How to Charge Prorated Rent: A Landlord’s Guide
Renting out your property can be an easy way to make money, pay down your debts, save for the future, and even cash in on great tax deals. From repainting your home to replacing water pipes, if your house is a source of income, the daily upkeep of it can be a tax deduction. Plus, if you own your home outright, renting it out can be a great way to create a secondary source of income while allowing the house to gain equity. But renting out your property can come with a variety of challenges and can raise quite a few concerns. The following tips will help guide any landlord looking to rent out their property.
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Finding the ideal tenant
Only you know your exact needs and expectations for future tenants. However, finding the perfect lessees requires extensive screening.You have to know that under the Federal Fair Housing Act, you must treat all applicants — regardless of race, nationality, religion, sex, disability, or familial status — equally. However, you can select your tenants based on their credit scores, income, criminal history, and rental history. These are all statistics that you should consider.
During the tenant screening process, consider asking potential applicants to provide reference information for past lessors, and even personal references such as previous and current employers and past roommates (if applicable). Most importantly, look for a tenant who is stable. Their screening will tell you how long they stayed at previous addresses and jobs. If they’ve moved around between places of employment and residences, that may be a red flag to pay attention to.
Why and when you should prorate rent
Offering prorated rent is a great way to attract a larger pool of potential applicants to your property. Some potential tenants may be hunting for homes that are available in the middle of the month rather than at the beginning of the month. If you’re in between tenants or if you’ve decided to put your property on the market at an “off” time, then offering a lease that starts on a flexible date is a great idea.
How to calculate prorated rent
There are two ways by which you can calculate your prorated rent. First, you can prorate by the number of days in the year. Your calculation would look like this:
(Rate of rent X the number of days in the year) / (the number of days in the year) X the number of days your tenant is paying for.
So, if your tenant is moving in on July 17th and your monthly rent is $2000, for example, your calculation would be: (($2,000 X 12)/365) X 15= $986.30.
The second way you can prorate your rent is by calculating based on the number of days in the month. This calculation would look like: (Rent/ the number of days in the month) X the number of days the renter is paying for. So, using our previous example, the calculation would look like this: ($2000/31)X15= $967.74.
You may notice that in the second calculation, your tenant is paying a bit less. This is largely due to the fact that when you calculate based on the year, you’re working with the fact that some months have more days than others. It’s completely your prerogative how you decide to prorate, but it is a bit more accurate to use the second calculation. Not to mention the fact that potential tenants will typically feel more comfortable with this version of prorating.
Once you’ve made the decision to be a landlord, it’s natural that you’d want to begin right away. In combination with today’s resources for screening tenants, offering a prorated rent is the easiest way to get your perfect lessee into your house and making you money.
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