantasy asking
Gross rent language traps
"Gross rent" can mean different things depending on who is talking:
- Face / contractual rent: the number on the lease before concessions
- Gross lease (commercial): tenant pays base rent and landlord covers many expenses (different topic)
- Gross potential rent: theoretical income at full occupancy and stated rents
In multifamily screens, interviewers usually mean face versus net effective after concessions. If the language is ambiguous, ask one clarifying sentence: "Do you mean face rent versus concession-adjusted net effective, or a gross versus net lease structure?"
Commercial cousin: free rent, TI, and abatements
Office and industrial deals use free rent, tenant improvement allowances, and abatement schedules. Same economic idea: schedule cash rent and cash landlord costs, do not capitalize fantasy.
Free rent in months 1-3 of a 60-month term is a timing and yield problem. TI is often a capital outlay at lease commencement that must be recovered through rent. Net effective analysis for commercial often annualizes free rent and amortizes TI over the term so you can compare deals. In an interview, say you would build a lease cash flow, not quote a starting face rent as NOI.
Loss-to-lease and concessions are cousins, not twins
Loss-to-lease is the gap between in-place rents and current market rents. Concessions are incentives that reduce cash rent even when face equals market. Soft markets often show both: face asks stay high for optics while concessions and loss-to-lease do the real work. Pair this post with Loss-to-Lease and Rent Roll Questions.
Underwriting stance
Pull face rents
From rent roll and lease abstracts; do not stop at the OM summary page.
Map concessions
Free months, discounts, gift cards, waived fees; note whether renewals get them too.
Build net effective
By unit type or lease cohort; weight by move-in schedule.
Decide mark-to-market
New leases at achievable net effective market, not brochure asking.
Stress the fade
Keep concessions sticky in downside; only fade them if supply and demand support it.
Compare: broker story vs underwriting story
High asking rents, strong occupancy, light mention of one-time specials.
Net effective income, recurring concession budget, honest lease-up pace to market.
Cash timing vs average rent
Net effective is an average over the term. Cash is lumpy: free months hit early, then face rent runs. For debt service coverage in Year 1, early free rent can matter more than the term-average net effective. Say both in interviews: you use net effective for economic rent and you still map monthly cash rent for DSCR and reserves.
Mini portfolio drill
100 units. Asking $1,800. 40 turnovers this year. One month free on each new 12-month lease.
Concession cash = 40 × $1,800 = $72,000.
If you underwrote $1,800 × 100 × 12 with no concession line, you overstated income by $72k before vacancy and bad debt. That is the interview point.
Interview verbal
"Face rent is the headline. Net effective nets concessions over the term. I bridge OM asking rents to net effective before I trust GPR, especially in soft leasing markets, and I still schedule monthly cash rent when Year 1 DSCR matters."
Follow-ups
| Follow-up | Clean direction |
|---|---|
| One month free forever? | Treat as recurring until market data says otherwise |
| Renewal concessions? | Check renewal offers; do not assume only new leases |
| How to model TI? | Cash outlay; amortize for yield compare |
| Gross vs net lease? | Expense responsibility; different from concessions |
Related
Rent Roll Questions, Loss-to-Lease, T12 NOI.
Practice on SheetRank
On Project Sunbelt, rebuild GPR from the rent roll with a concession assumption and narrate the gap versus asking-rent GPR.
Practice on SheetRank
Apply what you learned with drills, guided Academy builds, and live deal underwriting.