The cost of rent is a key consideration any time you’re looking for a new place to live. During your search, it is important to avoid any confusion between gross rent and net rent. You can accurately budget for expenses only if you know what your monthly rent payment does and does not include. For example, one landlord might roll certain utilities into the rent while another one does not.
This article will help you to ask the right questions when you are looking for that perfect place to live. Ideally, property managers promote transparency by communicating the differences between gross rent and net rent. In all cases, it is important that you have the information you need to know what you will owe and when.
Gross Rent versus Net Rent
When comparing costs, a prospective renter needs to know the difference between gross rent and net rent options.
Net rent is the base amount you pay the landlord to lease living space, exclusive of utilities and other expenses that you might be responsible for. Net rent calculations often appear attractive at first glance because they separate the base rent from other expenses. Some landlords advertise net rents to appear more competitive.
However, problems may arise if a tenant does not fully understand the terms of a net rent deal. They might be surprised by extra charges that accrue during their tenancy. Confusion over who pays for heat could significantly impact a renter’s budget, for example.
Contrast this with gross rent properties, where landlords include a variety of extras. Gross rent typically includes:
- Base rent – the cost of your living space.
- Utilities – utilities like water, sewer, and waste disposal. Heat and electricity may or may not be included.
- Maintenance fees – costs associated with upkeep and repairs.
- Amenities – community amenities like a fitness center, pool, etc.
- Property taxes and insurance – The landlord typically pays property taxes and insurance, although tenants pay for renters’ insurance.
- Parking space(s) – On-site parking may or may not be included in the gross rent.
Tenants enjoy certain advantages with a gross rent approach. For example, the more that is rolled into the gross rent, the fewer payments a tenant has to track. This approach tends to reduce misunderstandings over charges as well.
With gross rent, increases in property-wide expenses remain the landlord’s responsibility. A landlord can raise rents to offset increased costs, but only at lease renewal. The longer your lease, the longer you are protected from such increases. Longer leases may benefit landlord and tenant alike. Renters enjoy price stability, while landlords enjoy guaranteed occupancy for longer periods. At the other extreme, month-to-month leases give tenants flexibility, but a rent increase may occur at any time.
As you compare different properties, be sure to calculate all the expenses not included in the quoted rent, and calculate the annualized cost of each. This will make it easier to compare gross rent and net rent properties as you select a place to live.
Rent Concessions
There is another factor that can impact your budget. To attract new tenants, landlords often use rent concessions, like a month’s free rent. Such offers can reduce the financial impact of the security deposit or moving expenses.
Examples:
- Consider a scenario where the monthly rent includes everything except an average of $50 per month for electricity. You pay the base rent to the landlord and the electric bill to the utility. It is important to consider the extra $600 per year when comparing this option with another property that includes electricity in the rent.
- Or, compare a property offering on-site parking included in the rent with another one that does not. An off-site parking spot in an urban area like Chicago’s Loop might cost hundreds of dollars per month. In such settings, rent that includes parking significantly reduces expenses.
- Consider an apartment renting for $2,000/mo with the first month’s rent free. With a one-year lease, the tenant pays no rent the first month and $2,000/mo for 11 months. Total rent for the year is $22,000. Note that rent concessions like this do not always apply at the very beginning of the lease term because some landlords spread them out. Always be clear about the payment schedule before you sign the lease.
Final Thoughts
You cannot make valid comparisons unless you know the true total cost of living in one place versus another. There are different ways to calculate rent, and one is not inherently better than the next. What is important is that a new tenant fully understands what they owe every month for rent, utilities, and related expenses.
A net rent deal might appear better at first glance. However, with net rent, numerous expenses may remain the tenant’s responsibility. By contrast, an apartment with key expenses included in the monthly gross rent might turn out to be a better deal.
Finally, watch for changes when your lease renews. For example, a landlord might offer a lower-cost net rent deal in year one before making significant changes in year two. Read reviews and talk to tenants to learn how a given landlord handles lease renewals.
Always be proactive before you sign a lease. Ask the property’s representative to detail exactly what the landlord and the tenant each pay. What utilities are included in the rent? Is parking included? Are there any other fees to pay?
About Draper and Kramer
Draper and Kramer is a family-owned and operated real estate firm established in 1893. D&K manages luxury apartment properties in Illinois, Missouri, Texas, Arizona, and Colorado. In Centennial, CO, The Wright includes desirable community amenities in the rent. A swimming pool, spa, fitness center, fire pit, and on-site dog park are some examples. In Aurora, CO, Tempo Nine Mile offers a rooftop deck with mountain views, a courtyard pool, a fitness center, and a Colorado gear room.
D&K’s application process offers key advantages, including transparency, streamlined online communication, and virtual tours. Check out this post to learn more about the Draper and Kramer rental process.
Browse our entire selection of amenity-rich apartment properties here.
