Prorated Rent

Prorated Rent- Simplified Calculations For Landlords

Prorating rent is not as difficult as it seems to some landlords. Sometimes though, calculating prorated rent becomes tricky as there are different ways to do so. Not only this; sometimes tenant also wants you to prorate their utilities along with the rent. In such times, not having the right information about prorated rent; you can find yourself in muddy waters.

Prorated Rent, your tenant will pay only for the no. of days; he or she has occupied the rental. Prorate the rent when moving in and moving out is on any date other than beginning or the end of the month. Proration allows the tenant to pay only the proportional rent and not the full month of rent. Also, it is out of the landlord`s will to prorate or not depending on your state laws.

What is Prorated Rent?

Prorated Rent simply means adjusting the rents when the tenant is not occupying the rental unit for a full complete month. In such cases, the tenant likely wishes to avoid paying a full month of rent and wants landlords to adjust the rents and charge only for the days the rental was occupied.

You then simply divide the total monthly cost of occupying the rental into the daily cost. It will give you a per day value for occupying your rental. Prorated rent can be calculated based on a monthly basis, yearly basis depending upon the situation, and the need of a tenant.

When to Prorate Rent?

Prorating the rent is in favor of both the landlord and the tenant. Both parties get benefits if you allow your tenant to pay rent based on a prorated basis. As a landlord, you can enjoy these benefits.

tenant moving in early

  • Fill Vacancies Faster:

Suppose you have a rental unit that is vacant. Now a prospective has come and showed interest in your property. He wants to occupy it from the 20th of this month. You are sitting on the 15th of the month and also know that there is very less scope of a tenant turnover before next month. You can then easily take advantage of this situation by prorating the rent and have this tenant on your property.

But if you don’t allow the prorated rent, you will ask the tenant to either pay the full month rent for this month or come on 1st the next month. In any case, the chances of losing the tenant is high. On the other hand, if you accept prorated rent; you are not only filling the vacancy but also collecting the rent for the period that might go waste.

  • Nurturing Landlord-Tenant Relationship:

Your tenant will definitely appreciate you for prorating the rent. Finding a helpful landlord, your tenant will likely stay more at your property. You are being flexible for your tenant with his move-in schedule.

This is a good gesture for the tenant by his landlord. It further helps the landlord to build a positive relationship with the tenant. And there is no denying in the fact that how important it is to have a good relationship with your customers in business.

  • Convenience

Prorating the rent, you can keep your rent collection dates the same. Most landlords collect the rent on 1st of every month. If you also collect rent on 1st but have a tenant with a different moving date. You need not to trouble yourself for collecting rent on different dates. Simply, prorate the rent from the date the tenant has moved in at your property to the 1st of the next month.

“Out of every 10 Landlords, 6 prefer collecting rent online”

Many times, landlords allow tenants to keep the rent for the extra days if they are moving out 1-2 days late after the end of the month for convenience. No question about it as hardly anybody will like to have the trouble in keeping the records for those extra days. But, if you know how to prorate rent; you can easily charge the extra rent without losing a single dime of your money. (23 Brilliant hacks to make more money with your rental unit)

How to Prorate Rent?

Now that you know the importance of prorating the rent, let us tell you how to prorate rent the right way. There are two ways you can prorate the rent for your tenant. These include prorating based on month and prorating based on year.

Calculating Prorated Rent based on Month

Prorated Rent on Monthly Basis

Most of the tenants prefer their landlord to prorate the rent based on month. But when you apply this method, you might occur to a question on whether to prorate rent based on 30 or 31 days. Or how to prorate rent when tenant moves in or moves out in the month of February?

The simple answer is to find the daily rent based on the number of days in the month. No matter if the month has 30 days or 31 days, divide the monthly rent by the number of days. Even if the month has 28 days or 29 days in February, the formula is the same.

Prorated Rent= No. of Days tenant staying X Daily Rent

Daily Rent= Monthly Rent/No. of Days in month

Prorated Rent= No. of Days tenant staying X (Monthly Rent/No. of Days in a month)

Calculating Prorated Rent on Yearly Basis

Prorated Rent on Yearly Basis

Calculating the prorated rent on a yearly basis is the most suitable method and avoids any confusion between you and your tenant. But still, some tenants want you to calculate according to a monthly basis. They can`t see a bigger picture and feel comfortable with month based prorated rent.

On a yearly basis, they feel you are also considering the time period in which they don’t stay on the property especially if they stayed for just a few months. But for a year time long lease, prorating the rent based on the yearly method is best suited.

Prorated Rent= No. of Days tenant staying X Daily Rent

Daily Rent= (Monthly Rent X 12)/ No. of days in a year

Prorated Rent= No. of Days tenant staying X {(Monthly Rent X 12)/ No. of days in a year}

“An Year based prorated rent always comes less compared to when prorated on monthly basis.”

How to Prorate Utilities?

You can use the above same formula to prorate utilities. It makes sense for the tenant to also get the cost of utilities prorated along with rent. If you are charging a tenant for utilities like water, sewerage, and garbage collection on a monthly or yearly basis, you can simply prorate it for your tenant.

Some utilities like electricity and gas cannot be prorated as they are charged only when the tenant uses them. So, be cautious while prorating utilities for your tenant. Only prorate those utilities which are charged on a monthly or yearly basis. And, not those utilities that are charged on a consumption basis.

Prorated Rent (Month Wise) = No. of Days tenant staying X (Monthly Rent + Utilities/No. of Days in a month)

Prorated Rent (Year Wise) = No. of Days tenant staying X {(Monthly Rent + Utilities X 12)/ No. of days in a year}

How to collect Prorated Rent?

Collecting Prorated Rent

Most landlords prefer to collect the prorated rent during the time of lease signing by the tenant. They collect the security deposit, one month rent, and prorated rent altogether from the tenant. However, this sometimes creates confusion, and the tenant can oppose this way of collection. Tenant is already giving full month of rent and security deposit. Why would he even like to give you additional prorated rent?

Ever thought: What if the security deposit is not enough to cover damages?

So, the best way is to collect the prorated rent is when it actually becomes due. Suppose your tenant is moving on the 20th and paying you the security deposit and full month of rent. Then, collect the prorated rent from this tenant on the 1st of next month when it actually becomes due.

Do you actually need to Prorate Rent?

Prorating rent for the tenant is out of the will of the landlord. You necessarily need to prorate rent always. There is no law which demands you to prorate the rent. Though in some state prorating rent may be required by the law. So, it is always advisable to check the laws of your state before renting to a tenant.

This case is valid for both move in and move-out of tenant. Even when a tenant moves out some days before the end of the lease, you are not required to prorate the rent. If you want, you can charge the complete month of rent. It totally depends upon your will. The only legal possibility, a tenant can ask for a refund is when he has served a proper notice to vacate.

How to write the lease while prorating the rent?

How to write Residential lease

Writing the lease can become difficult when you are prorating the rent. The confusion mostly revolves around the start date of the lease and end date of the lease. Whether should you start the lease from the date the tenant is moving in or from the 1st of next month?

You should always start the lease from the date, the tenant is moving in. Doing this you are making the tenant to comply by the terms and conditions listed in the lease from the day one. So, the start date will be on the same date the tenant is moving in and keep the due date of rent to the 1st of every month.

Suppose the tenant is moving on the 20th of April. Then, start the lease from 20th April and, end it on 30th April the next year if it’s a yearlong lease.

The Bottom Line

Prorating rent is simple and does not involve any rocket science to crack the code. Being a landlord, you should be open about prorating the rent. It gives you an edge in operating as a successful landlord. If you still occur to any question and find a problem prorating the rent, let us know in the comment section below.

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