Tips to Help Calculate Prorated Rent

As the old saying goes waste not, want not. And, when it comes to costly tenant vacancies, it’s your profits that may waste away.

Whether your previous tenant left early for a job in a different state, or they had some other reason to leave early, you’re keenly aware that every day your unit sits vacant, you lose money. In fact, according to Apartments.com, the time waiting between tenants smacks landlords with up to $5,000 in turnover costs. How would your property business fare with such a hit?

Starting a lease agreement on the first of the month may seem tidier or easier for accounting. But, if you have a tenant who is ready and willing to move in sooner, can you really afford to wait?

Instead, it might make sense to have a tenant move in a few days or few weeks early and charge them only for the days they occupy the unit. In this case, you would ask for a partial rent payment. This is known as prorated rent.

Of course, you don’t want to rush anyone into your unit. Even when faced with an empty apartment, it’s essential to vet all candidates with a reputable tenant screening service company like SmartMove®. After all, even worse than a vacancy would be placing an ill-fitting tenant who lacks the intention of ever paying rent.

This article dives into tips on prorated rent for independent landlords. Read on to learn what it is, when it applies, calculating it, and other tips to keep in mind.

What is prorated rent and how does it apply to landlords?

According to Logical Property Management, prorated rent is the amount you charge a tenant for the number of days they occupy the unit, based on the monthly rent. Rather than charging a daily or weekly rate (which is typically more expensive), the monthly rent is prorated by the day.

Whatever the percentage of the month your tenant occupies the unit is the percentage of the monthly rent they would pay.

• Example: If your tenant moves in on May 21st, they would only pay 10 days of rent for May, then the full month rent payments would start on June 1.

However you do it, if you’ve managed to find great tenants for your property, you may want to move them in as soon as possible.

When should I prorate rent for tenants?

The short answer is: you should prorate rent when it is advantageous and appropriate for you to do so.

According to legal site NoLo, there’s no legal reason the monthly payment date needs to be on the first day of the month. Instead, the rent due date is determined by your lease or rental agreement. Sometimes, landlords even prefer to start a rental month the day a tenant moves in, so that they don’t have to deal with prorated rent.

Below, there are two approaches for non-standard move-in dates and the things to consider for each.

Situation: Your new tenant wants to move in on August 7

Option 1: Adjust Rent Due Date

You start the lease on August 7 and keep the 7th of each month as the day the rent is due.

Considerations:

• You don’t have to do any prorated rent calculations and can keep the 7th as the billing date for each month.
• If you have multiple units or tenants, it may become more work and difficult to track if everyone has a different billing date or multiple rental payment methods.

Option 2: Prorate the Rent

You prorate the rent for August 7-30. Starting September 1, the rent is due on the first of every month.

Considerations:

• You do a one-time calculation and then can keep all tenants on the same billing cycle.
• You will have to do one small calculation and communicate how it works to your tenant.

As you can imagine, typically landlords find it easier to prorate rent for a short first month and make the rent payable on the first of the month after (like Option 2). That way, all tenants are on the same schedule.

Other cases where prorated rent might apply would be when a tenant moves out before the last day of the month, when the lease expires on the first day of the month. Or, for example if you’re renting to college students, if a tenant needs to stay one or two days beyond the end of the lease term to finish finals.

Tips on How to Calculate Prorated Rent for Tenants

There are several ways to calculate prorated rent, but all involve determining a percentage of the rent that is equal to the number of days in a month tenants will reside on the property. Keep in mind your tenant’s lease terms before settling on a single equation.

Below, there’s a breakdown of two approaches to prorated rent.

Option 1: By the Number of Days in a Month

This month-based method can be simple to calculate and easy to explain to tenants. Here’s how it words:

1. Divide your monthly rent by the number of days in the month. This gives you the daily rate.
2. Then, multiply the daily rate by the number of days the tenant will occupy the unit.

Month-Based Prorated Rent Example:

For example, if a tenant moves in on the 25th of September and the full rent is $1,200. Determining the prorated rent amount based on the month looks like this:

1. Calculate the daily rate: 1200/30 = 40. So, $40 is the daily rate.
2. Multiply the daily rate by the occupancy days 40 x 5=200.

In this case, $200 would be the prorated rent amount.

Since the number of days in a month varies and your rent may fluctuate depending on the season, the prorated rent will likely be different each time you calculate the results. The above equation may be beneficial for renting to tenants who have agreed to rent on a month-to-month basis or less than a year.

Option 2: By the Number of Days in a Year

Although you don’t need to be a mathematician to prorate rent by the number of days in the year, you may have to draw out the figures to explain it to your tenant.

Here’s how to calculate prorated rent based on the number of days in a year:

1. Multiple the monthly rent by 12 to calculate the annual rent.
2. Divide the annual rent by 365 to determine the daily rent.
3. Multiple the daily rent by the number of days the tenant will occupy the unit.

The equation below calculates a slightly higher yield and may be beneficial for determining the price tag on a longer lease, such as a year’s length.

Year-Based Prorated Rent Example

Here’s an example using the same situation discussed previously. If the tenant moves in on September 25, the year-based prorated rent calculation looks like this:

1. Calculate the annual rate: $1200 X 12 = $14,400
2. Calculate the daily rate: $14,400/365 = $39.45
3. Calculate the prorated rent: $39.45 x 5 = $197

In this case, $197 would be the prorated rent amount.

There are benefits to each method so it’s up to you to determine which way works best for your rental property business. Since rental demand is higher in the summer, it may be an advantage to calculate prorated rent by the month at certain times of the year.

Apartment site RentBerry also says that tenants prefer a month-based calculation, as it is easier to understand and it tends to be cheaper for them.

It’s good practice to use the “by the number of days in a month” methodology when prorating a month-to-month or 6-month lease, and “by the number of days in a year” for a year-long lease.

If you don’t feel like doing the math yourself, there are several prorated rent calculators available, including:

• RentVine
• The American Apartment Owners Association
• Turbo Tenant

There are also many others you can find online.

Tips to Keep in Mind When Prorating Rent

Calculating prorated rent isn’t rocket science, but here are a few things to consider that may help ease the process:

• Put your prorating policy in writing or incorporate it into your lease contract, so there are no surprises or concerns down the road.
• If it’s a leap year, divide your yearly prorated calculation by 366 days instead of 365.
• Generally, landlords do not prorate rent if a tenant signs a lease on the first of the month, but chooses to move in later. The same applies if a tenant’s lease runs to the end of the month, and they choose to move out earlier.
• Keep your calculations, communication, and other prorated rent documentation organized in your files.

Help Promote Better Rental Outcomes with SmartMove

Working with prorated rent can certainly help build a respectful landlord-tenant relationship. However, before talking about partial months, it’s helpful to verify their financial background through fast, online tenant background checks with SmartMove.

Your prospective tenant can easily pay for the last five days of the month, but what about next month SmartMove tenant credit checks may help you learn more about their financial track record. This may help you determine if they are likely to be a responsible tenant, or likely to make you hound them every month for late rate payments.

Tenants want to see your math on prorated rent. It’s important to see their numbers, too. Income Insights helps verify that your applicant’s income matches what they put on the rental application. Meanwhile, exclusive to SmartMove, ResidentScore® helps predict future evictions 15% better than a general credit score alone.

Do you have the financial and mental strength to handle the stress of removing someone from your property? Previous eviction checks may help show if there are any eviction-related proceedings that potentially match your applicant.

Further protect your property with a criminal records check. Scouring millions of crime and sanctions records, a criminal background check helps you see if there are potential matches to your applicant.

Designed specifically for independent landlords with only occasional screening needs, SmartMove provides fast online reports that are backed by TransUnion––a major credit agency with four decades of data expertise. Simply create a free account and start screening today.

Prorating rent to build a better relationship can be a good thing. Lowering your standards and letting in ill-fitting tenants may be disastrous. Help make more confident leasing decisions with fast, tenant screening through SmartMove.

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