How to Calculate Prorated Rent? - Next Level Real Estate

How to Calculate Prorated Rent?

Prorated Rent

What is prorated rent?

Prorated rent is the amount you fix to a tenant for the number of days they reside in the unit, based on the monthly rent. The monthly rent is prorated by the day rather than setting a daily or weekly rate (which is typically more costly). Whatever the portion of the month your tenant inhabits the unit is the portion of the monthly rent they would pay.

Why it is necessary:

If your tenant moves in or out in the middle of the month or sublets to someone else, then it’s useful to use prorated rent. For instance, if your tenant moves in on the 17th, which they often do, you can charge them a prorated amount for those days and then set the standard rent scheduled on the first day of their first entire month.

Prorating rent isn’t a landlord’s legal responsibility, but it does help set a good association with your tenant. A good connection is important, and it makes your tenant more likely to re-sign, suggest other potential tenants to your properties, be pleasing, and obey any constraints you may have.

When is Prorated Rent Required?

Since there’s no legal reason the monthly payment date ought to be on the first day of the month, some landlords might decide to make the rent payable on the date the tenant moves in.
For instance, if they move in on August 10th, rent would be due on the 10th of every month.

If you have more than one unit, this could suggest that you’re increasing your workload by gathering rent throughout the month. Typically landlords discover it more comfortable to prorate rent for a short first month and make the rent payable on the first of the month after that to keep all units on the same schedule.

Other cases where prorated rent might apply would be when a tenant moves out before the last day of the month, when the lease expires on the first day of the month, or when a tenant needs to stay one or two days beyond the end of the lease term.

How Do You Collect Prorated Rent?

It is confusing for both tenants and landlords regarding when you collect the prorated rent.

Rent calculation

When managing with a year-long lease, here is how things usually go:

  • Tenant signs lease. They put down a safety deposit (typically equal to one month’s rent) and pay the first whole month of rent.
    The tenant moves in on August 10th, and the rental due date is September 1st.
  • On September 1st, the tenant would pay the prorated amount for the 20 days they lived on the property in August.

1. On October 1st, the tenant would pay a whole month’s rent.

The tenant does not pay for the prorated rent days until the first actual due date because they had already paid the first month of rent when they signed the lease.
If you like to handle these payments differently, that is OK as long as the tenant agrees to your specifications in the lease and the specifications do not hinder local housing laws.

How do you calculate prorated days?

Calculating prorated daily rent is very comfortable. All you require is to take the total amount of rent for a set time, such as a month, and divide it by the number of days in that period.
This will give you the prorated rent amount. You can do this calculation using either months or years, and be sure to use the exact number of days in a given month when doing this calculation.

How to calculate prorated rent

There are various methods to calculate prorated rent, but all involve specifying a percentage of the rent equivalent to the number of days in a month they will live on the property. Keep in mind your tenant’s occupancy agreement before settling on a single equation.

BY THE NUMBER OF DAYS IN A MONTH

This method is simple to calculate and straightforward to demonstrate to tenants. Take your monthly rent and divide it by the number of days in a month. You multiply this amount by the number of days the tenant will occupy the unit.

For example, say a tenant is moving in on September 25th, and the total rent is $1,200. Calculating by the number of days in a month would look like this: 1200/30 x 5=200. Therefore, $200 would be the prorated rent.

Since the number of days in a month varies, and your rent fluctuates depending on the season, the prorated rent will likely be different each time you calculate the results. The above equation may be beneficial for renting to tenants who have agreed to rent on a month-to-month basis or less than a year.

BY THE NUMBER OF DAYS IN A YEAR

Although you don’t require to be a mathematician to prorate rent by the number of days in the year, you may have to draw out the figures to demonstrate it to your tenant. It works like this: take the monthly rent and multiple it by 12 to find the total yearly rent. Then divide the sum by 365 to determine the daily rent. Once you find the daily rent, you multiply it by the number of days the tenant will occupy the unit.

For instance, a tenant is moving in on September 25th, and the total rent is $1,200. This suggests that the tenant will occupy the unit for five days in the month. Your calculations would look like this: (1200 x 12)/365 x 5=197. This makes $197 your prorated rent.

Things to Consider when prorating rent

Calculating prorated rent is not rocket science, but here are some things you need to consider that will facilitate the process:

• Put your prorating policy on paper or include it into your lease contract, so there are no shocks or conflicts down the road. If it’s a leap year, divide your yearly prorated calculation by 366 days instead of 365.

• Generally, it is not your duty to prorate rent if a tenant signs a lease on the first month but chooses to move in later. The same applies if a tenant’s lease runs to the end of the month and decides to move out earlier.

How do you write a prorated lease?

Writing a lease agreement that contains a prorated rent clause is not tricky. First, you will want to start with a formal lease agreement that includes details about the monthly rent, how much it is, and when it is due.

Then, you will like to add a prorated lease clause to the lease agreement. This clause should contain the following information:

• What the prorated rate is based on
• When the rate will change over to the monthly rate and vice versa
• What the prorated rate is per day
• What days will be charged a prorated amount
• How the amount should be paid

It is often perplexing for both landlords and tenants when precisely the prorated rate days should be paid, mainly because tenants are typically responsible for paying the first month’s rent when they sign the lease agreement.

Clarifying how this works in the prorated lease clause can help prevent and clear up any lingering confusion. Including a rent proration table in your lease agreement can help clear things up.
In most cases, the payment schedule will look something like this:

• The tenant will pay the first month’s rate with the security deposit
• On the 1st of the first entire month, the tenant will pay the prorated days they were in the unit
• On the 1st of the second whole month, the tenant will start paying the regular monthly rent

Ensure to go over this with any tenants who will be doing prorated rental times with you to not miss any charges by mistake. Clarification is key.

Final Words:

Being honest when it comes to prorating rent will help create a trusting relationship with your tenant and help you keep your good reputation as a landlord. This is particularly true for a tenant who is just moving in, as it sets the tone of how you will handle future business with them.

Make sure that when prorating rent, you keep the first month’s rent and security deposit different. Safety deposits are managed differently than rent payments, and some states require landlords to keep the rent and security deposit separate.

While you don’t like your unit to rack up expenses while vacant, you also don’t want to rush in a lower-quality tenant for a few days of prorated rent. There are ways to rent your property quickly, without sacrificing a thorough tenant screening.

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