How it works
Write the cash list first. Then decide what the page is measuring.
- Write every payment and credit.
- For the simple method, subtract credits from total rent and divide by term.
- For the tighter method, discount the stream, then turn that sum into a level yearly number.
- State the rate if you used the tighter method.
Formula in words. Simple effective rent = (total rent + extras − credits) / years. Tighter method = NPV turned into a level yearly amount.
| Input | Meaning |
|---|---|
| Face rent | The sticker |
| Credits | Free rent and TI |
| Term | Years or months |
| Rate | Needed for the tighter method |
Worked example
Here is a teaching sample. It is not customer data and not a result from a live client.
Lease A start rent$37,000
Lease B start rent$34,410
Discount rate8%
Sample NPV A$322,019
| Metric | Lease A | Lease B |
|---|---|---|
| Start rent | $37,000 | $34,410 |
| Year-1 extras | $7,000 | $7,490 |
| Year-1 credit | $11,000 | $6,050 |
| Sample NPV | $322,019 | $310,747 |
| Year | Rent | Extras | Credit | Cash out | Value today |
|---|---|---|---|---|---|
| Year 1 | $37,000 | $7,000 | $11,000 | $33,000 | $30,556 |
| Year 2 | $38,110 | $7,210 | $0 | $45,320 | $38,855 |
| Year 3 | $39,253 | $7,426 | $0 | $46,679 | $37,055 |
| Year 4 | $40,431 | $7,649 | $0 | $48,080 | $35,340 |
| Year 5 | $41,644 | $7,879 | $0 | $49,523 | $33,705 |
| Year 6 | $42,893 | $8,115 | $0 | $51,008 | $32,144 |
| Year 7 | $44,180 | $8,358 | $0 | $52,538 | $30,655 |
| Year 8 | $45,505 | $8,609 | $0 | $54,114 | $29,236 |
| Year 9 | $46,870 | $8,867 | $0 | $55,737 | $27,882 |
| Year 10 | $48,276 | $9,133 | $0 | $57,409 | $26,591 |
| Sample NPV | — | — | — | — | $322,019 |
How to read the sample
Sample NPV for Effective-rent sample is about $322,019. A second path lands near $310,747. That gap is a talking point, not a promise.
Year notes for Effective-rent sample
- Year 1 of Effective-rent sample has rent of $37,000.
- Shared building cost is $7,000.
- A credit of $11,000 lowers the cash you pay that year.
- Cash out this year is about $33,000. Free months cut year-one cash.
- Later cash gets a shrink for time. At 8 percent, year 1 is worth about $30,556 today.
- Next, year 2 rent is $38,110.
- CAM, which is a shared building cost, is $7,210.
- There is no credit in this year.
- You pay about $45,320 this year after extras and credits. The sticker returns in year two.
- Time shrinks later cash. At 8 percent, year 2 is worth about $38,855 today.
- Then year 3 rent is $39,253.
- Extras for the building come to $7,426.
- Credits skip this year.
- The net cash this year is about $46,679. The bump lifts the later average.
- Waiting has a price. At 8 percent, year 3 is worth about $37,055 today.
- After that, year 4 rent is $40,431.
- The shared building cost this time is $7,649.
- No extra credit shows up this year.
- Cash out this year is about $48,080. Later cash still shapes the tighter method.
- Later cash gets a shrink for time. At 8 percent, year 4 is worth about $35,340 today.
- In year 5 of Effective-rent sample, rent is $41,644.
- Shared building cost is $7,879.
- There is no credit in this year.
- You pay about $49,523 this year after extras and credits. The last year still sits in the divide.
- Time shrinks later cash. At 8 percent, year 5 is worth about $33,705 today.
- Year 6 of Effective-rent sample has rent of $42,893.
- CAM, which is a shared building cost, is $8,115.
- Credits skip this year.
- The net cash this year is about $51,008. Keep this later year in the sum for the sample.
- Waiting has a price. At 8 percent, year 6 is worth about $32,144 today.
- Next, year 7 rent is $44,180.
- Extras for the building come to $8,358.
- No extra credit shows up this year.
- Cash out this year is about $52,538. The row still belongs in the sum for the long path.
- Later cash gets a shrink for time. At 8 percent, year 7 is worth about $30,655 today.
- Then year 8 rent is $45,505.
- The shared building cost this time is $8,609.
- There is no credit in this year.
- You pay about $54,114 this year after extras and credits. Keep this later year in the sum for the long path.
- Time shrinks later cash. At 8 percent, year 8 is worth about $29,236 today.
- After that, year 9 rent is $46,870.
- Shared building cost is $8,867.
- Credits skip this year.
- The net cash this year is about $55,737. The row still belongs in the sum for the long path.
- Waiting has a price. At 8 percent, year 9 is worth about $27,882 today.
- In year 10 of Effective-rent sample, rent is $48,276.
- CAM, which is a shared building cost, is $9,133.
- No extra credit shows up this year.
- Cash out this year is about $57,409. Keep this later year in the sum for the long path.
- Later cash gets a shrink for time. At 8 percent, year 10 is worth about $26,591 today.
Add those year values. The sample NPV for Effective-rent sample is about $322,019. This is a teaching sample, not a client result.
Trusted sources
These are public references. They are not endorsements and not client results.