If you are a landlord, having a property sitting vacant, it is costing you in lost revenue. After all you only make money on rental properties from either selling the property, or collecting rent from your tenants. If your rental lacks a paying tenant, well, you’re not making any money. Knowing how to calculate pro-rated rent can help rent to tenants in the middle of the month.
If you recently found a tenant eager to move into your home, your vacancy problem is solved. Most of the time, arranging for a tenant to move in at the first of the month is standard. But there can be exceptions to that.
You may find a tenant ready to move asap. Perhaps they NEED to move during the middle of the month. Or maybe, a week or two before the first day of a new month.
It would not be in your best interest or theirs to make them wait. Remember, an empty house is not paying you! Placing a new tenant in your property should be a priority, and adjusting their first rental payment will be necessary. We call this pro-rating.
Pro-rated rent is the amount of money you will charge your tenant for their first month of rent. It is typically based on a standard full month rent payment.
While the industry standard of making rent due on the first day of the month is the norm, it is often not the actual move-in date of your tenant. Moving involves multiple parties – work schedule, moving company, and any help you may need. A new tenant is often at the mercy of all these parties.
Another factor is the move-in day, typically it is a Saturday, but can really be any day of the week that your tenant and his help has available.
Needless to say, pro-rating the actual first month usage will need to be calculated for your tenant.
Pro-Rating in the Real World
If you are a landlord with multiple units or houses, it can be a challenge to collect the rent. To make it easier having a single day when all tenant rent is due makes life simple from a business aspect.
For the new tenant who just moved in in the middle of the month, it will probably be easier to pro-rate them for the first month, and then to have their second rent check for their first full month due on the 1st of the month along with the rest of your tenants.
Otherwise, you will be collecting rent on different days for different clients and you will soon have a headache trying to keep track of who paid you on what day.
Another situation where a landlord might need to pro-rate rent, is if a tenant moves out and his last month is not a full month. This is not always the case, but most landlords tend to pro-rate incomplete last months and allow their departing tenant to not have to pay a full month. This of course, varies by landlord.
Calculating Pro Rated Rent
Calculating pro-rated rent does not require an advanced math degree. It only takes a few seconds on a calculator or with pen and paper.
There are two ways to prorate rent:
The first way is to simply take the monthly rent, and divide it by 30 or 31 (average number of days in a month). This will determine the rent cost per day. Then, multiply that number by the number of actual days the tenant will live in your rental property for his or her first month.
The second way to prorate rent is to take the tenants yearly rent and divide it by 365. This will give you their daily rent. Again, simply multiply that number by the number of days the tenant will be there for the prorated month.
Some landlords give a slight discount off their first partial month, perhaps allowing the tenant to have their move-in day free. This is not an industry standard, and varies by landlord.
Additional Thoughts on Pro-Rating Rent
It is wise to put your policies for pro-rating rent into your lease, or at the very least in writing on your rental application for tenants. Be sure that any employee who deals with rental fees has a copy and is familiar with pro-rating policies (if applicable). Each tenant should know your pro-rating policies as well.
If your tenant signs a lease for a first full month, it is not your responsibility to pro-rate that partial first month. But, pro-rating that month may help to build a healthy relationship with your new tenant. Remember, the happier a paying tenant is, the longer they will be your tenant.
Pro-rating a partial month should be mentioned by you upfront to a potential new tenant, especially if you are trying to quickly fill a rental unit. You might fill your unit much sooner, especially if both the unit and tenant are move in ready.
Finally, some prospective tenants may not fully understand the concept of pro-rated rent. It may be helpful to explain it to them in the simplest of terms. Perhaps by saying something like: “Well, if you are only in the rental for one week of the month, and there are four weeks in the month, that’s only 25% of the month, right?” So wouldn’t it make sense that you should only have to pay 25% of the rent for that month?”
Stating it in those terms should help them understand how it’s to their benefit. Not all renters will require this, but some might.
In any case, learning and applying the concepts of pro-rating rents can sometimes make the difference between a vacant rental property and a rented one. Based on that, wise landlords will add this tool to their toolbox.