How to Calculate Prorated Rent
What Is Prorated Rent?
First, let’s be clear on what it means to prorate rent. Prorated rent is the rent charged for less than a full month of occupancy by a tenant. This is appropriate when tenants move in on a day other than the first of the month. The tenant pays only for the number of days of occupancy, not for the entire month, which is only fair.
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Calculating Per Day Rent
In order to charge the correct prorated rent, landlords must calculate the per day rent. You can find a number of prorated rent calculators online. But even if you decide to use one, you still need to know how prorated rents are calculated so that you can explain it to prospective tenants, if need be.
There are two different ways to calculate per day’s rent. One yields per day rent figures that differ depending on the number of days in a given month. The other yields a consistent per day rent figure that is unaffected by the number of days in a month. We at Palmetto State Properties use the same method that banks do, where each month is considered 30 days.
For a consistent per day rent:
- – Begin with the monthly rent figure—such as $1,200.
- – Multiply the monthly rate by 12 to determine the total annual rent—$14,400 in this case.
- – Divide the annual rent by the number of days in a year—$14,400 ÷ 365 = $39.45 per day.
- – Multiply the per day rent by the number of days the tenant lives in the apartment that month. Using a December 10 move in date again, the prorated rent would be $39.45 x 22, or $867.90.
By contrast, a September 10 move-in date would result in a prorated rent of $828.45 ($39.45 x 21). The per day rent is the same as for December; the only difference is that the tenant would be charged for 21 days instead of 22.
How Do Landlords Benefit from Prorating Rent?
Landlords gain a reputation for being fair to their tenants when they prorate rent. That reputation for fairness can make it easier for landlords to attract quality tenants.
From a practical standpoint, prorating rent allows landlords to maintain a single due date for all tenants. Most landlords prefer to have all rents due on the first of each month rather than on the anniversary of each tenant’s move-in date. Prorating the first month’s rent makes it possible for landlords to be flexible about move-in dates and have the same rent due date for all tenants. And that also works to the financial benefit of landlords because they gain that prorated rent for days that a rental would otherwise be vacant if tenants had to wait until the first of the next month to move in.
When Do Landlords Collect Prorated Rents?
You might wonder how to charge a new tenant for prorated rent for the move-in month if rents are due on the first of each month.
The most common residential lease term is 12 months, so let’s assume that a tenant signs a one-year lease that requires a one-month security deposit. At the same time, the tenant pays the first full month of rent. The tenant’s occupancy begins on July 13. The next due date for rent will be August 1. When August 1 rolls around, the tenant will pay the prorated rent for July. And the rent for August will be covered by the first full month’s rent the tenant paid when signing the lease. Beginning on September 1, a full month’s rent will be due on the first day of each month.
Some landlords may have other ideas, but this way of collecting prorated rents is considered a best practice. Whatever decisions you make about prorating rents, be sure to spell your prorating policy out in detail in your standard lease agreement. Get in touch today to find out how we can help.
