It’s a common scenario for landlords and tenants alike. As much as it would make sense to move in or out on the very first or very last day of the month, life doesn’t always work out that way. Lucky for us, it doesn’t have to.

With the standard accepted practice of proration, landlords can be flexible with tenants on move-in or move-out dates while still getting appropriately compensated for the use of their space. In this article we’ll provide an overview of proration, what it means to landlords, and how to properly calculate and collect.

What Does it Mean to Prorate Rent?

According to the Merriam-Webster Dictionary, to prorate means to divide, distribute, or assess proportionally. It comes from the Latin term “pro rata”, meaning proportional. Essentially, when using the term in renter’s speak, it means to adjust your rental amount proportionally based on the length of your stay.

Let’s put it into context. Say you have a tenant that is moving in to one of your units. You collect rent on the first of the month for the following thirty days of occupancy. However, as mentioned earlier, it would not be uncommon for a tenant to request a different move-in date, as their schedule allows.

For example’s sake, let’s say they move in on the 15th. In this scenario, it would be considered fair and reasonable for the landlord to adjust the rental amount for the month to cover only those 15 or 16 days the tenant will actually be living there. The final amount will be only a portion of a full month’s rent. This is the prorated amount.

How to Prorate Rent

Sure, anyone (or nearly everyone) can calculate half a month’s rent. But what if your starting rental amount is some wacky number? Or your tenant is only inhabiting the space for 9 out of 31 days? If you’re not a Rain Man type or natural math whiz, things can quickly get tricky.

Lucky for you, we’ve made it simple. There are two main methods for calculation: 1 – based on the number of days in the month or, 2 – based on the number of days in the year.

Days in the Month Proration

To calculate by days in the month, you will need the following information

• A: Monthly Rental Amount
• B: Number of Days in Month
• C: Number of Days of Occupancy

We will utilize the following equation

(A/B) C = The Prorated Rental Amount

Or

A divided by B multiplied by C = The Prorated Rental Amount

Or

The Monthly Rental Amount divided by The Number of Days in the Month multiplied by The Number of Days of Occupancy = The Prorated Rental Amount

Let’s use it in an example.

Your new tenant, Harper, is eager to sign the lease to one of your best properties in Cincinnati; however, she is hesitant to sign until she can confirm the prorated amount for her April 20th move-in date. What will she be charged for her first month of rent?

First, gather the necessary information

• Monthly Rental Amount = $600

• Number of Days in Month = 30
• Number of Days of Occupancy = 11 (when counting days of occupancy, make sure you include the actual date of move-in, rather than simply subtracting the date minus the days in month)

Calculate using the formula (A/B) C

(600 divided by 30) multiplied by 11 = $220

This is the simplest and most intuitive method for prorating monthly rent. And most of your tenants will be satisfied with this as an easy way to understand how their rent payment has been adjusted. However, for your more discerning clients (back to the Rain Man types), they may request an even higher form of precision, which can be achieved through the following method.

Days in the Year Proration

This calculation will require even less information to compute

• A: Monthly Rental Amount
• C: Number of Days of Occupancy

Except now, we will utilize a different equation

((A x 12)/365) C = The Prorated Rental Amount

Or

A multiplied by 12, divided by 365, multiplied by C = The Prorated Rental Amount

Or

The Monthly Rental Amount multiplied by 12, divided by 365, multiplied by The Number of Days of Occupancy = The Prorated Rental Amount

Let’s try another example.

Stella has always been a great and trustworthy tenant; however, she just accepted a new position at work that will require her to relocate across the country. This is great news and you are happy for her, but unfortunately, she has to move-out on the 13th. You want to honor your respectful relationship by prorating her rent. How much will she owe for the month?

Plug your basic information

• Monthly Rental Amount = $1,200
• Number of Days of Occupancy = 13

Into your formula ((A x 12)/365) C

$1,200 multiplied by 12, divided by 365, multiplied by 13 = $512.88

When calculating by days in the year, a few things to keep in mind:

• Check your yearly calendar to determine if you are in leap year territory. While the one extra day won’t necessarily make a huge image on the ultimate rental amount, if your tenant is insistent on accuracy, you can bet they will be checking your work.
• Save any type of rounding until the final computation. Again, this will guarantee the precise accuracy of your final number.

Collection of Prorated Rent

The way in which you collect prorated rent will not differ greatly from your normal rent collection practices. The only variation will come in the form of a late move-in date. Typically rent is paid on the first of the month for the following dates of inhabitance. However, in this scenario, if a tenant were to move in later than the first, his or her rent would simply be due on that move-in date.

In the case of an early move-out, tenants would still be required to pay on the first of the month; however, the amount they are due for will be adjusted based on their exit date. It’s important that these details and processes are outlined up front in the leasing agreement, so that there is no confusion when situations of mistiming inevitably arise.

Property management software makes it easy to stay consistent with the guidelines you’ve set forth. They can help set your proration amounts and will even suggest values based on best practices in the market.

Don’t Hate. Prorate!

The process of prorating rent is simple, straightforward, and above all, fair. It is respectful of the landlord and their services, as well as of the tenant and their funds. And while landlords aren’t required by law to prorate rent, it is a common practice that might as well be industry standard. So when considering the prospect of making adjustments to rent based on occupancy – don't hate. Prorate!