1. Money

Prorating Rent for the Real Estate Investor

By

At the closing table in a real estate rental property transaction, any rents that were paid to the seller prior to closing will need to be prorated. The seller will owe the buyer any rent amounts from closing through the end of the rental period, usually the month. Normally, rent prorations are done "through" the date of closing.

This does not include security deposits. Those should be paid to the buyer by the seller to be held as they were before the sale. The buyer will then be responsible for the deposits and their eventual disposition based on the terms of the rental or lease agreement.

There are three calculations to arrive at the amount of the rent proration:

  • 1. Determine the number of days rent that the seller owes to the buyer.
  • 2. Arrive at the rental amount per day.
  • 3. Multiply the rental/day amount times the number of days.
  • Let's do a sample calculation now. We'll assume that a duplex with both units rented is being sold. Rentals are $500/month for Unit A and $700/month for Unit B. The rent was paid for both units on the first day of the month of September, and we are closing on the 12th of September.

  • 1. 30 Days in Sept. minus the 12 days through closing equals 18 days to prorate.
  • 2. Rents total $1200/month, so divide by 30 days for Daily rental amount of $40.
  • 3. $40/day rental amount times 18 days = total rental proration amount of $720.
  • This amount will be a CREDIT to the Buyer and a DEBIT to the Seller on the settlement statement.

    ©2014 About.com. All rights reserved.