Real Estate

What Is Prorated Rent and How To Calculate It For Your Rental Property?

Written by Smith · 2 min read >
real estate

While filling the vacant properties Property Manager must consider various aspects like credit checks, tenant screening, move-in-date, maintenance, and even monthly rent determination. These elements are crucial, but they could be challenging to follow when renting a property.  Project Management Software For Real Estate would help you manage things well. The move-in date of a renter can take time to be tracked as they depend on the contract between the landlord and the tenant. There could be a disagreement over the day rent is due, as the Move-In Date is the day that the Resident will be able to move into the Residence for the first time, as specified in the Offer of Residence, which is one of the most frequent issues with move-in dates. We’ll go over precisely what prorated rent is in this blog and how to figure it out so that it works for you and your tenant.

So let’s first discuss what prorated rent entails.

 

Prorated rent – what is it?

Prorating is basically the amount you will pay as rent based on how many days you used the property over the move-in-month rather than the whole cost. Let’s imagine you’ve signed a lease with a tenant and are ready to start collecting rent. The renter is moving in on the 20th, even though you, the Property Manager, generally collect rent on the first of every month. Of course, the tenant will not pay the amount due each month if they have to pay again in less than two weeks. Prorating rent is still a wise choice because it is not a landlord’s legal obligation to figure out daily rent. Along with preserving your relationship, it increases the likelihood that your tenant will pay rent on time and abide by all other rules about the rental property.

 

How to Figure Out Prorated Rent:

The lease agreement should explicitly state the prorated rent calculation. If it isn’t, the tenant must be aware of this. However, there must be some analysis if you choose to incorporate it into your lease agreement. Prorated figures can be calculated in various ways, some of which we will go over in more detail later in this blog. The four distinct approaches used to remove the disagreement among the tenants and owners involve an average month, counting the days in a year, a banker’s month, and a month’s rent.

 

  • Approach 1-Days in a Month on Average:  In this, you divide the monthly rent paid by the typical number of days in a month. In this approach, the average no. of days in a month is 30.42. Thus that is the first step. The total monthly rent must then be divided by this figure, and the number of billable days the tenant spent on the property is multiplied by this result. As a result, the tenant will only be responsible for paying $739.64 for the 15 days they spent occupying the property. The calculation is as follows, for instance, if the renter moves in 15 days after the billing date and the property bills $1500 in rent: (($1500 / 30.42) * 15 = $739.64

 

  • Approach 2-Number of days in a year: The monthly rent is multiplied by 12, and the product received is divided by the no. of days in a year (i.e., either 365 or 366). The amount received is divided by the number of days after the billing date that the tenant has occupied the property.

 

  • Approach 3-Banker’s month: This process is similar to Approach 1. The only change is that we will use 30 instead of 30.42 in the formula. The calculation’s outcome will be somewhat similar to the days-in-the-month approach.

 

  • Approach 4-Rent per month: This approach is similar to Approach 1, except it uses the number of days in a particular month rather than the average number of days in a month. This figure would be higher for months like February with fewer days.

In conclusion, it is crucial to check that your lease agreement includes a prorated rent computation that is accurate and efficient. CRM For Property Management can help you maintain the highest level of tenant satisfaction for a very long time.

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