When a property manager is looking to occupy their vacant properties, there are a ton of factors to consider.
These factors could include credit checks, tenant screening, maintenance, or even setting the monthly rent.
All of these factors are important and it can become difficult to keep up with all of them and make sure that they are all being taken care of. Another one of these factors that can be difficult to keep track of is the move-in date for a tenant.
Move-in dates can be difficult to figure out because they depend on the agreement between the property owner and the renter. One of the most common problems that occur with move-in dates is that there could be a dispute with the day that rent is due.
This is where something called prorated rent comes in. In this guide, we will be going over exactly what prorated rent is and how to calculate it to best fit you and your tenant's needs.
So, to get started, let's go over what prorated rent really means.
What is Prorated Rent?
Let's start off with an example of where prorated rent comes into play.
Let's say you have accepted a tenant to begin renting out your property. You, the property manager, typically collect rent on the 1st of every month, but this tenant is moving in on the 20th. Obviously, the tenant does not want to pay full monthly rent if they are going to have to pay again in less than two weeks.
This is where a property manager will do something called prorate rent. When rent is prorated it means that the full amount for monthly rent is broken up into smaller increments to accommodate these special circumstances where a tenant is not living in a property for a full month but still needs to pay rent.
So, in simpler terms, prorated rent is the amount charged to a tenant for the number of days they occupy the unit. This amount is based on the full monthly rent and is typically charged as a daily rate.
But, why would a property manager want to do this, even if it means that they will be losing money? We will be going over that in the next section.
Why Should Property Managers Prorate Rent?
One of the most important things when it comes to property management is maintaining a good relationship between the tenant and the property manager. This is essential because it could save both parties from potential disputes and could even pave the way for future business.
Also, since prorating rent is not a landlord's legal responsibility to calculate daily rent, it is still a very good idea. Apart from helping maintain a good relationship, it makes it more likely that your tenant will be better with their payments and follow all of the rules that apply to the property.
However, if the tenant is forced to pay rent for days that they were not even living in the unit, they are not going to be happy. So, for this reason, property managers should be sure to have a prorated rent amount outlined in their lease agreement to make sure that there is no dispute over this.
Now that we know about prorated rent and know how useful it can be to maintain a healthy relationship between the renter and the property manager, let's discover the different ways that it can be calculated and what you should base your calculations on.
How to Calculate Prorated Rent
The first thing that should be pointed out is that the prorated rent calculation should be clearly listed in the lease agreement. If it is not, it is important that the tenant is aware of this.
However, if you are deciding to include it in your lease agreement, there must be some sort of calculation behind it. There are many ways that you can figure out this number, some of which we will be discussing later in this guide.
The four different methods that we will be discussing below are using the number of days in the year, in an average month, in a banker's month, and the monthly rent. For each of these methods, we will also be providing an example to help make the process a little clearer.
Let's get started with calculating prorated rent using the average days in the month method.
Average Days in a Month
The first method that we will be discussing is using the average number of days in a month. This method involves taking the average number of days in a month and dividing the monthly rent amount by that number.
So, the first step is to calculate the average number of days in a month, which is 30.42. Then, you must take the total monthly rent and divide it by this number. Finally, you multiply this result by the number of billable days that the tenant stayed on the property.
For example, if the tenant moves in 15 days after the billing date and the property charges $1000 in rent, the calculation is as follows:
(($1000 / 30.42) * 15 = $493.1
This means that the tenant will only need to pay $493.1 for the 15 days that they have stayed on the property.
Number of Days in a Year
The next method we will be going over uses the number of days in a year. This method is very similar to the previous method, except it calculates the daily rent amount using the number of days in a full year.
The first step in this method is to calculate the total yearly rent. This is done by taking the monthly rent and multiplying it by 12. Then, you divide this yearly rent by 365 (the number of days in a year). You then multiply this number by the number of days after the billing date that the tenant has occupied the property.
Using the same example from above, the calculation for the prorated rent is done as follows:
(($1000 * 12) / 365) * 15 = $493.2
This means that the tenant will only need to pay $493.2 for the 15 days that they have stayed on the property.
The next method involves using a banker's month, or 30 days. This method is nearly identical to the first step. The only difference is that instead of using 30.42 in the formula, we are going to be using just 30. This means that the result of the calculation is going to be nearly the same.
So, for the same example that we have used in the previous methods, let's calculate prorated rent for a tenant who pays $1000 in rent and stays for 12 days on the property:
(($1000 / 30) * 15 = $500
This result is very similar to the first result, only using slightly different numbers.
The last method we will be discussing in this guide involves using the monthly rent payments to calculate the prorated rent. This method is also very similar to the first method, but instead of using the average number of days in a month, it uses the number of days in a specific month.
Using the same numbers from the previous examples and in the month of August:
(($1000 / 31) * 15 = $483.9
This value would be greater for months that have fewer days, like February.
Prorated Rent Calculator
For your convenience, we have linked a prorated rent calculator here that quickly calculates this value for you.
In conclusion, it is more than important to make sure that you have an effective and efficient prorated rent calculation outlined in your lease agreement. This calculation has numerous benefits and will help keep your tenants as happy as possible for a very long time. So, if you have not yet included it, make sure to use one of these methods to incorporate prorated rent into your lease agreements.