When a tenant isn’t staying at your property for an entire month, it’s unlikely that they will want or be willing to pay for an entire month’s rent when they will just be there for a few days or weeks.
And you shouldn’t expect them to pay for it!
Instead, you should make the most of flexible move-in dates while still keeping consistent rent due dates by using prorated rent. Not only can using prorated rent calculations help you get tenants into a property faster, but you can also allow flexibility in move-out dates without losing any real profits.
Understanding how to properly calculate prorated rent will ensure that you are making your fair share of money without ripping any of your tenants off, and that is what it takes to be a great landlord.
Let’s learn how to calculate prorated rent in the most common ways for different situations.
A Table of Contents For How to Calculate Prorate Rent
- What is Prorated Rent?
- What are the Benefits of Prorating Rent for Landlords?
- How Do You Prorate Rent?
- How Do You Collect Prorated Rent?
Prorated rent is when you divide the total monthly cost of rent out to a per day cost. This cost is then charged to a tenant for the number of days that they are occupying the property rather than them paying for the entire month.
Basically, the tenant pays a portion of the rent for staying on the property for a period shorter than the full 30 days.
There are a number of reasons why you might want to employ prorating rent as a landlord.
First, you want to find good tenants, and good tenants will appreciate your flexibility and honesty if you prorate their first few days of rent rather than trying to charge them a full month. By offering to prorate rent, you’re showing that you are a fair landlord.
Another reason to prorate rent is to keep all of your rent due dates at the same time. If rent is always due on the 1st, prorating rent from the move-in date until the 1st is the easiest way to keep those due dates in line.
Finally, prorating rent ensures that you make a profit for every day that your tenant is living on the property. Some landlords will allow a tenant to stay an extra day or two past their contract without any charge, but being familiar with prorating will allow you to charge them just for those days.
Now that you know what prorating rent is and why you might want to try it, let’s talk about how to actually do the calculations!
Method #1: Daily Rate by Month
- Take the monthly rent amount.
- Divide that amount by the number of days in the affected month. This gives you the daily rate for that particular month.
- Multiply the daily rate by the number of days the tenant lives on the property.
- This will give you the prorated amount owed!
It is important that you remember to divide the monthly rent by the number of days in that particular month. While this does mean that different months have a different daily rate, there is no problem with that.
Method #2: Daily Rate by Year
Some people prefer to calculate the daily rate by dividing out the total year instead of each month. When following this method, every single day of the year is considered to be an equal rate day.
This method is most often used when dealing with a year-long lease. Here’s how to do it:
- Take the monthly rent amount.
- Multiply it by 12, the number of months in the year.
- Divide the total number from step #2 by the number of days in the year (365). This gives you the daily rate.
- Multiply the daily rate by the number of days that the tenant is paying for.
The final step in the leasing process that can be confusing for both tenants and landlords is in regards to when you collect the prorated rent.
When dealing with a year-long lease, here is how things usually go:
- Tenant signs lease. They put down a security deposit (typically one month’s rent) and pay the first full month of rent.
- Let’s say that the tenant moves in on August 20th and the rental due date is September 1st.
- On September 1st, the tenant would pay the prorated amount for the 12 days that they lived on the property in August.
- On October 1st, the tenant would pay a full month’s rent.
The reason that the tenant does not pay for the prorate rent days until the first real due date is because they had already paid the first month of rent when they signed the lease.
If you prefer to handle these payments in a different way, that is OK as long as the tenant agrees to your specifications in the lease and the specifications do not interfere with local housing laws.
Prorating rent is a smart calculation to become familiar with. Knowing how to explain and handle this calculation quickly will ensure that both you and your tenant get the best deal possible when it comes to move-in, move-out, and rental due dates.
Remember that prorating requires that you:
- Calculate a daily rate for the property using the monthly or yearly technique.
- Charge the tenant the prorated daily rate for any days that they live on the property, which do not add up to a full month.
- Follow local laws as necessary.
If you follow all of these guidelines while learning how to calculate prorated rent, you’ll be sure to see extra profits in no time at all.