How to Prorate Rent Without Getting Taken to the Bank
One of the first tenants that I ever found moved in during the middle of the month.
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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 – the easiest way to prorate rent). I handed him the keys, and we continued with our lives, happily ever after.
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 how I prorated the rent:
Month 1: Collect prorated rent (plus deposit)
Month 2 – 12: Collect full rent
Here’s the right way to prorate rent:
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
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 rather than just the prorated rent.
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!