Often a new tenant will not start their lease on the first of the month. While you could certainly have them pay each month on the date their lease started, that will mean each tenant is paying out of sync with the rest. That’s where prorated rent makes everyone’s life a little easier. When you prorate the rent, you adjust it to reflect the amount of time that the tenant has actually been living in the property, simplifying your rent calendar to just a few days you can expect to be paid within
Is Prorating Rent a Good Idea?
Prorating rent might at first seem to be primarily a benefit for the tenant. It saves them money over having to pay a full month’s rent when they move in on, say, the 14th, and allows them more flexibility on move-in dates.
However, prorating rent can benefit landlords, too. Some tenants will refuse to entertain moving into a rental if the rent is not prorated. This means you can fill vacancies faster if you are willing to prorate. If all else is equal, tenants will pretty much always choose the apartment with prorating rent.
You can also make more money. Not prorating might mean a tenant just decides to wait to move in until the first, leaving the apartment vacant with nobody paying rent on it. The half a month’s rent is better than no rent.
It’s good for your reputation, too. You will look like a landlord who is open to flexibility, willing to work with tenants, and unlikely to nickel and dime. Meanwhile, you don’t end up with people on multiple different rent cycles, which can be a lot of extra work.
You may or may not also want to offer prorated rent when a tenant moves out. This is less standard, but can further improve your reputation as a flexible landlord.
The Downsides of Prorating Rent
There’s only really one downside: It can be extra work in that you need to calculate the prorated rent, accept the money, and deal with any issues. Most landlords will collect the prorated rent and the next month’s to prevent a tenant from paying for a few days then going deadbeat. However, you may have to be flexible.
Prorated rent is mostly a win-win for both landlords and tenants. And you can leverage that extra work to offer rent flexibility, such as biweekly rent (many gig workers like that) or even taking rent a couple of days after the beginning of the month so people’s paychecks come in before it goes out.
How to Calculate Prorated Rent
There are several methods to calculate prorated rent, and there might be rules about prorating rent in your area. It’s best to check with an attorney on this to be sure.
There are four methods typically used:
- Actual days in the month concerned. Take the month, divide the rent by the number of days in it, and then charge that amount for each day the tenant occupies the apartment. This is the most accurate, but not always the fairest measure, especially if the tenant is moving in February.
- Average month. The average length of a month is 30.4 days. Divide the rent by 30.4, then charge that amount for each day the tenant is there.
- Banker’s month. A banker’s month is 30 days, so this is often the easiest way to calculate. It doesn’t vary by month, but some tenants prefer the actual day method.
- Days in the year. This is typically done only if tenants are signing a longer than 12-month lease, which is rare in residential leases. Multiply the monthly rent by 12 then divide it by 365 to get a daily rate.
Which method you use depends on your goals, the regulations in your area, etc. One way to decide is to look at what other local landlords are doing, so you can say your decision is “standard practice.”
Prorating rent is a good practice to attract tenants, fill units faster, and improve your reputation. While it is extra work, you should consider prorating rent at least for move-ins to keep your cash flow steady and avoid empty units.
