Understand how capitalization rates (or cap rates) are calculated to identify the best methods for assessing a potential rental property investment.

Capitalization Rate: What It Is and How To Calculate It

The capitalization rate is one of many ways to evaluate a potential investment property. Still, it’s critical to understand how capitalization or cap rates are calculated and their limitations. With a better understanding of calculations like cap rates, you can identify the best methods for assessing a potential rental property. 

Capitalization rates compare and estimate the future return on investment or ROI of one or more real estate properties. Cap rates for residential and commercial real estate are expressed as a percentage. They’re a popular tool because they help individuals estimate the potential return on real estate investments. 

Capitalization rates measure the potential yield of a specific real estate property over one year, assuming that the property is not financed. You can also think of cap rates as the percentage rate of return, either a loss or gain, of a specific property based on the income it generates, minus expenses. 

How do you calculate the capitalization rate of a property? There are two methods or formulas that are used to calculate capitalization rates. 

Most real estate investors will use the calculation which divides the net operating income by the property’s current market value. This calculation can be expressed using this formula:

Capitalization Rate = Net Operating Income / Current Market Value

In this calculation, the net operating income equals the estimated annual income minus expenses like maintenance, property management, and property taxes. This formula is most popular because it compares the projected income of a property against the current market value. 

The second formula used to calculate capitalization rates differs because it compares net operating income against the property’s purchase price. 

Capitalization Rate = Net Operating Income / Purchase Price

This formula puts more emphasis on the acquisition cost of a specific property, as opposed to the current value of a property. While there is no drawback to using this formula at the time of purchase, it’s not ideal for properties purchased months or years prior. Using the purchase price from several months or years ago will incorrectly estimate a property’s potential return. Similarly, this formula works poorly for homes that have been inherited because the purchase price is zero. As a result, using this formula can result in unrealistic expectations. 

To estimate the net operating income of a property, you will need to calculate the annual rent by multiplying the monthly rent by twelve. Once you have calculated the annual rent, you will need to subtract expenses. Expenses should include taxes, utilities (if not paid by the resident), property and liability insurance, and maintenance. 

If you are unsure of the monthly rent, we recommend that you research similar properties in the same area. You’ll need to look for other properties that have similar amenities. Identifying several similar properties will help you accurately estimate your monthly rent for a property. 

Why don’t the capitalization rate formulas account for financing 

Capitalization rates do not account for property acquisition costs like interest and closing costs for a very specific reason. The cost of acquiring a property will vary significantly depending on current interest rates, type of loan, and your particular closing costs. While other formulas can account for these costs, capitalization rates are designed to provide a baseline rate of return, regardless of loan repayment or interest rates. Excluding acquisition costs ensures that investors compare potential properties based on possible returns without factoring in highly variable costs unique to each individual. 

When you shouldn’t use capitalization rates to assess real estate properties 

You should not use capitalization rates to evaluate a property if you plan to use the property as a vacation or short-term rental. The potential income, occupancy, and expenses are too variable to assess a property accurately. 

While capitalization rates are a helpful tool, they have limitations that can be illustrated using two hypothetical properties. Let’s imagine that the first property has a net operating income of $50,000 and the current market value of the property is $600,000. In this example, the capitalization rate is 8%. 

Property #1 = ($50,000 / $600,000) x 100% = 8%

In the second example, a property has a net operating income of $40,000 and is currently valued at $400,000. The capitalization rate for this property is 10%. 

Property #2 = ($40,000 / $400,000) x 100% = 10%

If you only consider capitalization rates, the second property is the better investment. However, each investment opportunity has unique characteristics that should be considered. While the second property has a better capitalization rate on paper, it could be located in a less desirable location or have fewer amenities. As a result, the first property might be a better investment, even if it has a lower cap rate. 

How to use capitalization rates to your benefit 

Capitalization rates are one tool for gathering information and comparing potential rental properties. Individuals can identify the best investment for their financial picture and goals with more details. 

When calculated correctly, capitalization rates can indicate the length of time needed to recover the amount invested into the property. For example, a cap rate of 10% will require around ten years to recover the amount invested in the property. 

Understanding what constitutes a ‘good’ cap rate

It may be tempting to look for a potential investment property with “good cap rates.” However, it’s essential to understand that capitalization rates are not evaluated as good or bad but rather as an expression of potential risk.

A higher capitalization rate corresponds to more risk, and a lower cap rate is associated with less risk. Your ideal cap rate will depend on how much risk you’re comfortable taking. Generally, capitalization rates will fall somewhere between 4% and 10%.

You should assess capitalization rates in the context of the specific property and the current real estate market. As a general rule, you can expect capitalization rates to increase whenever interest rates rise. An increase in interest and capitalization rates will significantly impact anyone who owns a rental property. 

All things being equal, a lower cap rate equates to a better valuation and a better prospect of returns with less risk. Conversely, a higher cap rate will likely result in a relatively lower ROI and a higher level of risk. 

In real estate, properties are rarely equal. One property may generate more rental income but has more maintenance costs and higher taxes. Ideally, you want to identify a property with a reasonable cap rate relative to the amount of risk in purchasing a specific property.

How Belong supports the success of your real estate investments

A successful real estate investment strategy requires you to identify the ideal property, maintain a positive cash flow, and manage the investment effectively. Belong helps homeowners increase their profits and limit the hassles of owning an investment property.

When it’s time to price your property, Belong uses data and real-time insights to help you maximize cash flow. We also offer guaranteed rent, which means you never worry about less than 100% occupancy, which helps keep your investment safe. 

Learn more about Belong and see its role in your real estate investment strategy.

Understand how cap rates are calculated to identify the best methods for assessing a potential rental property investment.

Find out how to manage a break-lease without losing rental income on your home.

How to Manage an Early Lease Termination

When you have a 12-month lease agreement in place, it’s safe to assume that your residents are staying put for at least a year. But in spite of their best intentions, life sometimes gets in the way and your residents will ask to leave early. Typically, under most contracts they will be on the hook for rent for the remainder of the agreement — but like most things, it’s not all black and white. Here’s how to manage an early lease termination without losing rental income. 

Just as a lease agreement is an essential part of renting out your home, so too is a policy on early termination of the agreement. If you don’t have a termination clause in place, you could be caught out if your residents want to leave earlier than planned. 

If you’re self-managing a rental property, you will want to ensure you have an up-to-date lease agreement that abides by your local state laws and includes a policy for lease termination. A formal lease agreement protects you from losses in the instance of a break-lease by ensuring that your residents remain financially responsible until the property is relet. You will need to either speak to an attorney or anyone you partner with to help manage your property, like Belong or a property management company. 

Regardless of how your property is managed, the residents will need to provide written notice to vacate. They also need to follow the procedures outlined in their signed lease agreement, such as continuing to pay for rent during any vacancy and covering marketing costs. 

As the homeowner, once you have been served notice for a break-lease, you must be seen to take reasonable steps to find a new tenant. That is, you can’t simply wait out the lease agreement while the former resident is still paying rent. The property must be marketed for rent in an effort to find new residents — either by you or whomever is managing the property. 

There are a few instances where these financial penalties don’t apply and only 30-days written notice is required, such as if the resident is called for active military duty or needs to leave to protect themselves from a domestic violence situation. 

4 reasons a tenant has a legal right to break a lease

There are some exceptions under state laws that allow a tenant to terminate a lease agreement early without the same penalties. Check with your local jurisdiction, but for example here are the legal reasons within California where a tenant can end an agreement early:

1. The resident is a victim of domestic violence

In many states (including California and Washington), a victim of domestic violence can provide 30 days written notice to vacate and end their lease early without having to pay rent for the remainder of the agreement. Typically they will need to provide proof of this status (such as a protective order). 

Even if your state laws do not enforce this, it is worth having compassion in these scenarios and consider the safety of your residents. Not allowing them to leave without a financial penalty could force them into an unsafe situation. Not only is this inhumane, there is a real potential for damage to your property or lawsuits if the situation were to escalate. 

2. The resident has been called to start active military duty 

If your resident is part of uniformed services (armed forces, National Guard, NOAA or commissioned corps of the Public Health Service) the War and National Defense Service members Civil Relief Act gives them the right to break a lease under federal law.  

They must still provide you with written notice of their intent to break the lease for military reasons and their tenancy will terminate 30 days after the date that rent is next due, even if it’s prior to their lease expiration. 

3. You have not provided a habitable living space

As the owner, you have a responsibility to your resident to provide a safe and habitable space to enjoy as their home. This isn’t just a nice thing to do, it’s a legal requirement known as “warranty of habitability” that applies to all residential leases. 

If there are issues in the home that violate this right (for example, structural issues or a lack of hot water and heat in winter) and you don’t take measures to rectify it, your resident can leave without being held responsible for further rent. Bear in mind that this is only for serious violations and there is a process that needs to be followed, a resident couldn’t simply move out because their shower stopped working without giving you a reasonable time to respond. 

If your home is with Belong, you never need to worry about habitability. This is because we have an extensive network of vetted maintenance professionals and all residents in our network have access to a 24/7 concierge service, ensuring nothing slips through any troublesome, leaky cracks. 

4. You harass the resident or violate their right to privacy 

State laws vary, but typically you will need to give reasonable notice (around 24 - 48 hours or more) before entering your home while it’s being rented out. If you fail to abide by this or are seen to be harassing the resident in any way (such as turning off utilities, changing locks, or showing up unannounced), they have a right to terminate the lease without penalty. Depending on the nature of the violation, you could also face legal action and your own financial penalty. 

If your home is with Belong, again we handle all communication with residents and abide by local state laws regarding inspections and notices, ensuring that overstepping the mark is never a concern for our homeowners. 

How Belong handles early lease termination on your behalf

When your home is loved with Belong, we will manage all communication with both the former and new residents on your behalf and make sure you’re not left out of pocket in the process. 

When a resident requests to terminate their lease early, they remain responsible for paying the rent until the end of their agreement or until another resident has been placed to take on a new 12-month lease. This means there’s no gap in your cash flow and you can continue to earn guaranteed rent even when a resident needs to leave early. 

When the exiting residents move out, we take care of prepping your home to go back on the rental market, with any repairs and/or cleaning costs deducted from the security deposit. In the case of early lease termination, the resident will also be responsible for the placement fee that homeowners usually pay when marketing their home to new residents. 

Of course, the real estate market is a fickle beast and prices can fluctuate wildly due to changing market conditions. If the rental market value of your home has gone down and we need to consider a price adjustment to attract interest from new residents, any difference in rent will need to be covered by the former residents until the expiry date of their original lease agreement. 

Find out why Belong is the stress-free alternative to property management		

When the unexpected happens, you’ll really notice the difference between Belong and a traditional property management company. From 24/7 concierge support for both you and your residents to guaranteed rent and protection against eviction costs, Belong is making renting lovable for everyone. 

Visit our homeowner's page to find out more about how our services are helping people to ditch property management in Seattle, Redmond, Oakland, San Francisco, San Diego, Los Angeles, Tampa, Orlando, Jacksonville, Miami and many more.

Sometimes tenants want to terminate their lease agreement early. If you own a rental property, find out how to manage a break-lease without losing rental income

We asked our resident Asset Manager, Jon Martin, to weigh in on the topic of acquiring rental property in 2022

Is Now a Good Time To Be Acquiring a Rental Property?

You asked, we answered. During our recent webinar conversation on rising interest rates and its impact on the American housing market, homeowners asked us “Is now a good time to buy a rental property?”. And if you have already acquired or inherited a home eligible for the rental market, should you hang onto it or sell? 

There are a lot of mixed messages out in the housing market right now, with many economists torn on whether we’re in for a crash in prices as interest rates and inflation shoot up. 

To help those who are thinking about buying a home for the rental market, we asked our resident Asset Manager, Jon Martin from JDM Asset Management, to weigh in on the topic.

Is now a good time to buy a rental property in the US?

What is tough news for many Americans grappling with inflation, can be positive for rental property owners, with the hot rental market likely to intensify further. 

“At higher interest rates, fewer prospective homebuyers will qualify for mortgages (or at a lesser dollar amount) and will instead choose to keep renting. Rising rental demand will further push rents up – we’re actually already seeing that, with median nationwide rent passing $2,000 for the first time ever in May,” explains Jon. 

If you are looking at acquiring a property for rent, Jon notes that now is a good time to keep a watchful eye for opportunities and price-drops in your desired neighborhoods, as less competition provides some welcome relief to house hunters. 

“While you’ll have to factor in a higher cost of capital when analyzing your next opportunity, the recent upward pressures on rents and the likelihood of locating an attractive single family rental are creating a more attractive market for acquisitions,” says Jon. 

“Another point to consider when looking to acquire a rental, for those sitting on cash, is a higher down payment than say the standard 20% to reduce your exposure to higher interest rates,” he adds. “This will only help when running the numbers to see if your rental income will cover your operating expenses and mortgage payments,” says Jon. 

Watch now: Catch the full webinar conversation here.

Tax advantages of holding rental property 

Jon also reminds homeowners that in addition to favorable rental pricing in the current market, there are also tax advantages to holding rental property. 

“You have the ability to depreciate the physical structure of the home and the cost of any property improvements, along with deducting most expenses related to operating a rental. So all in all, the picture can still look quite good for the acquisition of rental homes,” Jon explains. 

Learn more: Tax Strategies for Rental Investors: 5 Ways To Make A Home Less Taxing

Should I sell my home or put it on the rental market?

If you have (or have recently acquired) a property, the next logical question is should I keep it and put it on the rental market, or is it time to sell?

Jon says that if you have a rental property, it’s hard to make the case for selling it in the current market, especially with rental yields tipped to improve. Rising interest rates are impacting demand in many neighborhoods, so you may not get the price you were hoping for as potential buyers look for bargains or hold off to see what the market does next. 

“With rents expected to continue rising, the outlook for holding rental property has never been better — especially if you already locked in cheap debt on the property when the interest rates were low,” explains Jon. 

Maximize the value of your rental property with Belong

Belong looks after your property as both an asset and a home. Our homeowners get unexpected perks that you won’t get from a traditional property manager, including access to a highly qualified asset manager on staff. 

With in-house asset management, Belong homeowners can run the numbers on their own property (or properties) and get expert assistance navigating strategic decisions to meet personal financial goals. 

And because you can also access Belong’s dedicated team of real estate and maintenance professionals, your home will always attract the best price and the best residents when it’s on the rental market. All without hidden property management fees and scary markups. 

Learn more and find out if your home is eligible at belonghome.com/homeowners.

Is now a good time to buy a rental property? We asked our resident Asset Manager, Jon Martin, to weigh in on the topic of acquiring rental property in 2022

Marc Andreessen announced today via the a16z blog the firm has invested $350 million in WeWork founder Adam Neumann’s residential real estate company, ‘Flow.’

The future of Home just got hotter: Belong’s largest shareholder, A16Z, backs Adam Neumann’s Flow

Why it matters: The investment reflects investor interest in residential real estate market disruptors.

a16z is Belong’s largest shareholder. Belong and Flow share similar missions, both expressing a desire to make it easier for real people to participate in homeownership.



In the last ten years, the percentage of homes owned by hedge funds has increased dramatically (nearly doubling). Inventory is short and housing prices are higher than ever. This is driving investor interest in disruptive solutions to the global housing crisis.



How Belong is different: Though we exist to fight similar systemic issues, Belong is focused on alternative solutions to the housing crisis:

We do not own homes. Rather, we offer vertically integrated home management platform for homeowners so they never have to be a landlord, and can still have their home taken care of by high-quality residents and our in-home maintenance team. 


We focus on homes owned by individuals and small investors. Belong’s version of the housing market is one where homes are in the hands of regular people. While Flow seeks to purchase and manage multi-family (apartment) homes in an end-to-end manner, Belong primarily works with homeowners that own and invest in single-family homes. 



We help renters become owners. With each on-time rent payment, Belong residents save toward home ownership. We believe addressing the housing crisis requires addressing both sides of home ownership. This is how we do our part. 

The big picture: Investors (including Belong’s shareholders) are focusing on residential real estate disruptors because the problems caused by this housing crisis will require multiple concurrent solutions. Flow and Belong will tackle these problems differently, but we share a vision for the future of Home.



Belong’s largest shareholder, A16Z, backs Adam Neumann’s Flow

Weigh up the costs and value of outsourcing the management of your rental home.

How to Estimate the ROI of a Property Manager

As a rental property owner, you’ll need to account for property management costs and identify the best solutions for your needs. For some, managing your own property can be an attractive way to maintain a positive cash flow. Still, it’s helpful to understand the potential ROI of a property manager. When you compare do-it-yourself property management against other property management solutions, you can decide which option provides the most value based on the cost.

Managing your own rental property can be a good choice for some. If you understand all the responsibilities of managing your own property and feel confident in your ability to execute those tasks, DIY property management might be right for you. If you choose to self-manage your rental property, there may be a financial upside. Still, you need to account for all the costs.

If you choose to self-manage your rental property, you’ll likely still need the support of a few key professionals. Most individuals who manage their own properties will engage the services of accountants and tax professionals. Likewise, you may need to hire professionals to complete specialized repairs or for ongoing lawn maintenance or pest prevention. Carefully factor these costs into your estimated expenses. 

Similarly, you should carefully estimate the costs associated with the tools and equipment needed to self-manage your rental property. You will need to use accounting software, a tenant verification tool, a computer, and internet access. Be sure to account for all mileage, cleaning supplies, and maintenance tools. 

Finally, you must account for the time spent managing your rental property. You may find it quickly becomes your most significant expense.  

While it may be tempting to see your time as cost-free, you may find that you are underestimating the value of your knowledge, expertise, and time. Consider assigning a specific value to each hour of your time. What do you consider your hourly rate? Is it $30, $60, or $100 per hour? 

Property management responsibilities will fall into several categories:

Sales & Marketing - advertising the rental

Tenant Selection - selecting a qualified tenant

Accounting - keeping track of the books and taxation requirements

Legal - understanding State and local laws, insurance needs 

Maintenance - keeping the home in good condition

Estimate how many hours you’ll need to spend completing these tasks per month or year. 

Time is the most valuable asset we have. It’s also the most limited. Carefully consider how much you value your time. What if you could be on vacation, spending time with your family, or enjoying something you love instead of managing your rental property? Does that increase how much you value your time?

Mental, emotional, and physical costs of managing your own property

The cost of self-managing your own rental property can transcend a specific dollar amount. Every rental property presents different challenges. Do you feel prepared to tackle difficulties that arise? What happens if rent isn’t paid on time? Are you familiar with and confident with taxes and insurance? Do you have a plan for handling emergencies? 

Self-managing a property requires finding, hiring, and managing contractors. How will you respond if they don’t show up or don’t complete work in a satisfactory manner? 

Do you consider yourself an organized individual? You’ll need to keep records like initial applications, credit checks, and lease documents diligently. To maintain a positive cash flow, it’s essential that you carefully track and record all expenses. 

Managing a rental property can also be physically demanding. Consider who will complete all of the maintenance requests. You may be required to climb ladders and move through attics or crawl spaces. Maintenance can be difficult and unpleasant at times. If you do choose to hire someone to help with maintenance, even little repairs can add up quickly. Before long, you may exceed your maintenance budget.

While property management solutions come with drawbacks and additional costs, it’s essential to understand what they offer and how they can impact your bottom line. 

What services do property management companies offer?

Perhaps most importantly, you need to know that not all property management companies offer the same services. If you explore working with a property management company or individual, compare their offerings carefully. 

Common property management services can include:

Marketing your home- suggest pricing, photos, videos, listings, ads

Tenant screening- rental history, credit check, background check, referrals, and employment verification

Rent collection- enforcing late fees, warnings, eviction notices

Repair and maintenance services - some may have an in-house maintenance crew, others may hire contractors

How much does property management cost? 

The cost of property management will vary significantly depending on the services being offered, the number of properties you are working with, and the location of your rental property. Property management packages can sometimes start for as little as $200. Most property management services will charge a percentage of the monthly rental value, typically between 6-12%. 

Critically, there are often additional costs and fees associated with property management. So while an initial package may only cost $200 or 6% of your monthly rent, extra expenses can add up quickly. 

Common property management fees to watch out for:

Carefully evaluate each property management solution for its offers and how much it costs. Be sure you understand what fees may be applied. With careful consideration, you can evaluate property management’s impact on your cash flow. 

What if there is another option? Meet Belong.

Imagine a modern alternative to property management. Would you be interested in a contemporary solution for property management without hidden costs and fees? Belong makes renting your home enjoyable and easy. We’re reinventing and modernizing the traditional home rental experience. 

What is the ROI of a property manager compared to DIY property management? We weigh up the costs and value of outsourcing the management of your rental home.

A good property accountant can help you better manage investment properties to deftly avoid risks and keep up with the real estate market’s fast-changing trends

Do You Need a Property Accountant? Here's How to Tell

Looming issues of inflation, high fuel prices, and global conflicts have led to the inefficiencies of today’s real estate market. Even so, real estate assets such as homes, offices, factories, and lands were worth over $326 trillion in 2020. This shows how real estate continues to be a lucrative investment amidst the often-turbulent landscape of buying and building equity.



Approaching the real estate market not only requires good timing but also a guiding hand. If you want to deftly avoid risks and keep up with the market’s fast-changing trends, it might be time to look into an accountant to handle your potential investments.

Indicators that you need a property accountant

Taxation is daunting when it comes to preparing the paperwork for government procedures. With a property accountant, you’ll be able to file legal and compliance documents, and ensure adherence to the latest tax regulations— the latter is especially important in selling properties.

For example, a home sale doesn’t mean you get to pocket all the profits. Though homeowners could easily roll home sale profits into a new home in the past, provided the new house is worth more than the previous one, that isn’t the case now. Due to the astronomical jump in home prices, you may incur an unexpected tax bill on this capital gain. In this case, having an accountant can guide you on how capital gains taxes affect a sale. For example, how home improvements you might have paid for increased your cost basis and lowered your tax liability.



Multiple rental properties have to be managed



Property accountants document and process revenue for rents received and maintenance expenses. If you want to buy more buildings in the future to have a sustained income, inflation may get in the way of saving up for a downpayment. This is why bookkeeping for utilities, landscaping, maintenance, and other hidden expenses is crucial.

Property accountants can catalog repair costs and set up an entity for each property to shield the owner from liability and minimize financial strain. With updated information on cash outflows, you can become proactive in combating potential losses that can hinder income. Additionally, having an efficient accounting cycle can also result in firmer rent control and bigger investments.



The right property accountant should be able to guide you into making smart, incisive decisions. Trends in the real estate market are volatile, so property accountants should be adaptable and be able to pursue new areas of knowledge.



Looking into specific certifications, such as the Certified Management Accountant (CMA), is important when you’re reviewing a property accountant’s credentials. Ensure that the person you’re working with has passed the accounting certification exam, making them a certified public accountant with skills in reducing organizational risk, improving valuation, and reporting financial processes. This way, they can maximize your real estate investments in terms of reliable income and price appreciation, as well as guide you through active and passive investments, and commercial or residential assets.



Find a residential network that includes property accounting

Belong also offers property accounting tools and services to help you navigate these challenges, included in our single, transparent fee.

We maximize listing prices for your home by using a technology-driven approach based on true market data and real-time interest from potential residents. Signing up as a homeowner on Belong allows us to not only handle your home’s renovations, showings, and resident vetting but you’re also guaranteed a long-term monthly rental income as soon as a resident leases your home. Learn more or see if you're eligible here.

Understanding how to implement and calculate prorated rent in your rental home can help ensure you maintain a positive cash flow between leases.

What is Prorated Rent and How to Calculate it

Understanding how to implement and calculate prorated rent will allow you to lease your rental property to ideal residents and ensure you maintain a positive cash flow between leases. 

Prorated rents allow you to rent your property to a new and existing resident for a period less than your typical lease term of a month. Depending on your unique circumstances, you may have a resident who wants to move in on a day other than the first of the month. Similarly, residents may move out before the end of the month or need a few additional days or weeks before they move out. Prorated rent is rent that is calculated proportionately to the monthly rental amount.  

Prorated rent is equal to the daily rental rate multiplied by the number of days the residents will rent your property outside the current lease terms. 

Prorated rent = Daily rental rate x Number of days

You can calculate the daily rental rate by dividing the monthly or yearly rent by the number of days in the month or year. When you calculate the daily rental rate, there are four methods you can choose from. 

Daily rental rate based on the current month: Calculate the prorated rent by dividing the number of days in the month by the monthly rent and multiplying it by the number of days in the prorated rental period. 

Daily rental rate based on the average month: The average month has 30.42 days. To calculate prorated rent using the average month, divide the monthly rent by 30.42 and multiply it by the dates included in the prorate rent period.    

Daily rental rate based on the banker’s month: To calculate the daily rental rate using a banker’s month, calculate the prorated rent using 30 days in a month. Use 30 days regardless of how many days are in the month you are charging prorated rent. 

Daily rental rate based on the number of days in a year: Instead of calculating based on the days in a month, calculate the daily rental rate using the number of days in the year and the annual lease amount. To do this, multiply the monthly rent by twelve to find the yearly rent amount. Divide the annual rent by the number of days in the year (365 unless it’s a leap year) to find the daily rental rate.

Once you’ve chosen a method and identified the daily rental rate, you can multiply that rate by the days the residents will rent the property to find the prorated rent amount. 

Let’s imagine the monthly rent for your investment property is $2,000, and you have a resident who would like to move in 10 days before the beginning of their new lease. We can calculate the prorated rent amount using the formula above and our chosen method of finding the daily rental rate. Let’s assume that the current month is February, which is not a leap year. 

Prorated rent using the current month’s daily rental rate in February: 

$2,000 monthly rent /29 days = $68.97/day x 10 days = $689.70 

Prorated rent using the average month daily rental rate: 

$2,000 monthly rent /30.42 days = $65.75/day x 10 days = $657.50 

Prorated rent using the banker’s month (30 days) daily rental rate:

$2,000 monthly rent /30 days = $66.67/day x 10 days = $666.70 

Prorated rent calculated based on yearly rent: 

Depending on your method, you can see a slight difference in the prorated rent amount. There’s no wrong way to calculate the daily rental rate, but it is critical to use the same method consistently. This will allow you to answer any questions your residents may have about the prorated rental amount. 

There are two main situations where it is appropriate to use prorated rent. In both cases, prorated rent can aid in creating a smooth rental transition. 

When a resident moves in mid-month, let’s say your last resident moves out, and it takes you several weeks to find a new resident. They may move in on the 18th instead of waiting until the 1st of the following month. In this case, you’ll want to charge prorated rent from the 18th to the end of the month. 

Alternatively, when a resident wants to move out two weeks after the end of their year-long lease, imagine you have a resident who would like to move out on January 14th instead of December 31st. If you agree with their request, you will charge prorated rent from January 1st to January 14th. In this example, you would charge the prorated amount at the beginning of the last month. 

If you offer prorated rent when a resident moves in, consider charging the first month’s rent plus the prorated rent. You can collect this amount before your new resident moves in. Once the next month, charge rent as outlined in the lease agreement. 

Suppose you are charging prorated rent when your resident moves out. In that case, you can charge prorated rent at the same time and in the same manner as you typically collect rent once you’ve calculated the amount. 

Should you include prorated rent in your lease agreements? 

It can be helpful to outline in what situations and how you will charge prorated rent in your lease agreement. Ultimately, the goal is to communicate the process with your residents, so there is no confusion when these situations arise. 

Make it straightforward for your residents to understand how prorated rent works. Remember that they may not be familiar with prorated rent or know precisely how it works. Simple, proactive communication can have a positive outcome for everyone. 

As always, you should work with an attorney to ensure your lease meets local requirements and effectively communicates expectations to your residents. 

How prorated rent can help you find new residents 

Prorated rent can be a helpful tool in attracting new residents to your rental property. If you can offer potential residents flexibility using prorated rent, you can encourage a high-quality resident to choose your property over another. Similarly, a positive move-in experience which may include prorated rent is a good way to retain excellent, respectful residents.

You don't need to advertise your rental property as a white box with these 4 simple touches that add liveable personality and attract more renters to your home.

4 Easy Ways to Make Any Rental Property Feel Like Home

While it can be tempting to advertise a rental property as a blank canvas for new residents to personalise, there are simple touches you can add to make a space feel like a home, helping renters picture themselves in the space. 

Our homes are often a reflection of who we are as we put our own furnishings and touches on a space. But what about a rental home on the market for new tenants? You want to give them the freedom to make a space their own, but also make it feel inviting – making it easy for potential residents to imagine themselves living there. You want to give them a sense that your home can be their home, to signal that beyond the four white walls there is a soul, a personality. It’s not that hard to accomplish, and here are 4 simple tips from the experts at Belong based on experience with hundreds of homes.

Floating shelves are highly affordable and so easy to install you’d feel embarrassed hiring a Task Rabbit, floating shelves give any room a subtle lived-in quality, while also serving a function. For example, in a kitchen, they can act as a spice rack; in a living room, you can use them as a striking mantle or bookshelf. 

What’s more, their very presence tells any potential residents that this is a place ready to welcome their memories: there’s room for their wedding photos, their favorite books, and even the tchotchkes they inherited from their grandparents.

The meeting place between the wall and ceiling is a place for detail and charm. The data shows that Millennials want older homes with character and authenticity. 

Belong has talked before about how a picture rail can lend any space a little character and old-world charm; it’s a claim we stand by.  What’s more, when your residents hang their pictures on a rail, they don’t have to bang nails into your walls and damage them.  Here’s an example of how cool picture rails can look.

Simple, but tasteful, renovations can also make a home easy to fall in love with.  Is it time to put in a new sink?  Contemplate a pedestal sink: they’re competitively priced, and add a touch of elegance to the space.  Is the carpet getting a little ragged?  Before you replace it, see what’s been hiding beneath all those years.  Sometimes you’ll find the kind of beautifully preserved hardwood that makes interior designers drool, and also appeals to Millennial tastes.

Nothing says home like piles of comforting blankets. Layer soft throws in your living room for quick access and a cozy aesthetic, or keep a pair of moccasins on hand for colder nights. Adding rugs to otherwise sparse rooms can add a bit of warmth, both underfoot and visually. When you are comfortable, and your house doesn’t feel like a museum where nothing can be touched, you feel at home.

There’s something strange about moving into a new house and noticing its unfamiliar smell. If you’re moving into a house that had one previous owner, or has been around for 100 years, you’ll notice that it has a distinctive scent - good or bad. To make your house feel “homey,” start using room sprays or lighting candles with scents that make you feel calm and comfortable. The flickering light of the flame will add another cozy element to your home as well. If you really want to clear out the old and welcome in the new, think about lighting a bundle of sage and walking through your home, letting the fragrant smoke drift up into corners as you chant a clearing mantra. 

Most of these modest but high-impact upgrades require no contractor assistance. For those that do, remember that when you work with Belong, you have access to their a vetted fleet of 10,000+ professional contractors and craftspeople who are ready to help with any installation or upgrade you can imagine!

Belong is simplifying the rental experience and helping more homeowners reach their financial goals through real estate. Visit our homeowner's page to find out more about how our services are helping people to ditch property management in Seattle, Redmond, Oakland, San Francisco, San Diego, Los Angeles, Tampa, Orlando, Jacksonville, Miami and many more.

How much rent should you charge? This guide has all of the rental pricing factors to keep in mind for setting the perfect rent price for your rental property.

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