What to take into your next appraisal
- Spread a concession only for the metric that needs an average.
- Keep the actual free-rent month in the cash schedule.
- Do not subtract the same incentive twice.
Use three distinct rent measures
Gross scheduled rent is the contractual headline before concessions and specified losses. Effective rent reflects the agreed incentive over a defined period. Cash collections follow the actual due dates and payment behaviour. These measures can legitimately differ in the same month.
Fannie Mae’s operating-statement analysis framework separates rental-income adjustments and requires consistent reporting periods. State whether each valuation or debt test uses actual, annualised or forward-looking income.
Calculate one fictional leasing offer
Assume 20 apartments sign 12-month leases at $2,000 a month with the first month free. Gross scheduled rent is $480,000 over the lease terms. The concession is $40,000, leaving $440,000 before bad debt. Average effective rent is $1,833.33 per apartment per month.
This average is a comparison metric. It does not mean $36,666.67 is collected every month from the cohort.
Place the incentive in its actual month
Assume all 20 leases begin in month 1 and the tenants pay on time.
| Period | Gross scheduled rent | Concession | Cash rent |
|---|---|---|---|
| Month 1 | $40,000 | $40,000 | $0 |
| Each month 2 to 12 | $40,000 | $0 | $40,000 |
| Full 12-month term | $480,000 | $40,000 | $440,000 |
Separate new leases from renewals
If renewal rent rises 3% to $2,060 and renewing residents receive no concession, their next 12 months produce $24,720 each. A new resident at the same headline rate with one month free produces $22,660. Retention and replacement therefore have different cash consequences before turnover costs.
For a real building, stagger cohorts by move-in month and apply renewal, vacancy and incentive assumptions only to the relevant units. Do not apply a portfolio-wide concession haircut and then deduct each lease’s free month again.
Explain apparent changes in performance
A month with many new move-ins can show rising physical occupancy and weak cash collections at the same time. Reconcile that movement through cohort starts, free periods, arrears and expiries.
Report headline rent, effective rent on new leases and cash collections alongside occupied units. Before refinancing, confirm whether the lender adjusts for temporary incentives and whether the underwriting assumes concessions continue for replacement tenants.
Sources and further reading
- Multifamily Underwriting Standards Fannie Mae
Published by Feasly. How we prepare our guides. Suggest a correction.
