How to Calculate Prorated Rent?

As experience confirms times and times again, not many landlords and tenants are aware of the concept ofprorated rent. Most of the rental agreements we have seen in our practice always start from the first of the month. So is it a tradition or just a lack of information about other options?

What DoesProrated Rent Mean?

In fact, it is not always possible for the tenants to move in on the first of the month. There could be numerous reasons for that. However, in most of the cases, they need to pay a full-month rent regardless of their move-in date. It does not seem fair, right? That is where the prorated rent comes into play. The landlord has several options to calculate it, so that the tenants pay only what they actually need to pay, depending on the starting date of the contract.

Does It Require In-depth Math Knowledge?

No, it doesn't. Many people have not done any math since college, so there is nothing to worry about. There are two methods to calculate the prorated rent, and both of them are relatively simple.

How to Calculate Prorating Rent?

The first option is to calculate by the number of days in one month or by the number of days in one year. Both methods have advantages and disadvantages that we will go through in details.

By the number of days in one year

To get the total yearly rent amount, you just need to multiply the monthly rent by 12. Afterwards, you need to divide the amount by 365. That is how you get the daily rent the tenants have to pay. Lastly, you need to multiply it by the number of days your flat will be occupied.

Example:

Let's assume the tenants would like to move on the 14th of July. The monthly rent of your property is $1,300 per month. As July counts 31 days, the tenants should pay for the 17 remaining days. Here is the calculation: (1,300 x 12) / 365 x 17 = $726

Advantage: In case of year-long rental contracts, that would be the most accurate option.

Disadvantages: Some tenants may find this way of calculation confusing. Just sit with them and take some time to explain them. In the end, they would appreciate that.

According to John Liston, a Strategy and Operation Manager at All Set, using this method does not allow you to use vary between the length of the month. Neither of the parties could use it for their advantages, so it is a fair share without speculations.

By the number of days in one month

It is the easiest method. You just need to take the amount of your monthly rent and divide it by the number of days in a month. Afterwards, you just multiply the result by the number of days the apartment will be occupied.

Example:

We are going to use the same numbers of the previous case. So, the tenants want to move in on July 14. The rent is $1,300. This is how the calculations look like: 1,300/30 x 14 = $606.

Advantages: It is a very accurate easy-to-explain method.

Disadvantages: As not all months have the same amount of days, the final rental amount will be different in February and December.

How to Figure Out Prorated Rent?

It is a decision that you need to take by yourself. In most of the cases, landlords traditionally use the '' number of days in a year'' approach for year-long rental contracts. If the agreement is for less than a year, than you may also consider the '' number of days in a month'' option.

On the other hand, tenants often prefer to use a ''number of days in a year'' approach, as they can quickly trace what they pay for at the moment of transferring the money. Moreover, that option is often a bit cheaper for them.

No matter what option you are using, always mind the utility bills. In case you are not renting out with ''utilities included'', do not forget to apply the same logic to find out how much is due for bills when moving in the middle of the month.