What is subtracted from Net Potential Rent (NPR) to calculate Net Effective Rent (NER)?

What is subtracted from Net Potential Rent (NPR) to calculate Net Effective Rent (NER)?

• A. Maintenance costs
• B. Concessions
• C. Vacancy
• D. Operating expenses

Answer: (B)

Net Effective Rent reflects the actual rent collected after incentives. Net Potential Rent is the rent the property would generate if everything were ideal—full occupancy and no discounts. Concessions are the incentives offered to tenants (like free rent periods or reduced rent) that reduce the cash rent received, so they are subtracted from Net Potential Rent to arrive at Net Effective Rent. Maintenance costs and operating expenses are costs that affect profitability (NOI), not the rent amount itself, and vacancy is already accounted for in other parts of the revenue model, so concessions are the correct deduction to reflect reality.

Net Effective Rent reflects the actual rent collected after incentives. Net Potential Rent is the rent the property would generate if everything were ideal—full occupancy and no discounts. Concessions are the incentives offered to tenants (like free rent periods or reduced rent) that reduce the cash rent received, so they are subtracted from Net Potential Rent to arrive at Net Effective Rent. Maintenance costs and operating expenses are costs that affect profitability (NOI), not the rent amount itself, and vacancy is already accounted for in other parts of the revenue model, so concessions are the correct deduction to reflect reality.