The average vacancy rate for rental properties in the US is 7%. Avoiding rental vacancy is a high priority for both small landlords and large landlords alike.
What this means in practice is that if you don’t rent out a unit by the first of the month, you are motivated to rent out the unit as soon as possible rather than waiting for the next month.
If you are in this position, you might be wondering how to deal with the lease agreement and whether or not you should offer prorated rent.
Let’s take a look at tips for prorated rent when you are a landlord.
What Is Prorated Rent?
Prorated rent is when a tenant pays a partial rent payment based on how many days they will occupy the rental during the first or last month of the lease. The term comes from the Latin phrase pro-rata.
Typically, landlords start the rent cycle on the first day of the month. In reality, though, many people’s schedules might not fit this framework perfectly. If you find a great tenant but they are only able to move in halfway through the month, prorating rent is it simple way to deal with this.
There are a lot of reasons why a tenant might not be able to move them right on the first. Maybe they are looking for a place on short notice, or their previous lease expired on an odd date. Whatever the reason, prorating rent can allow both the landlord and the tenant to engage in a fair deal in this circumstance.
When Should You Prorate Rent?
You can prorate rent as a matter of courtesy for a new tenant that is moving in midway through the month or you can do so if they inquire about it. It is advantageous to you landlord, though, to agree to prorate the first month’s rent for your new tenant for a number of reasons we will take a look at later.
It is much easier to prorate rent for one month than it is to have an odd week schedule for a small handful of tenants. This can also ensure that your schedule does not get thrown off in the future, when you have rentals opening up at all different times of the month.
Whether or not you agree to prorate rent if the tenant is moving out early is more up to you. If it is not ask you about this prior to signing the lease, you likely do not have any obligation to prorate the last month’s rent. Technically, they agreed in the lease to pay in full, so this is up to you.
However, it could make sense for you to prorate your tenant’s last month’s rent in a number of different circumstances. For example, perhaps they have been particularly wonderful tenants and you, therefore, feel compelled to help them out as a gesture of goodwill. Additionally, you could have found another tenant that would be willing to move-in to the apartment early, and useful for you to have the previous tenants fully out of the apartment.
Why Should You Prorate Rent?
Keeping your landlord-tenant relationship professional and healthy from the get-go is incredibly important. Even though it can seem like a bit of a hassle to prorate rent for a tenant, it actually benefits both parties. Ensuring that your tenant fields that everything is above board and fair will help to make sure that they have a pleasant and problem-free stay at your property.
Landlord Perspective
While it might not seem advantageous at first to rent out your property for less than its monthly rate either at the beginning or end of the cycle, it is actually beneficial to the landlord to do so.
For one, this is a great way to show your new tenant that you are not trying to nickel and dime them and that you’re willing to work with them. Secondly, it can help you to find the right tenant for your property even if their move-in or move-out dates don’t perfectly line up with the first of the month.
Tenant Perspective
For tenants, there are a number of reasons why prorating rent is beneficial. First of all, no one wants to pay any more than they have to for their rent. If someone is moving in on the 23rd of the month, they will likely think twice about paying a full month’s rent for seven days of actually utilizing the space.
Asking to get prorated rent as a tenant can also be a good test to find out what type of landlord you are going to be renting from. If a landlord is unwilling to prorate rent, it can be an indication that they will be inflexible in the future and also potentially motivated to try and get as much money out of you as possible.
When Should You Collect Prorated Rent?
Once you have been agreed that the rent will be prorated either during the first or last month of a lease, the question arises of when the prorated rent collected.
For the last month’s rent, the answer to this question is obvious. The tenant can pay the prorated rent amount on the first of the month as they typically do. They can then move out of the unit at the agreed-upon date only having paid for the time that they were actually living in the apartment.
For the first month’s rent, though, the question can be a bit more complicated. It is standard for landlords to require the first month’s rent fully paid at the time that you move-in. Typically, then, the tenant will pay the prorated amount during the second month of the lease. During the third month of the lease, the tenant would resume paying the full monthly rental amount.
How Should Tenants Ask For Prorated Rent?
If tenants are interested in asking for prorated rent, they should do so before the rental agreement is signed. They could even ask the landlord to include a clause referencing the agreement to prorate rent either during the first or last month as a part of the lease agreement. If it tenant asks about prorated rent after the lease agreement has been signed in the lease agreement does not reference rent being prorated, then the landlord does not have any obligation to do this for the tenant.
How Do You Calculate Prorated Rent?
There are typically two different ways that you can manually calculate prorated rent. The first is based on the number of days in a year and the second is based on the number of days in a month. There are also a number of free prorated rent calculators available online if you are worried that running the numbers manually is insufficient.
Prorating Rent By the Number of Days in a Year
The general consensus is that this is the most accurate way to calculate prorated rent. However, this method is most useful in situations when the lease term lasts at least a year.
In order to do this, you should take the monthly rent amount and multiply it by 12. This will leave you with how much rent is owed for one year.
Next, you will divide the yearly rent amount by 365. This you with how much it costs to rent your apartment each day.
Lastly, you will multiply this daily rent amount by the number of days that your tenant will actually be living in the apartment for that first or last month.
As an example, let’s say that it costs $1500 each month to rent your unit. Your tenant is planning on moving in on the 17th of the month of September.
First, you will multiply $1500 by 12 months to reach the yearly rent amount of $18,000. Next, you will divide the yearly rent amount of $18,000 by 365 days in order to get daily rent amount of $49.32. Since your tenant will only be living in the apartment for 14 days of the month, you will then multiply the daily rate by 14 days. You are left with the prorated rent amount which equals $690.41.
Prorating Rent By the Number of Days in a Month
Using the number of days in a month in order to prorate rent can be a bit simpler. When you have a lease term that is shorter than a year, this can be an appropriate method.
In order to calculate prorated rent using this method, you will take the monthly rent amount and divide it by how many days are in the month. Next, you will multiply the figure that you arrived with by the number of days that the tenant is going to be paying for.
If we use our earlier example of someone moving in on 17 September to an apartment that costs $1500 a month, this is how you do that calculation. First, divide $1500 by 30 days in September in order to arrive at the daily rate, which is $50. Then you will multiply the daily rate with the 14 days will be living in the apartment for the month and arrived at the prorated rate of $700 even.
What Is a Banker’s Month?
The term “banker’s month” is relevant when discussing prorated rent. This term refers to a standardization of the length of months. This can simplify the math in determining prorated rent amounts, as a banker’s month means that you assume that all months have 30 days.
The Legality of Prorated Rent
There are not any federal tenant’s rights laws written in relation to prorated rent. However, there might be policies or laws in your local municipality or in your specific state. For this reason, it is important to well versed in the landlord-tenant laws of both your state and your city.
If prorating the rent has been included in the lease agreement, then both landlords and property managers are required to honor the agreement. However, they do have every right to refuse to prorate rent before the lease has been signed. As discussed earlier, though, being willing to offer prorated rent is a sign that you are willing and able to participate in a respectful business relationship.
Starting up on the right foot with tenants is a great way to have high tenant retention. Check out our ultimate guide to tenant retention here.
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