In a perfect world, your tenants would always move in on the first of the month. But the world isn’t perfect, and your tenants may want to move in sometime during the middle of the month. While you could start charging from the date they move in, making that their rent due date, if you own more than one rental with several rent due dates to juggle, this could get complicated. You could charge the full month’s rent even though the tenant wasn’t there for the entire month, but that isn’t quite fair. The solution is simple: prorate the rent.
In this article:
- What Is Prorated Rent?
- When Should Rent Be Prorated?
- Why Landlords Should Prorate Rent
- How to Calculate Prorated Rent
- Tips for Prorating Rent
What Is Prorated Rent?
Prorated rent is the amount of money you charge your tenant for the partial term when they are occupying the unit. For example, if your tenant moves in on the 17th, then you would charge from that point to the end of the month. The price is based on the monthly rate instead of a daily rental rate, which would most likely be more expensive.
When offering prorated rent, it’s a good idea to apply it to the second month, rather than the first, especially if you collect first and last months’ rent at the lease signing. This also ensures that you collect a full month’s rent before the tenant moves in.
When Should Rent Be Prorated?
Determining the amount a tenant must pay before moving in can be easier if they move in at the beginning of the month. However, when that's not the case, prorating the rent is necessary to accurately reflect the number of days the tenant lives in the property. For example, if your tenant moves in on March 17th, you would prorate their rent from March 17th to March 31st. Then, for April rent, they would pay the full month's amount on April 1st. It's important to note that prorating rent is not required in most states. Therefore, before deciding whether to offer prorated rent or not, check your local and state laws for specific requirements.
While prorating rent when a tenant moves in is common, your tenant may also request prorated rent if they choose to move out before the lease term ends. In this case, if they are moving out a few weeks early, you can require them to pay the full amount for the entire lease term. However, if you want your tenant to leave before the lease ends, consider offering a prorated amount to incentivize them to leave before the end of the month.
Additionally, your tenant may request to stay in the rental for a few days or weeks after the lease ends. For instance, if they cannot move into their new place immediately, they may ask for a prorated amount for those extra days or weeks. It's important to note that allowing the tenant to stay after the lease ends is at your discretion, and if you agree, you can consider a prorated amount of the month's rent minus the remaining days after the tenant moves out.
Why Landlords Should Prorate Rent
Prorating rent ensures that you are always collecting rent on the first. If you only have one rental, collecting rent on a set day probably won’t be as important, but for those with multiple rentals, juggling several rent dates could get confusing. If you charge a full month’s rent no matter when the tenant moves in, you’ll most likely have a vacant unit for several days or weeks between tenants.
By prorating the rent, you can fill your vacancies sooner and keep rent collection simple, and your tenants will appreciate your generosity for not charging the full month’s rent when they are only occupying the property for part of the month. Doing this could strengthen your relationship with your tenant, leading to a renewal or even a referral later on.
How to Calculate Prorated Rent
As a landlord, you can calculate prorated rent in a variety of ways. The amount could be based on the number of days in a month or the number of days in a year.
By number of days in the month
To calculate prorated rent by number of days in a month, take your monthly rent and divide it by the total number of days in that month. Then multiply that amount by the number of days the tenant will occupy the unit. For example, if a tenant is moving in on March 17th and the full rent is $1,200, you would calculate prorated rent like this:
$1,200/31 = $38.70 (this is the daily rent)
$38.70 x 14 = $521.80 (prorated rent)
Since the number of days in the month can vary, the prorated rent can be different depending on when you calculate it.
By number of days in a year
If you choose to prorate based on the number of days in a year, you would take the monthly rent and multiply that by 12 to find the yearly rent. Then take the product of that equation and divide it by 365 to figure out the daily rent. Then, take that number and multiply it by the number of days the tenant will be occupying the unit.
For example, if the rent for the property is $1,200 a month and your tenant wants to move in on the 17th, your equation would look like this:
$1,200 x 12 = $14,400 (the total rent amount for a 12-month lease)
$14,400/365 = $39.45 (this is the daily rent)
$39.45x14 (days in rental) = $552.30 (prorated rent)
Depending on the number of days in the current month, you may have a slightly larger profit if you calculate by the days in the month rather than by the days in a year. If your tenant isn’t renting for a full year, they may feel as though this method works against them. If you want the simplest process, calculate using the days in the month. Be sure not to use the yearly calculation for one tenant and a monthly calculation for another, as this would violate Federal Fair Housing laws, which require your methods and standards be consistent for all renters.
Tips for Prorating Rent
- Decide on a prorating policy and put it in your lease agreement. Make sure the wording reflects the method you choose, such as “the number of days in a month in the fiscal year” if you choose to use the days in the month method.
- Keep the first month’s rent and security deposit separate from the prorated month amount. Most landlords will charge the full amount at the lease signing and apply the prorated amount to the second month.
- Don’t round up (or down) until the very end, because doing so early in the equation will impact your final amount.
- Watch out for leap years! You’ll want to use 366 days in your calculations during a leap year. If you use 365 days during a leap year, you won’t have an accurate result for your prorated rent amount.
When you're ready to collect rent payments, consider a platform like Apartments.com. With our online portal, you can set up automated reminder emails and late fees, and renters can pay however they see fit. Prorating rent is much simpler than it sounds, and it will provide you with flexibility for move-in dates. You’ll also build trust with your renters, who will appreciate you charging them for only the time they are occupying the unit.
