What is Prorated Rent, and How Do Landlords Calculate It?
As a landlord, you need to know how to calculate fair rent for your tenants. This is normally very simple; you charge a monthly rate and tenants give you their due rent on the first of each month. But what if a tenant moves into a new apartment on a day other than the first?
In this case and others, you may have to calculate prorated rent. Today, let’s break down what prorated rent is and how to calculate it in several ways.
Prorated Rent Explained
Prorated rent is a lower-than-usual amount of rent charged to tenants based on how long they occupy a rental unit. In most cases, prorated rent is based on standard monthly rent rates. It’s typically used to charge tenants a fair price if they rent a unit for less than a full month or move in the middle of the month rather than the end of the month.
For instance, imagine a situation where a new tenant moves into a rental unit on the 15th rather than the first of the month. It wouldn’t be fair for the landlord to charge them a full month’s rent if they only live there for half the month. They need to be charged rent for a partial month.
Instead, the landlord prorates the rent payment and charges them essentially half of the month’s full rental price. This covers the time the tenant actually spends in the rental unit and is fair for both parties.
When Should You Prorate Rent?
Landlords are not forced by law to start rental payment dates on the first of each month. Therefore, many landlords may choose to collect rent from their tenants on the days that those tenants move in. For instance, if a tenant's move-in date is September 7, the next month’s rent might be due on October 7.
However, this can double or triple the workload for many landlords, especially if they rent multiple units (such as an entire apartment building’s worth of them!). Therefore, many landlords think it’s easier to simply prorate the rent for a tenant’s first month. Then they make the rent payable on the first of each successive month.
So, in the above example, the new renter would pay a prorated rent amount based on when they moved in, September 7. However, the next month’s rent would be due on October 1, not October 7.
Landlords may also choose to prorate rent if a tenant moves out before the last day of a given month and when the lease for that unit expires on the first day of the month. In this case, the tenant pays prorated rent for how long they’ll actually be in the apartment for the last month of their tenancy, not the entire month.
How to Calculate Prorated Rent
As you can see, prorating rent is a useful financial process for both landlords and tenants. It keeps things fair and balanced for both parties and helps tenants pay only when they actually use a property or have moved in fully.
There are several ways to calculate prorated rent if you’re a landlord and want to avoid giving each tenant a distinct “rent due” date.
Calculate by Days in the Month
Firstly, you can prorate tenant rent by calculating the number of days remaining in the month. For example, you take the monthly rental rate for an apartment. Let’s set this as $1000 for easy math. A new tenant is set to move into an apartment on the 10th of the month rather than the first, and there are 30 days in the month total.
That means the tenant will be in the apartment for 21 days total, from the 10th to the 30th. The landlord can calculate prorated rent by:
Taking the monthly rent rate, $1000
Dividing it by 30. This yields a price of $33.33 per day
Then they simply multiply that daily rate by 21. This gives a prorated rental rate of $699.93.
This is a great way to calculate and prorate rent for tenants because it is easy to explain. Plus, it feels fair in an intuitive way because it only charges a tenant for rent based on how many days they have physically been in the apartment.
Calculate by Days in the Year
However, landlords may also prorate rent for their tenants by calculating based on the days in the year. With this system, landlords must:
First, take the monthly rent price. Let's pretend it is $1000 once again
Next, multiply the monthly rate by 12 to find the total yearly rent. This would be $12,000 in our example
Next, divide the sum by 365. This is the daily rental rate. It would be $32.88 based on our example
Then multiply the daily rent by how many days the tenant will occupy the unit in the prorated month/months. In this case, the rent owed would be $690.48
This follows the same basic calculation scheme as calculating prorated rent on a monthly basis. But some landlords may prefer this system when calculating prorated rent for longer-term leases.
With either of these systems, you can find prorated rent calculators online. These are great for easily finding the daily rent amount due by inputting billable days and other key elements.
How to Prorate Rent Smartly
Calculate prorated rent is fairly straightforward, but you should keep these factors in mind to make things easy on yourself:
Be sure to write out your prorating policy in writing or put it on the lease agreement. This prevents tenants from arguing against your rules. You can put this with other policies, like those concerning the security deposit and property management
Remember to divide your rental rate by 366 if it’s a leap year and you want to calculate prorated rent on a yearly basis!
Lastly, keep in mind that landlords aren’t responsible for prorating rent if the tenant signs the lease on the first of the month and voluntarily chooses to move in at a later date
Remember that prorated first month's rent is not the payment for an average month. The second month of tenancy should go back to the normal rental amount based on the lease term. It should also be due on the first or last day of the month (or other due date).