Rent concessions can make a unit easier to lease, but they can also make the stated rent look stronger than the revenue actually earned. An investor should review the lease terms, rent roll, tenant ledger, and collection history together.
Face rent and effective rent are different
Face rent is the rent stated in the lease. Effective rent spreads the economic effect of concessions across the period being measured.
Effective Rent = Total Contract Rent After Concessions ÷ Number of Months in the Measurement Period
Example: a 12-month lease at $2,000 per month with one free month produces $22,000 of contract rent after the concession. $22,000 ÷ 12 = about $1,833 in monthly effective rent.
This example does not include unpaid balances, bad debt, fees, reimbursements, or later lease changes. Those items require separate review.
Common concession structures
| Concession | How it may affect rent | What to verify |
|---|---|---|
| Free-rent period | Reduces contract revenue over the lease term | Exact months, conditions, and whether the concession was earned |
| Move-in credit | May reduce the first month or another charge | Lease addendum, ledger posting, and accounting treatment |
| Recurring discount | Reduces rent each month while the discount applies | Duration, renewal terms, and whether it is included in face rent |
| Waived fee | May reduce other income rather than base rent | Which fee was waived and whether it is normally collectible |
Separate one-time and recurring concessions
A one-time move-in incentive may end after the first lease term. A recurring discount may continue for months or through renewal. Treating both the same can distort projected revenue.
Keep the signed lease terms, posted ledger activity, actual collections, and buyer underwriting assumptions in separate columns.
Do not remove the concession from the analysis merely because the next owner hopes to eliminate it.
Reconcile the rent roll with leases and ledgers
A rent roll may show scheduled rent, market rent, current rent, or billed rent. It may not clearly show free-rent periods, credits, delinquency, or uncollected charges.
| Record | What it can show | What it may miss |
|---|---|---|
| Signed lease | Face rent, term, concessions, and addenda | Whether the tenant actually paid |
| Rent roll | Unit-level scheduled information | Ledger adjustments or collection timing |
| Tenant ledger | Charges, credits, receipts, and balances | Property-wide consistency without reconciliation |
| Bank or management records | Collected deposits and operating reports | Lease-level legal terms |
How concessions affect underwriting and value
Concessions can reduce effective gross income, NOI, debt coverage, and value when those calculations rely on collectible rental revenue. The effect depends on the concession amount, duration, accounting treatment, collection history, and whether the buyer expects the concession to continue.
Do not assume the advertised rent, market rent, or lease face rent equals the revenue a lender, appraiser, buyer, or property manager will accept.
Effective rent is not collected rent, market rent, or NOI
| Term | Meaning | What it does not prove |
|---|---|---|
| Face rent | Rent stated in the lease | That all rent will be collected |
| Effective rent | Rent after spreading concessions across a period | That delinquency or bad debt is zero |
| Market rent | Estimated rent under current market conditions | That the unit is leased at that amount |
| Collected rent | Rent actually received | That future collections will remain stable |
| NOI | Effective gross income minus operating expenses | Cash flow after debt service and capital spending |
Questions to ask before relying on effective rent
- Which concessions are written into each lease or addendum?
- Are they one-time, recurring, conditional, or tied to renewal?
- How are concessions shown on the rent roll and tenant ledger?
- What amount was billed, credited, and actually collected?
- Do management reports treat waived fees as rent concessions or other-income adjustments?
- Which concessions are expected to continue after purchase?
- How does the lender or appraiser treat concessions in accepted rental income?
Continue your rental-income review
This guide is educational. It does not replace legal, accounting, tax, lending, appraisal, property-management, or other professional advice. Lease rights, concessions, and accounting treatment should be verified by the correct professional.
