For real estate investors, understanding how rent is calculated throughout a tenancy helps to prevent discrepancies in billing and payments, as misunderstandings can harm landlord-tenant relations, cautions the Cornell Law School Legal Information Institute.
You may need to calculate seasonal rent payments differently from annual rents to make up for the varying lengths of the months, including during the leap year. So, consider pro rata rent calculation an essential money management or property management skill to have.
Whether you're renting from a landlord or you're charging the rent, ensure that both parties are on the same page when it comes to the method of calculating rent payments. Rent proration is a common, and sometimes confusing, calculation that tenants must make sense of especially when occupancy is on a partial month basis. It would be best to include it in the rent agreement.
Prorating Rent Using Per Diem
If the move-in date takes place on any day other than the first day of the month, landlords may prorate rent for the renters to determine the rent due regardless of the move-out date.
According to the American Apartment Owners Association, prorated rent covers only the portion of the month a tenant moves into the rental property and not for the entire month. Of course, using a prorated rent calculator is the easiest way to perform proration calculations. However, you can also prorate a month's rent manually by dividing the quoted monthly rent amount by the number of days in the move-in month.
For example, to prorate an $800-per-month rental that begins September 14, the middle of the month, divide $800 by 30. The formula is 800 / 30. Then figure out the number of days of occupancy the rent should cover. In this case, 30 days minus 14 equals 16 days of prorated rent owed.
Lastly, multiply the per diem rate by the number of days owed. The formula is (800 / 30) * 16 for a prorated rent amount of $426.67.
Calculating Prorated Rent by Days
You can also determine the daily rent through proration. To accurately calculate prorated rent amount on a long-term lease, such as a one-year or longer lease agreement, use the number of days in a year – 365 days.
This method is more complex for many tenants to understand and can be less convenient for landlords to use, as the yearly rent can yield slightly lower rent amounts than quoting a full month’s rent, depending on the month.
For example, a September 14 move-in for an $800-per-month rental means the tenant owes 16 days of prorated rent. Using this method, the calculation is as follows: (($800 * 12) / 365) * 16. In the equation, "12" is the number of months in a year. The per diem rent multiplied by 16 days is $420.82.
Calculating Short-Term Rentals
To calculate the amount of rent of a short-term rental, such as a vacation house, multiply the quoted daily rate by the number of days of the stay, much like you would a hotel stay. For example, a California beach-rental costs $100 per day on Monday through Thursday and $175 per day on Friday through Sunday.
Rent for a stay beginning Monday and ending Saturday is calculated as ( $100 * 4 ) + ( $175 * 2 ), for a total rent of $750. Say a beach rental stay of 16 days costs $600 per week. The per diem rate for the additional two-day stay is more expensive than the weekly rate, and it costs $100 per day.
The rent calculation is ($600 * 2) + ( $100 * 2 ), or $1,400. Two weeks cost $1,200, plus $200 for the additional two-night stay.
Methods of Calculating May Vary
Certain ways of charging rent work best for short-term rentals, such as using per diem rent or weekly billing cycles on vacation properties or seasonal leases. Furthermore, landlords may choose one form of calculating prorated rent to make a little bit more money. For example, prorating rent using the number of days in a year for a month that has 30 days or less yields slightly more money.
However, prorating by the number of days in a year for a 31-day month yields a lower amount of rent. Many landlords believe that, in general, prorating using the number of days in the month is more convenient and easier to explain to tenants.
This article was written by PocketSense staff. If you have any questions, please reach out to us on our contact us page.