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Welcome to the AAOA Forum, where we discuss the the topics our members want to hear and want to talk about. We like to take an active roll in the online community to help our members learn and help educate landlords new and old. We encourage you to participate and join in our discussions. Thanks.
The Right Way to Prorate Rent
by Robert Machado, CPM, MPM
Many newcomers to property management as well as many tenants do not understand how to prorate a rent payment. This comes up when a new tenant moves in mid month. Most property managers want all rents due on the first of each month, so the question becomes, how do we figure out what amount of rent is due to accomplish that.
On move in, most companies, HomePointe included, have each new tenant pay a full months rent and the entire security deposit. If the rent is $1200.00 and the deposit is $1200.00 then the tenant must pay $2400.00 to get the keys. If the tenant moves in on the first day of the month, there is no figuring to do. Each month thereafter the tenant will pay $1200.00.
But if the tenant moves in on the 20th of the month, the question is, what does the tenant owe on the first of the next month? It is quite easy to figure out as long as you stick to the formula and thought process.
Figure it this way: Every month is considered a 30 Day month, which is what we call a bankers month. If the tenant moves in on the 20th, they were not in the property for 19 days. 30-19 = 11 Days they were in the property. Now take the rent rate $1200 and divide it by 30 days (one month) = $40.00 per day. $40 x 11 days the tenant had possession = $440.00. That is what they owe for the second month.
Our rental agreement states that all rent for the month is due in full in advance on the first day of the month. So the entire $440.00 is due on the first of the tenant’s second month of occupancy.
Now you can sleep well tonight dreaming of collecting the correct prorated rent from your tenant AND be able to explain it to them.
On move in, most companies, HomePointe included, have each new tenant pay a full months rent and the entire security deposit. If the rent is $1200.00 and the deposit is $1200.00 then the tenant must pay $2400.00 to get the keys. If the tenant moves in on the first day of the month, there is no figuring to do. Each month thereafter the tenant will pay $1200.00.
But if the tenant moves in on the 20th of the month, the question is, what does the tenant owe on the first of the next month? It is quite easy to figure out as long as you stick to the formula and thought process.
Figure it this way: Every month is considered a 30 Day month, which is what we call a bankers month. If the tenant moves in on the 20th, they were not in the property for 19 days. 30-19 = 11 Days they were in the property. Now take the rent rate $1200 and divide it by 30 days (one month) = $40.00 per day. $40 x 11 days the tenant had possession = $440.00. That is what they owe for the second month.
Our rental agreement states that all rent for the month is due in full in advance on the first day of the month. So the entire $440.00 is due on the first of the tenant’s second month of occupancy.
Now you can sleep well tonight dreaming of collecting the correct prorated rent from your tenant AND be able to explain it to them.
Robert Machado, CPM, MPM has twenty-seven years experience in managing residential and commercial properties and is with HomePointe Property Management, which serves the greater Sacramento area.
See our feature, What to Do When Your Tenant Leaves Early.
Let us know what you think by commenting below. For questions about our blog, contact our editor at kim@joinaaoa.org.
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Filed under: AAOA Forum
Under this partial-month move-in scenario and for those propeties that we manage, we would require the $440 for the partial (first) month, the $1200 for the first full month (2nd month) and the $1200 SD up front from the Tenant for move in.
I think it was okay for a novice, however, anyone who is renting/managing properties who can not do this kind of basic, everyday math (division and multiplication)to determine how to determine a partial month’s rent should probably be in another line of business.
On my rentals I require the partial for the first month plus the security deposit for them to get the keys. Second months rent is full month.
Moving is an expensive event. Therefore, I show my prospective tenant that I am a resonable “landlord”.
“Different strokes for different Landlords.” Also called “service”.
As I said, in the example that was presented, where it’s already the 20th day of the month. Depending upon when the partial month falls, that would be our way as well. But with 10-11 days left, a serious and qualified tenant is understandable that those days need to be paid as well, especially if they’re also getting a first month’s rent special, where the first month’s rent is drastically reduced. The burden would be nominal and still the tenant walks with a good feeling. That’s called service, as well, as moving is an expensive event. We are also reasonable and also realistic. If a prospective tenant may pose a credit risk and the last month’s rent would also be required, we would offer to break that down over 4-6 months, with the tenant paying a little extra for the those first rental months, because we know moving is an expensive event. That is also called service. No need to slam. I was offering another viewpoint. By your response I can see why you’d place the word landlord in quotes.