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How Do You Calculate Prorated Rent?

How Do You Calculate Prorated Rent?

Projections show that the global property management market will reach a size of $29.1 billion by 2028.

Real estate investing can provide a lot of benefits. You can generate income and set yourself up for the future, but it's not always as simple as you might think. There are things you need to stay on top of, but working with a property manager can make things significantly easier.

Collecting rent is one such task, and it can be done in various ways. You may want to use prorated rent - but what is prorated rent, and how is it calculated? Keep reading to find out.

What Is Prorated Rent?

Prorated rent is a way to charge tenants based on the monthly rental cost. Charging on a weekly or daily basis is an alternative option, but it's generally more expensive.

An occupant is charged for the percentage of the month that they stay in a property. If they stay for 1/4 of the month, for example, you would charge them 25% of the monthly cost.

When to Prorate Rent

It's common to collect rent on the 1st of the month, but this isn't required. A property manager could instead make the due date for rent match up with the move-in date of the tenant. If they move in on the 12th of April, for example, you might then want to collect rent on the 12th of each month.

An alternative option is to prorate the rent for the first month, then collect rent on the 1st of each month following this. Doing so will ensure the right amount of rent is paid, and it's always collected at a convenient time. This is especially suitable for a property manager who deals with multiple units, as it will help keep things organized.

Prorated rent can also be suitable when a tenant is moving out. If they're leaving before the last day of the month or even after, you can use prorated rent to charge them the correct amount.

How to Calculate Prorated Rent

There are different ways to do this. The goal is to ultimately determine a percentage of the month to make sure the rent is properly calculated.

One of the easiest methods is to divide the rent by the number of days in a month. You would then charge the tenant for the number of days required. This will vary depending on the month in question, as the number of days in each month varies.

You could use another similar method, but calculate based on the number of days in a year. Divide the total yearly rent by 365, and then multiply this by the number of days needed.

Rental Property Management

If you own rental properties, you'll have to cover things like prorated rent, maintenance, leasing management, tenant screening, and more. It's a lot of work, but hiring a professional property manager can make things much easier.

Wheeler & Associates is a property management company based in South Ogden, UT. We can help with all of this and much more. Click here for a rundown of our services and to book a free consultation today.