Real estate investors know that time is money, which is the main reason for prorating the rent. When there’s a qualified tenant who wants to move in right away, it doesn’t make good business sense to ask the tenant to wait a week or even a few days until the 1st of the month.
While prorating the rent is fairly easy to do, the way the rent is prorated can yield different results. In this article, we’ll take an in-depth look at prorated rent, explain the four methods for calculating prorated rent, and explain why it’s always a good idea to prorate the rent.
What is Prorated Rent?
Prorated rent is calculated based on the number of days a property was rented instead of the entire month. Also known as pro rata rent, prorated rent is normally used when a tenant moves in – or moves out – on a day other than the first day or last day of the month.
For example, a tenant may be new in town and starting a new job, and needs to move in before the beginning of next month. Or you may have a short-term lease that expires in the middle of the month.
Should a Landlord Prorate Rent?
It’s usually a good idea to prorate the rent so that the due date is always on the 1st of each month.
Having the rental income coming in at the beginning of each month makes it easier for the tenant to make rent payments on time, and to calculate late fees if they don’t. Managing cash flow is also easier for a landlord if the rent is due on the first since most of the recurring operating expenses on a rental property are also due around the beginning of the month.
Prorating rent is also a good way to keep the occupancy level on a rental property high since there will be fewer days of vacancy between tenants if a new renter can move in faster.
When you prorate rent, be sure to collect the following month of full rent as well, plus a refundable security deposit. Doing this improves your cash flow and also reduces the risk that you'll attract a tenant who only pays for a partial month, then stops paying the rent entirely.
When Can You Ask for Prorated Rent?
Most states don’t normally require prorated rent, but prorating the rent is a good business practice for landlords to follow.
In general, a rental property owner should ask for prorated rent when the tenant is moving in or out in the middle of the month. As an investor, you want tenants to move in as soon as possible so that the cash starts flowing.
Although you hope a tenant never moves out, when and if they do, a landlord can use prorated rent to minimize the vacancy period between tenant turns.
How to Calculate Prorated Rent
There are four ways a landlord can calculate prorated rent.
Each prorated rent calculation works in a similar way, although the amount of prorated rent may vary depending on the calculation method you use. Because of that, it’s a good idea to include in your lease how prorated rent is calculated to avoid potential disagreements with the tenant.
In each of the following examples, we’ll assume the property rents for $1,500 per month and that the tenant moves in on the 20th of July.
As a rule of thumb, the day that a tenant moves in “belongs to the tenant,” which means that the tenant is charged for rent beginning the day that they move in. In this scenario, there are 12 days that belong to the tenant, July 20th through July 31st.
Number of Days in The Actual (Current) Month
There are 31 days in July. To calculate the prorated rent based on the number of actual days in the month:
- Divide the monthly rent of $1,500 by 31 days in July: $1,500 / 31 = $48.39 daily rental rate
- Multiply the daily rent by 12 days: $48.39 x 12 days = $580.68 prorated rent
Number of Days in The Average Month
There are 30.42 days in the average month. This is calculated by dividing 365 days in a year by 12 months: 365 days / 12 months = 30.42.
To calculate the prorated rent based on the number of days in the average month:
- Divide the monthly rent of $1,500 by 30.42 days: $1,500 / 30.42 = $49.31 daily rent
- Multiply the daily rent by 12 days: $49.31 x 12 days = $591.72 prorated rent
Number of Days in a Bankers Month
A bankers month assumes that every month in the year has 30 days. To calculate the prorated rent using a bankers month:
- Divide the monthly rent of $1,500 by 30 days: $1,500 / 30 = $50.00 daily rent
- Multiply the daily rent by 12 days: $50.00 x 12 days = $600 prorated rent
Number of Days in The Year
To calculate the daily prorated rent based on the number of days in the year, multiply the monthly rent by 12 months, then divide that number by 365 days:
- $1,500 monthly rent x 12 months: $18,000 / 365 days = $49.32 daily rent
- Multiply the daily rent by 12 days: $49.32 x 12 days = $591.84
So, depending on which method you use for prorating the rent, the prorated rent charge when the tenant moves in on the 20th of July could be $580.68, $591.72, $591.84, or $600.
That’s why it’s always a good idea to specify in the lease agreement how the prorated rent is calculated to avoid misunderstandings between the landlord and the tenant.
Where to Find a Prorated Rent Calculator
For landlords who don’t feel like manually calculating the prorated rent, there are several good online calculators to use to prorate the monthly rent:
Rentvine offers a new generation of property management software and a free online calculator for prorated rent.
Apartmentguide is a rental listing service that also offers a prorated rent calculator.
TurboTenant is a good online source for tenant screening with an easy-to-use calculator for prorating the rent.
Omni Calculator has an online prorated rent calculator along with 13 other real estate calculators such as simple interest, mortgage, LTV calculator, and a rental property calculator.
Good Calculators offers a prorated rent calculator including currency options such as the dollar, euro, pound sterling, or yen.
FAQs About Prorating Rent
Is it legal to prorate the rent?
Prorating rent is perfectly legal because there’s no law that says a tenant has to move in or out on the first of the month. A landlord could change the rental due date based on when the tenant moves in. But generally, it’s much easier to have the rent due on the 1st of each month and prorate the rent when the tenant moves in.
Does a landlord have to prorate the rent?
A landlord doesn’t have to prorate the rent, but not doing so sets the wrong expectations with the tenant. For example, let’s say the tenant moves in on the 28th of the month.
If the landlord doesn’t prorate the rent and collect two days of rent, the tenant may think a landlord is “flexible” on rent collection. Without meaning to, the landlord could end up with a tenant who thinks it’s alright to pay the rent late without penalty.
What is the best way to prorate rent?
There are four different ways to calculate a rent proration: 1) Number of days in the actual month, 2) Number of days in the average month, 3) Number of days in a bankers month, and 4) Number of days in the year.
Each method of prorating the rent yields a different result. While there’s not necessarily a single best way to prorate the rent, a rental property investor may use a prorated rent calculation that brings in the largest amount of prorated rental income.
How does rounding work with prorated rent?
As a rule of thumb, if the number being rounded ends in a 5, 6, 7, 8, or 9 the amount is rounded up. If the number being rounded ends in 0, 1, 2, 3, or 4 the amount is rounded down.
For example, if the prorated rent is $50.425 the rounded amount would be $50.43. On the other hand, if the prorated rent amount is $50.423, the rounded amount would be $50.42.
When does prorated rent begin?
When you buy a rental property the day the escrow closes belongs to the buyer. The same concept is used for determining when prorated rent begins. If the tenant moves in on the 15th, the prorated rent would be calculated from the 15th to the last day of the month.
Final Thoughts on Prorating Rent
Prorating the rent can help keep occupancy levels high and cash flow stronger by allowing a tenant to move in before the beginning of the month. There are several ways to prorate the rent, and each method yields different results.
Rental property investors should consider using the calculation that generates the most prorated rental income, while at the same time being fair to the tenant.
Landlords who develop a good relationship with the tenant right from the start can easily find themselves with a great tenant who renews the lease year after year and takes care of the property as if it was their own.