Prorated rent is a useful tool when a tenant moves in (or moves out) mid-month. It allows you to collect cash for the portion of the time they're on the property -- usually a share of a full month's rent.
Obviously, prorating is good for tenants. They only pay for the days they use the home, and they feel like they're being treated fairly and equitably.
But what about for landlords and property managers? Is prorating rent a smart move for them? And if so, when should you do it, and how should you calculate that rent? This guide can light the way.
What is prorated rent?
Prorated rent is essentially a rent charge that's proportional to the tenant's actual leased time on the property. If a tenant moved in on Jan. 1, for example, they'd pay a full month's rent (let's say $1,200).
If they moved in on Jan. 12, though, it wouldn't make sense for them to pay for a full month, seeing as there were 11 days they weren't in the home. Instead, the landlord could charge them a "prorated rent" that's more in alignment with when the tenant moved in and actually began using the property.
How to calculate prorated rent
Calculating prorated rent is pretty easy in most cases. You'll just need to take the month's full rent amount and then divide it by the number of days in the month to get your daily rate. Then, multiply that rate by the number of days the tenant leased the property that month (often called billable days), and you get your prorated amount.
Here's how that looks in action: Let's say your monthly rent is $2,000. You move in on March 15. Since March has 31 days, the daily rate for the month is $64.51 ($2,000 divided by 31). Multiply that by the number of days you were actually in the home (17), and you get a prorated rent charge of $1,096.67.
Some landlords choose to calculate their daily rent rate based on the calendar year (the total rent for 12 months, divided by 365). This works, too -- just make sure you're aware of any leap years, as this will lower your daily rate a bit. In the above example, the daily rate calculated based on annual rent would be $65.75, equaling a prorated rent charge of $1,117.75.
A quick note here: If your lease term is not 12 months, you'd simply add up the number of days in your total lease agreement, and then divide the total rent payments to get your daily rent amount.
When to prorate your rent
Prorating rent isn't a legal requirement in most places, but most landlords offer it during the first month in an effort to be fair to tenants. Asking renters to pay for time they weren't on the property can seem predatory to many, and it could start your renter-landlord relationship off on the wrong foot.
With that said, though, there are obvious downsides to prorating rent. For one, it likely means a little less in income. Unless you have another tenant in the unit right up until the new one moves in, you'll have to foot the bill for that turnover time out of your own pocket.
Still, the benefits of prorating rent likely outweigh the cons. You'll have a happy tenant, you'll gain a reputation as a fair and equitable landlord, and you'll likely have fewer vacancies and turnovers as a result.
Pros of prorating rent
- Fairer for tenants
- Encourages a better renter-landlord relationship
- Safeguards your reputation as an equitable landlord
- May encourage more long-term tenants and fewer vacancies/turnovers
Cons of prorating rent
- Slightly less income
- May be difficult to calculate depending on your rent term
Should you prorate rent at move-out?
You can also allow prorated rent at move-out if a tenant leaves the property mid-month or before a full billing cycle has ended. This usually isn't smart unless the mid-cycle move-out was in your lease -- otherwise, you'll find yourself with a longer-than-expected vacancy and more lost income as a result.
You might consider making an exception if the tenant gives you a lengthy heads up about their move-out date. With 30 or 60 days' notice, for example, you might have time to find a replacement renter so you can reduce or even eliminate entirely any losses.
Other circumstances might warrant more consideration, too. If, for example, the tenant lost their job or is going through financial hardship, offering them a prorated rent amount to leave the property might be a smart option (especially if you fear they won't make the full rent payment anyway).
Prorated rent for tenants
If you're moving in mid-month, always ask about a prorated rent price before signing your lease. You'll want it in writing in case there's ever any argument about it later on.
You can also ask about a prorated rent charge at move-out if your lease will be running out mid-rent cycle. Even if it's not, you might ask that something be added to your lease about the landlord's prorated rent policy. If you give XX days notice, for example, can you move out early and pay only a portion of the last month's rent? It's good to get this in your rental agreement ahead of time so you can plan accordingly.
Finally, if you're looking to leave your rental property early and you know there's no prorated rent policy in place already, you can still ask your landlord about your options. They may let you pay a smaller portion of your rent if you meet certain conditions, like moving out by a certain date, paying for professional cleaning or carpet steaming services, or forfeiting your security deposit.
The bottom line
Prorating rent is a pretty standard move when a tenant leases a rental mid-month. But at move-out? That's where you have a little more wiggle room. Tenants and landlords should discuss potential prorated options from the start and, ideally, include them in the signed rental agreement. If it's too late for that, open and early communication is critical.
Need more help working with your renter or handling rent disputes? Here's what to do if a tenant won't pay up.
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