What is the difference between market rent and effective rent?

Market Rent and Effective Rent are terms commonly used in real estate, particularly in the context of rental properties, and they refer to different concepts:

What is Market Rent?

Market rent is the amount of rent that a property could potentially fetch in the current market. It's based on comparable properties in the area, reflecting what similar properties are charging for rent. It's an estimate of what a landlord might expect to charge under current market conditions, but it doesn't necessarily mean this is what they are currently charging. Market rent is influenced by various factors including location, property condition, local demand, and the overall state of the real estate market.

What is Effective Rent?

Effective rent, on the other hand, is the actual rental income that a landlord receives from a property, taking into account any discounts or incentives. It's often lower than the market rent because it may include concessions like a month of free rent, reduced fees, or other incentives that landlords offer to attract or retain tenants. Effective rent gives a more accurate picture of what a landlord is actually earning from a property. It's useful for understanding the landlord's revenue in markets where incentives are common.

Market rent is the ideal or potential rent a property could earn based on market conditions, while effective rent is the actual income received by the landlord, factoring in any discounts or incentives.