Calculating Prorated Rent

Most landlords prefer to set a rental due date on the first of the month. Sometimes, however, this does not align with the tenant’s move-in date. If tenants were to move in or out 10 days after the start of the month, charging a full month’s rent for those 20 or so remaining days wouldn’t make much sense, nor would it be very reasonable from the tenants’ perspective. This is where prorated rent comes into play. This article covers what proration means, how to prorate rent and collect it, and why it is an important feature for landlords and tenants alike.

What Is Pro Rated Rent?

Prorate is a vernacularized version of the Latin term “pro rata.” In both instances, it refers to reducing something proportionally, typically based on usage. In the context of a rental property, it means that a tenant is charged a rental amount based on the days of the month they occupy a property.

Here’s an example that may help clarify: If a tenant pays rent monthly on the first of the month, they are paying for the next thirty (or so) days of occupancy. However, if, for whatever reason, they don’t move into the property until the 16^th of the month, they would be paying for 15 days they did not live there. In an effort to be fair to the tenant, many landlords will reduce the amount due for the tenant’s first month of occupancy (some tenants may request prorated rent as well). In this case, because the tenant is living there 15 out of 30 days (or half the month), the landlord would likely charge them half the rent. This is the prorated rent amount. The tenant will pay prorated rent instead of the full amount for the entire month.

Methods for Calculating Prorated Rent

Prorating for half a month’s rent is a pretty easy calculation, but sometimes, it’s not so simple. How much should you charge if the tenant is living there 7 out of 31 days? Or if your rental amount is an uncommon number, like $1,243?

There are two main ways to calculate proration — you can do so based on the number of days in the month or based on the number of days in the year. Let’s look at each method.

Prorating Based on Days in the Month

Let’s assume the following information:

• Move-In Date: June 20th
• Days in June: 30
• Days of Occupancy: 11 (Remember to always count the move-in date too, and not, in this case, just subtract 20 from 30)
• Full Monthly Rent: $600

Our equation for calculating a prorated rental amount based on the days in the month:

The Rental Amount divided by The Number of Days in the Month multiplied by The Number of Days the Tenant Occupies the Property.

Here’s a breakdown:

Step 1.  Find the daily rent amount: (Monthly Rent Amount / Days in the Month)

• $600 / 30 = $20

Step 2.  Find the prorated rent amount: (Daily Rent Amount * Days of Occupancy)

• $20 * 11 = $220 prorated rent

While this method gives you different daily rates for each month (February’s rate would be higher than January’s, for instance), it usually can provide the most clarity for your tenants. Even though rates are variable, it’s the most intuitive form of proration. If a tenant is in the unit for 1/3 of the month, you would charge 1/3 of the rent for that month, which is simple. That being said, it’s not the most accurate method for finding the true daily rate of your lease term. As an alternative, we can prorate based on the number of days in a year.

Prorating Based on Days in the Year

Let’s use the same information from the example above:

• Move-In Date: June 20th
• Days in June: 30
• Days of Occupancy: 11
• Full Monthly Rent: $600

Our equation for calculating a prorated rental amount based on the days in the year:

Monthly Rent Amount multiplied by 12 (The Number of Months in a Year) divided by 365 (The Number of Days in a Year = Daily Rent Amount

then…

Daily Rent Amount multiplied by The Number of Days the Tenant Occupies the Property that month.

This method starts by calculating the total amount of rent owed for one full year, which is then divided by the number of days in the year. That figure is multiplied by the number of days a tenant will occupy the unit. Let’s see how it breaks down:

Step 1. Find the daily rent amount: (Monthly Rent Amount * Months in a Year) / Days in the Year

• ($600 * 12) / 365 = $19.7260 daily rent

Step 2. Find the prorated rent amount: (Daily Rent Amount * Days of Occupancy)

• $19.7260 * 11 = $216.99 total prorated rent

A few important items to note:

• Avoid rounding any answers until the very end. Notice that we used four decimal places for our daily rent value. This ensures the accuracy of our final prorated-rent amount.
• Be wary of leap years (which have 366 days). Misusing 365 during a 366-day leap year may not impact your final proration amount much, but you should always be as diligent and accurate as possible when calculating.

Choosing Your Proration Method

Now that you know how to calculate month-based and year-based prorated rent, which option should you use? Again, prorated rent calculated based on days in the year more accurately represents the true value of renting your unit for a single day. If you’re going for precision and accuracy, proration based on the year is a better option. That being said, explaining the process that goes into this result to a new tenant may not be as easy as the month-based alternative. Month-based proration is more transparent and simpler to explain briefly to tenants. Ultimately, the choice between month- and year-based proration depends on your personal preferences for accuracy and transparency.

Again, calculating prorated rent based on days in the year more accurately represents the true value of renting your unit for a single day.

Using a Pro-Rate Calculator

Although calculating a tenant’s prorated rent by hand helps you understand the final result better, many landlords use an online prorated rent calculator to make this process faster and easier. For example, AAOA’s proration calculator will generate the prorated amount for you when you enter the move-in day and rental amount. When considering prorated calculator rent, try to find out which method the calculator uses (month-based or year-based) and decide whether that method is right for you. 

Collecting Prorated Rent

At this point, you and your tenants have agreed upon the proration value for your unit. So, when should you collect it? There are a few ways to go about this, but the following is common practice.

Let’s stick to the dates in our example: If your tenants are moving in on June 20th, the due date for their prorated rent would be June 20th, the date of move-in. Their regular rent would be due starting July 1st. When 12-month residential leases are signed, landlords often collect a security deposit and first month’s rent up front. The prorated amount covers June while the upfront rent payment would apply toward the month of July, the first full month.

There are plenty of reasons why moving out tenants can be stressful, but proration shouldn’t be one of them. Luckily, collecting prorated rent before move-out is straightforward. If your tenant is leaving on June 20, their prorated payment for those 20 days would be made on June 1.

There are plenty of reasons why moving out tenants can be stressful, but proration shouldn’t be one of them.

You should specify move-in dates, move-out dates and their respective proration amounts in the lease agreement to eliminate any miscommunication. If you’re using software like Innago to manage your rent collection, you can be sure that any prorated rent you’ve established will be enforced. You can choose your own proration values or use the suggested amounts Innago provides (which it calculates using the monthly method described above). You get full control and full enforceability.

So, Why Prorate?

Above all, proration enhances fairness for both landlords and tenants. Everyone is paid for what they are owed or charged for what they are due — no more, no less. Explaining any prorated amounts to your tenants before signing the lease can ensure that your methods are transparent and that everyone is on the same page.

Above all, proration enhances fairness for both landlords and tenants.

Landlords aren’t required by law to prorate rent (though you should always check your local laws to confirm), so it’s possible that tenants will request proration. Be open to hearing them out. If their proposition makes sense, accommodating their suggestion is a big plus for your reputation and your tenant’s satisfaction.

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