Prorated rent, before I was a landlord I’m pretty sure I had no idea what it was or why I’d even need to know.
Since then it still hasn’t come up that often, but understanding what it is and how it works and even where I can use it, sure has become handy.
Prorated rent comes into play when you have tenants that need to access your property a few days (or even weeks) before the lease starts or when they need to stay on longer than the lease period.
Since they’re not paying for the entire month, you use some fairly simply math to figure out a daily rental rate.
Prorated Rent Calculations
When it comes to prorating rent there are two ways to do the math.
The least common and rarely used method is to base it on the entire term of the lease.
As an example for a one year lease you would take the monthly rent x 12 months and then divide it by the number of days in the year period (either 365 or 366 depending on leap years).
For a six month lease it would be the monthly rent multiplied by six months then divided by the number of days of each month added together.
The formula would look like this
(rent amount x months of term) / total days of the lease = daily rate
Example: ($1,250 rent x 12 months) / 365 days = $41.10 per day
This method is technically more accurate, but the reality is it’s very rarely used.
The more common method is to simply divide the months rent by the number of days in the month which can vary slightly depending on whether there is 28, 29, 30 or 31 days in the month.
That simplified formula would look like this
(rent amount/days in the month = daily rate
Example 1 ($1,250 rent /31 days) = $40.32 per day
Example 2 ($1,250 rent /30 days) = $41.67 per day
You can see how the daily amount increases on a shorter month in example 2 and obviously for February the daily rate would be even higher due to even fewer days in the month.
How To Calculate Prorated Rent For Early Access
When it comes to determining what to charge a new tenant who wants in early it should be much easier to figure out now.
If you’ve done the calculations above based on the rent you’re charging and have a daily rate determined you simply take that number and multiply it by the number of days they are getting early access.
Note: When doing monthly calculations base the number of days on the days of the month they are moving in. For example if the lease starts July 1st, but they are moving in five days early in the month of June your daily rate is calculated based off of the 30 days in June, not the 31 days in July.
So let’s say they are moving in five days early June in order to move in on a Saturday when they are off and your rent is $1,250 per month like my earlier example.
As June has 30 days, that makes the daily rate $41.67 per day. Multiply that by 5 days and the prorated rent for their early access totals $208.35
$41.67 daily rate x 5 days = $208.35
If tenants need to stay an extra couple days the same method can be used to calculate the daily rate and what they owe you.
When Not To Use Prorated Rent
You’ll definitely want to use these calculations when letting tenants in early, although you can also give away the days for free if you like giving away money or just want to be extra nice.
However, this is really only a one way street and doesn’t come into play when tenants move out early unless you have a very special reason to do so.
And it better be extremely special!!
I’m referring to situations where tenants may want to move out a few days prior to the month ending just to be able to do the move out over a weekend as example.
Just because they are vacating two, three even five days early it doesn’t qualify them to receive the rent back for the days it’s vacant, after all they are renting by the month.
You normally won’t be able to rent it out early to cover those lost days so it just becomes another full month.
Then again, if you do happen to want to let someone in early and you’ve taken the time to calculate prorated rent for them, then it’s only fair to reimburse the former tenants for the days just to have a clear conscience.
So, have you ever had to calculate prorated rent? Or would you just let tenants in early? Leave me a comment below sharing your thoughts and whether this makes sense to you!