Landlords always want to fill their rental property with a tenant. However, tenants don’t want to pay a full month’s rent if they are not moving in at the start of the billing day. Prorated rent allows the landlord and tenant to meet in the middle. It’s a win for both sides!
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What is Prorated Rent?
Prorated rent is an amount a tenant pays that is not occupying a unit for a full month. The prorated rent amount bases itself on the monthly rent for the unit and the total number of days a tenant occupies it before the normal billable date.
Therefore, the amount is always a fraction of the monthly rent. Also, it allows a tenant to move-in sooner without paying the total rental amount.
In one of my rental properties, I had a tenant initially scheduled to move-in on the first of January. However, they wanted to move-in earlier to avoid moving on New Years Day.
I was more than happy to let them move-in sooner. The prorated rent was enough to cover the previous month’s utility bills. Also, there was a six-inch snowstorm the last week of December, which they became responsible for shoveling the snow!
When to Prorate Rent
A landlord applies it when a tenant moves in before the billing day or when a tenant moves out before the end of the lease. The billing day is usually the first day of the month, but it can also be another day, such as the 10th day of the month.
Technically, a landlord can make the rent amount due date the first day they move in and charge a full month’s rent. For example, a tenant moves in on June 30th, which becomes their rent due date. Therefore, the next billable day is July 30th.
Although a landlord can charge a tenant the full amount, this “on-demand” billing cycle can become hard to manage, especially if the landlord has multiple properties that have different move-in days.
It’s a bookkeeping nightmare!
I make the first day of each month the billable day for all my rental properties. It keeps everything consistent and coincides with the mortgage payment due date, the 10th day of the month.
How to Calculate Prorated Rent?
There are different ways to calculate the prorated rent, mainly due to how people determine daily rent amount. This amount is not necessarily the same as a daily rental rate as short term rental.
The methods to calculate the daily rent amount are the following:
- Rent based on number of days in a particular month
- Rent based on number of days in a year
- Rent based on a flat 30 days
The prorated rent calculation formula takes the daily rent amount and multiplies it by the number of days the tenant occupies before the billing date.
Prorated Rent Calculation Formula = Daily rent amount x Number of days before the billing day
Below are a couple of examples explaining how the different methods for determining the daily rent amount impacts the prorated rent. For all the samples, I’ll use the following data:
- The total monthly rent amount is $1,000.
- The billable day is the first of every month.
- The tenant moves into the unit on January 15.
- The tenant occupies the unit for 17 days.
Days in a Particular Month Example
There are 31 days in January. Thus, the daily rent amount in January is about $32.26 a day ($1,000 / 31 days). Therefore, the total prorated rent is $548.38 for living in the unit for 17 days.
Notice how the daily rent amount can change depending on the number of days in the current month. For instance, February has 28 days (not including a leap year), while other months have more days, such as September, April, June, and November.
Days in a Year Example
There are 365 days in a year, and the total yearly rent is $12,000 ($1,000 x 12). Therefore, the daily rent amount is about $32.87 a day ($12,000 / 365 days).
For this reason, the total prorated amount due is $558.90 for living in the unit for 17 days.
Flat 30 Days Example
A flat 30 (also known as a banker’s month) will always use 30 days regardless of the month the tenant moves. Hence, the daily rent amount is about $33.33 ($1,000 / 30 days), which makes the total rent amount is $566.66 for 17 days.
Prorated Rent Laws
Every state has different laws when it comes to calculating the prorated rent. Some states may not offer prorated rent, forcing the tenants to pay the full rent regardless of the move-in date. Other states, like California, only permit a flat 30-day calculation.
Therefore, be sure the lease is appropriately following your state’s laws. Sometimes a tenant may have to request a prorated rent.
Additional Things to Consider When Calculating Prorated Rent
The formula to calculate the prorated rent is easy to understand and perform. Technically, you can do it all by hand.
Unfortunately, there are other things to consider when calculating the rent that can cause things to become problematic. For this reason, we included a free ultimate prorated rent calculator to take out the confusion!
According to NASA, a leap year occurs every year and adds an extra day to a calendar year, particularly the month of February. Hence, calculating the prorated rent varies, not by just month, but also by year!
Thus, some landlords, including us, prefer to use a flat 30 days to determine the prorated amount. The math is more straightforward, but it benefits us as landlords because it has a higher daily rent amount.
Billing Day Not on First Day
Not setting the billing day as the first day of the month can make things a little more complicated. The months next to each other have different days of the month.
Therefore, landlords must consider the first month’s rent and the second month’s rent to calculate within the prorated date range. Also, you’ll have to keep track of the number of days a tenant occupied in two separate months.
The Ultimate Prorated Rent Calculator
Prorating rent allows the tenant to move-in sooner rather than later. Landlords are more than happy to have a unit filled compared to it just sitting vacant.
Calculating the prorated rent is a simple formula. However, it can get complicated if you plan NOT to make the billable day the first day of the month.
You’d have to consider the billable days of the first month and the second month even if the tenant moved in on the last day. It may be easier just to use a flat 30-day to avoid calculating many days for a daily rate.
There are expensive property management software tools you can use. However, if you’re not a real estate property manager, this prorated rent calculator should fit all your needs!
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