How to prorate 'First, last, deposit'

[Kyle Pulleb]

Hello BiggerPockets community,

I'm having some confusion with standard practice for 'First, last, deposit' collection in the scenario that the first month will be prorated.

Say for instance: My property has a rent of $1000 monthly with a deposit of one month's rent ($1000), and a targeted lease start of the 15th.

Given that rent will be due on the first of every month, what is the amount which should be collected for the initial 'First, last, deposit'?

If 15/30 days remain for month 1 would it be:

1000 + 1000 +1000 or (1000 x .5) + 1000 +1000

[Bryan Montross]

@Kyle Pulleb First, make sure you are following the laws in your area that you can collect first, last, and a deposit. In most places I invest I can't collect last month rent, just a security deposit. I have also never seen a place that collects all three, but I'm not saying they aren't out there. Given that the amount of the last and security deposit are not in question, whether you collect one or both you know what that is. Your question is really what do you collect for the first month's rent. This is how I generally see it done. At the time of lease signing they would give a check (usually like a cashier's check) for 1 full month's rent ($1000 in your example) and then the pro-rated amount would be due on the first of the month with every succeeding month being the full rent.

For my own investing I usually look at it on a case-by-case basis. If they are moving in 3-4 days before the end of the month I might just ask them for the pro-rated amount and the full months rent. If it is a higher end rental where the rent and security deposit cost more I might take the pro-rated amount up front and just have them start paying normal rent from the first full month so they don't have to come up with quite so much cash up front.

It really is your preference and what you think is the best for your business and for your tenants.