How to Prorate Rent Without Getting Taken to the Bank

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One of the first tenants that I ever found moved in during the middle of the month.

I was happy with this arrangement. Occupancy is better than vacancy, even if it starts on an odd day. At the time I first met the new tenant, we were already about three weeks deep into the current calendar month. It was roughly around the 20th, and I had given up hope for getting any occupancy during that calendar month. I assumed that if I could fill the spot, the new tenant would move-in on the first of the following month.

Luckily, I found an even better arrangement. When I found a tenant who said he was willing to move-in right away, I was thrilled. (Obviously, I checked his references and work history to verify that he was a qualified tenant — that should go without saying.)

He asked if I’d prorate the rent for that first month. I said yes, of course. He paid a security deposit plus approximately one-and-a-half weeks’ rent (we calculated the daily rate). I handed him the keys, and we continued with our lives, happily ever after.

The end.

Or Is It?

In hindsight, I may have gotten lucky. In my situation, I happened to have a reliable tenant … someone who promptly paid a full month’s rent on the 1st of the following month. During his entire tenancy, he was clean, quiet, and always paid on-time, and when he eventually moved out-of-state, I was sad to lose such a quality renter.

But what if I hadn’t been so lucky? What if I had allowed someone to move-in and establish tenancy … at the cost of roughly a single weeks’ rent?

What if he hadn’t paid the following months’ rent?

Looking back on that situation, I think I should have prorated the rent differently.

Here’s What I Did:

Month 1: Collect prorated rent (plus deposit)

Month 2 – 12: Collect full rent

Here’s What I Should Have Done Instead:

Month 1: Ask for a full months’ rent at move-in (plus deposit)

Month 2: Allow tenant to pay prorated rent for this month

Month 3 – 12: Collect full rent as normal

Related: How to Be Reasonable As a Landlord With Apartment Wear and Tear and Security Deposits

Why? What Would Be The Advantage To Setting Up (And Trying To Explain) This Complicated System?

Simply put: the more you collect upfront, the better. If the tenant decided to skip out on paying rent, and I had to start an eviction process, I’d at least have a full months’ rent in hand.

You might argue that I’m being paranoid or excessive, and I can see two valid reasons that would support your argument. First, many “problem tenants” show good behavior for the first few months. They begin to slip after that. So there’s a good chance that the scenario I’m describing is a low-likelihood situation. Second, if someone lives in your dwelling for less than 30 days, then depending on the laws in your locality, you might have an easier time evicting that person (i.e. you may not need to undergo the full formal process — but again, this depends on your local laws.)

Related: Tenant Screening: The Ultimate Guide

But that said, I don’t see any reason why you wouldn’t swap Months 1 and 2 when you’re prorating the first months’ rent. The biggest drawback is that it’s a little hard to explain, but simply saying “We’ll flip-flop Months 1 and 2″ should suffice.

You could also ask for upfront payment of BOTH the prorated rent as well as the following months’ full rent. This will bring you extra security, but it might drive some of your prospects away. Be prepared that some tenants won’t be able to provide this much upfront.

Next time one of my tenants wants to prorate the rent, I’m going to ask for a full month’s rent in hand at the beginning.

**

What are your thoughts?

Do you have any special policies around how you collect a prorated rental amount?

Have you ever gotten caught in a bad situation as a result of pro-rating the first month’s rent?

Share your stories and tips below!

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About Author

Paula Pant quit her 9-to-5 job, invested in 7 rental units, and traveled to 32 countries. Her blog, Afford Anything, shares how to shatter limits, build wealth and maximize life. (At AffordAnything.com, she shares EXACT numbers from all her rental investments -- costs, cash flow, cap rate; it's all published for the world to read.) Afford Anything is a gathering spot for a tribe dedicated to ditching the cubicle. Read her blog, and join the revolution.

31 Comments

  1. One thing I have done is if it is less than 1/2 months rent then they pay the partial rent plus the next month’s full rent to move in. If it’s just 5 weeks rent instead of 4 they should be able to cover that. I am not letting someone move in for a couple hundred bucks of cash.

  2. For years I have collected a full month first, and prorated the second month. In addition, the security deposit and the first month are alway bank checks or money orders, no personal checks.
    This is on the theory that if they are scamming you, that may be the only money you’ll ever see, but at least I’ll have that. Why? Because I had a tenant who moved in on Christmas Day with kids. (Can you say RED FLAG!?:), paid by personal check, and it bounced. His security deposit was paid by the local Church. So he never paid me a dime and I had to evict, of course.
    I’ve never been so foolish since. Live and learn. I’m a better landlord now than when I started, experience is an expensive teacher.

    • Anytime you have another entity pay a deposit, it is a bad thing. If you do take it, get 2 months rent as a deposit. The tenant is not paying it anyway.

  3. Eric D.

    I take in tenant sin the middle of the month all the time, assuming I have a vacancy. I convince them that having two places for the last half of the month is a solid benefit. Trucks are cheaper, you have more time to move, you can clean and get the old deposit back.

    Assuming you have a solid tenant, collecting rent in two weeks is never an issue. And you have a deposit.

    Tenant quality is the name of the game. I continually get great tenants, and turn down 50 for every one I take. I will be writing about my September rent collections in just a few days on my blog, and expect to have all of my 24 rents in by 9/2.

  4. Dawn Anastasi on

    I have done a 1/2 months rent situation one time, and it didn’t backfire on me. The tenants are some of my best and it all worked out. But if you rented to someone slimy then yes I can see how that would backfire.

  5. Cory Binsfield on

    I’ve never had a problem with prorated rent. However, if the tenant needs a non profit to pay the deposit watch out!

    If the tenant has no skin in the game you get burned. Yes, I learned the hard way.

    Real estate leasing is counterintuitive. Most people try to sell the property or the prospect This is the worst thing to do as a landlord. I like to come across as polite but disinterested.

    When you act as if your desperate to rent the place, you attract the wrong tenant.

  6. I ask my tenants for a damage deposit plus one month’s rent when they move in. If they are moving in during the middle of the month, I just tell them that since all of my rents are due on the first of the month, “you will owe only a partial month next month”. This is easy for them to understand and makes them happy – kind of like you are giving them a reduction next month. If you tell them you are flip-flopping the months, they just get confused.

    I agree with you that it is a bad idea to pro-rate the first month’s rent. It allows them to move in with too little invested, and it actually helps tenants since they are kind of broke the 2nd month due to all the moving expenses, utility deposits, etc. A lower rent amount is welcome that 2nd month.

  7. I normally do not prorate rent. If they move in on the 10th of the month rent comes due on the 10th on the next month. It would probably be more efficient to have all of the tenants pay on the same day. My bank payments are also due at different times of the month. Maybe I should try to combine them all. I will have to think about this.

  8. I do what the article suggests, collect a whole 1 month payment, with the proration payment occurring later. Never had anyone take issue with that. And no personal checks until they are actually living there.

  9. In thinking about scenarios like this, what are the thoughts about just having the rent due when they move in? I mean, if they move in on the 18th, the rent is due on 18th, not the 1st. Does this get you out of the prorate scenario? Assuming you are well capitalized and not dependent on rent paid on the 1st to pay your mortgage by the 5th, what is issue with something like this? I have been bouncing this scenario in my head and can’t find any arguments against it…assuming the tenant agrees. Is it just tradition that rent is due on the 1st?

    • Chris —
      The reason I prefer to have rent due on the 1st is because I want to structure a lease that ends on the 30th/31st of a calendar month.

      I’ve found that most people have leases arranged around the beginning/end of the calendar month (“My lease is up on the 31st, I need a place beginning the 1st”), so keeping the calendar-month-to-calendar-month cycle is helpful for turnover.

      That said, I suppose there’s no reason why you couldn’t make rent due on any random day (like the 18th), sign them to a lease that finishes at the end of a calendar month, and then ask them to pay a pro-rated amount during the last month of their lease for that additional week …

      • Imagine having 50 or even just 12 payments coming in all at different times of the month and needing to check which ones are on time and which are not, one big headache.

        • If I handled things manually, I could see this being an issue. Fortunately, the software I use, RentPost, handles this automatically for me. Until they pay online through the software that handles everything for me, or I post the payment manually if they mailed me a check, the late fees, email notifications etc get handled. I can see the value of having everything due at the first but don’t seem to have an issue so far with the odd occasion when someone wants to move in sometime other than the first.

      • Unless you have automated web payments/notices, having due dates on random dates would drive me nuts. The ability for tenants to do online payments has eased this but keeping track of when payments are due, especially if you hold multiple properties, will require lots of brain effort. Having consistent payments as well as consistent policies seems to ease the work load. PLUS if you are not automated and need to go to the bank several times a month with one tenant’s check here and another there, think of the wasted time. (I learned so much about streamlining my life through “Cheeper by the Dozen”.) Save yourself time by making ONE due date for all tenants. You will still be making multiple trips to the bank each month but the late payments should have late fees, also known as “tips” for making additional trips to the bank.

        The more streamlined your processing, the more free time you’ll have for enjoying all that cash flow!

      • The counter argument to that is that… Most leases end on the 30th/31st so by having yours NOT that could help with retention rates since if someone has a lease end on like the 18th they either have to a) find a place to live for 12-13 days or b) pay an extra 18 days of rent once they move to their new place.

        Now the argument that it is a PITA to get rents on a bunch of different days if you have a bunch of units is valid, though seems like those that do it don’t think it is a big deal.

  10. Paula,

    I’m glad you shared this with everyone. We do this as well and it has worked well. If they can’t pay the first month and deposit, then you may have problems later.

  11. For me It would seem to be much easier to have them all due on the same day, 1st of month. Most other leases end at end of month plus it seems like it would much easier keeping track of rent collection.

  12. I agree 100% with this policy. We do the exact same thing for the exact reasons you listed. In the past we did not and got burned a couple of times. Since implementing this strategy we have a higher tenant retention rate.

    It requires some additional bookkeeping for the first two month’s but well worth it.

  13. I agree with the author collecting the full months
    rent and security deposit up front is the best! I had a tenant
    that signed a lease and came back three days later, saying
    he could fulfill his obligations as a tenant because
    decided not to take his current job! Lucky I collected
    everything up front so I had one months rent to cover the rent
    and the deposit to cover some of the real estate
    commission. Even though the tenant was obligated to the lease
    since he signed for a year, if he didn’t pay for some reason,
    I had my bases covered to handle everything amicably.

  14. Hi Paula

    Great job with the simple explanation.

    I have to admit, I stopped doing this because though my tenants understood the mechanics behind swapping month’s 1 and 2, they still didn’t understand why I needed to swap the months. Of course, the answer is “I don’t trust you”, and swapping months just seems like hidden way of saying it.

    Don’t get me wrong, this is a solid technique to mitigate risk, but since my state allows me to collect up to 2 months security deposit, I prefer to just collect additional deposit funds. That way, I still have an additional buffer if the tenant starts getting behind on their rent long after the 3rd month. Plus, if I’m going insult them, at least I’m showing my hand up front by doing it in the deposit.

    Some states only allow a maximum one month deposit, so increasing the deposit is not an option for everyone, and it might scare some applicants away. But those tenants that can pay a 2 month deposit are usually more financially stable anyway = better tenants.

    None the less, very good article.

  15. I prorate the current month if they move in toward the beginning of the month. If they move in past the 15th, I prorate the second month. All rents are due on the 1st. A few years ago, I tried making them due on other days, but it just got too complicated.

    • I explain to prospectives that I cannot let them move in for free, that they must have some skin in the game. They mostly understand. Ones who don’t understand might not be good tenants.

  16. I like your solution for pro rating.

    What our company does is if a tenant moves in after the 20th of any month we charge the prorated rent for that month plus deposit plus the full next months rent.

  17. Patricia Pesta on

    We expect the full months rent plus security deposit at the time of handing over the keys and lease signing. We also offer the flexibility and changing their due date on the second month to whatever date they choose and I prorate the next amount but for never less then a full month – but then they may go 6 week before their rent is due again. I had a tenant who had her pay changed from every other week to the 1st and 15th – at that time she asked for a change in the due date – I do this legally with an addendum to the lease signed by all but never accept less then a full months rent at the change. I do not charge for this first change – if they ever ask for a change again, and I agree to do it, I charge $50 for the paperwork to do it. To me it does not matter the date the funds come in, as long as it is consisant. None of our tenants pay on the 1st and have not for years. I also offer a multi- year lease at a reduced rate – but next time, the rate will not be reduced but they can be guaranteed therent will not go up during that time – that will be their savings.

  18. Another thing to keep in mind is to know your states security deposit guidelines.
    In states where you can collect more than 1 months rent as a deposit it probably isn’t an issue but in the ones that limit it to that make sure the language isn’t something to the effect of:
    “A Lessor can collect a deposit of no more than the equivalent of the first months rent.”
    If that is the case then your deposit is limited to that prorated rental amount.
    So if you are doing $1000/month and someone moves in 6 days early in a 30 day month, you are getting $200 and that is the most you can get for a deposit. If you charge them $1000 up front and then prorate the 2nd month you are fine.

    BTW if you say you would just collect that full amount, if you are in a state that limits you that way and the tenant end up in court and they point out this oversight you will most likely be giving them back $800 (and possibly treble damages to the tune of $2,400).

  19. I do usually collect rent before handling the keys but I don’t request deposit. I think that is the thing which scare people, because the most people want to move in without any deposits. It’s on me, and I didn’t have any negative experience.

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