What Is Prorated Rent?
What You Should Know
- Prorated Rent is the rent charged for the days a tenant lives in the property in a given month.
- Most of the time prorated rent is applied for a move-in month, but in some cases, it may be applied for a move-out month as well.
- Prorated rent may enhance a landlord-tenant relationship, but it will cost the landlord a part of the monthly income.
Prorated Rent Meaning
Prorated rent is a rent charge that is proportional to the number of days a tenant occupies a property in a month. Usually, prorated rent is applied when a tenant moves in mid-month. It may also be applied if the tenant moves out mid-month, but this happens rarely because tenants usually pay rent for a full month and are expected to stay for the full month. Prorated rent is beneficial to tenants because they get to pay for only the days that they occupy the property. Many rent-to-own programs in the US allow prorated rent for some periods to induce clients to close a deal with them.
|Pros And Cons of a Prorated Rent
|Fair to Tenants
|Less Income for Landlord
|Better Tenant-Landlord Relationship
|Lower Turnover And Vacancy Rates
An example of a prorated rent is as follows. Suppose a tenant moves in on November 16th, 2021 to a property that is $1000 per month. There are 30 days in November. If the tenant would have paid monthly rent, then they would pay $1000 for November. On the other hand, using prorated rent, they would pay only for the days they are occupying the property. The tenant moves in on November 16th, so they have to pay the property starting from November 16th. The amount of days the tenant has to pay their rent is 15, which means that the tenant only has to pay $500 for November with prorated rent.
How to Calculate Prorated Rent?
Calculating a prorated rent amount is straightforward in most cases for monthly leases. To calculate the amount of rent to be paid, an individual needs the number of days in a given month, the number of days the property is occupied by the tenant in that month, and the monthly rent. In the first step to calculating the amount to be paid, an individual needs to calculate the daily rent amount, which is equal to monthly rent divided by the number of days in a month. The second step is calculating the prorated rent by multiplying daily rent by the number of days in that month a tenant occupies the property.
That is how the prorated rent calculations may look like. Suppose there are 30 days in a month and a tenant moves in on the 16th of the month. The monthly rent equals $1000. In this example, the daily rent is equal to $33.33 and prorated rent is equal to $500. The steps needed to be taken to calculate the prorated rent are as follows:
There is another way to calculate the daily rent. Instead of calculating based on the number of days in a month, it is possible to calculate it based on the number of days in a year. In this case, the calculation and the result slightly differ. Using this method, it is also important to keep in mind leap years, and that they have 366 days in a year instead of 365 days. The formula for the calculation of prorated rent based on the number of days in a year is as follows.
Using the previous example, and also indicating that the year a tenant moves in is not leap year, which means that there are 365 days in that year, it is possible to calculate the prorated rent using the formulas above.
Pros And Cons of Prorated Rent
Prorated rent is not legally required in most places, but some landlords may agree to use prorated rent at the move-in date even though they lose income from it. This is because prorated rent may bring certain benefits that cannot be measured in dollars, but they can make a life for a landlord much easier.Pros
- Fair to Tenants
Prorated rent is fair to the tenants who move in mid-month. Since they do not occupy the space during the first part of the month, it is only fair for them not to pay for that.
- Better Tenant-Landlord Relationship
The main benefit of prorated rent for landlords is a better relationship with their tenants. It is important to have a healthy relationship with the tenants as good relationships may ensure positive communication and collaboration between a tenant and a landlord.
- Lower Turnover And Vacancy Rates
There are two reasons why a prorated rent may affect turnover and vacancy rates. If a lender and a tenant have a good relationship, the tenant may be more hesitant to move out. If a tenant chooses to stay for longer, the turnover rate decreases for the landlord. Additionally, since a landlord does not have to look for a new tenant, there is a smaller possibility that the vacancy rate will increase if a new tenant is not found. The vacancy rate may also be affected by the fact that some tenants may be drawn to the prorated deal at the move-in date. If a landlord has difficulties finding a tenant for the full month, there may be more people willing to take the deal and move in a little bit later. This way a landlord receives partial income for the month instead of receiving no income. Lower turnover and vacancy rates may not only make a landlord’s life easier but increase rental property income.
- Less Income for a Landlord
Since prorated rent is used when a tenant does not live in the rented property for the full month, it means that the landlord does not get a full monthly rent for that month.
What to Consider When Rent Is Prorated?
A tenant who is moving in mid-month should always ask for a prorated rent before signing a lease agreement. If a tenant and a landlord agree to use prorated rent for the move-in month, it must be indicated in the lease agreement. Otherwise, a tenant risks paying full price for the entire month if there is no evidence about the agreement made with the landlord. It is also unlikely that a landlord will offer their tenant to prorate their last month if the tenant moves out in the middle of the month. On the other hand, it does not hurt to ask the landlord if they are willing to make the last month prorated as well. Many landlords who have a good relationship with their tenants may agree to that deal to keep the relationship intact after the tenant moves out.