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Real Estate Math Video #6c - How to Prorate Rent | Real Estate Exam Prep Videos - YouTube
Channel: The Real Estate Classroom
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I guarantee you you're going to have
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proration questions on your real estate
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licensing exam in today's video we're
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gonna do one of those proration problems
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I'm going to show you how to prorate
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rent all that in this video
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in today's video I'm going to show you
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how to prorate rents now there's three
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areas in which you may have a proration
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question they may make you pro rate real
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estate taxes they may make you pro rate
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interest on a loan or rents and in
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today's video I'm going to show you how
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to prorate rents now there are some
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things you need to know before we
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actually jump into making the
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calculations here very important number
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one is we have to understand that it's a
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three hundred and sixty day or a 365 day
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rule for the calculations and here's
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what I mean if it's a 360 day year then
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every month is considered to have 30
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days regardless of how many days are
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actually in that month for example if
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it's February you're gonna have you're
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gonna calculate based on 30 days not the
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actual days that February has which is
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28 or 29 days if it's March
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you're gonna calculate the problem based
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on 30 days even though there's 31 days
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in the month of March now here's the
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thing to remember though if it's the 360
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day rule that they want you to use for
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the calculation they will specifically
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and directly tell you that in your
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licensing exam now for the most part
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I've only seen seen these type of
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questions in real estate brokers exams
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not the sales persons so you need to at
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least assume there's a chance that
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you're gonna have this on your licensing
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exam now if it's the 365 day that just
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simply means that no matter whatever the
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amount of days there are in that
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particular month that's what you use for
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your calculation so if it's January
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you're going to use 31 days if it's
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April you're gonna do 30 the other thing
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to keep in mind is rents are always paid
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in advance
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unlike mortgage payments that are paid
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in arrears we always assume that rents
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are paid in advance and I'll illustrate
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that more in just a minute here and the
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last thing you have to understand
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anytime they're asking for proration
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here's really what they're asking for
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they want to know if it's a cost or a
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credit to the seller or if it's a cost
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or a credit to the buyer and how much is
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that cost or credit and that's why we
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calculate these problems and one last
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thing before we get to our problem here
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understand cost and debit mean the same
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thing and the licensing exam can pose
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the question using any one of these two
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terms interchangeably so you have to
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know that cost in debit they mean the
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same thing all right so let's actually
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get to our sample problem for this video
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monthly rent on 1 2 3 Main Street is
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$1,500 Amy the tenant of 1 2 3 Main
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Street made her April first payment in
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full to the landlord the landlord is
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selling the property and has a scheduled
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closing date of the 21st of April
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calculate the buyer in the seller's
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debts and credits all right what I like
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to do when I'm doing proration problems
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is Illustrated I like visual content and
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so I'm gonna put the time continuum for
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those proration x' so let's take a look
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at our problem here first of all we know
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that they're talking about the month of
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April and we know that there are 30 days
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in the month of April
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we also know because the problem told us
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that the landlord is selling the problem
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or the property and closing is scheduled
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for April 21st we also know that the
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tenant did pay the rent in full in the
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amount of $1,500 back here on the 1st of
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the month
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what does that mean that means and we
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have to make this inference that the
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seller is already holding the $1,500 but
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the seller also is only going to own the
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property for 21 days at that point it's
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going to become the new buyers property
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so from the closing date through April
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30th part of this $1500 rent is the
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buyers so
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this is where we're making the proration
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how much does the buyer gate in this
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case and how much does the seller have
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to give so we know that for the first
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part of the month the landlord they
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already got the money so we know that
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this is a seller cost and why is it a
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cost because they already have the 1,500
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bucks and they're gonna have to give a
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certain amount of money to the buyer at
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closing so the buyer has the money that
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they're entitled to for the time that
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they owned it that part of the month so
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therefore we know that this is a buyer
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credit now we need to figure out how
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much of a credit and also the number of
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days so we can do our calculation all
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right so let's do our calculations now
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we know that the total monthly rent was
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$1,500 or $1,500 now we're going to
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divide that by the total number of days
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in the month in this case it's 30 and
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that would give us a total of fifteen
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hundred divided by 30 is $50 per day now
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that $50 is what we call per diem now
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one thing to keep in mind every once in
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a while when we're doing calculations
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the real estate licensing exam depending
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on which provider is giving the exam
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does use that term per diem so you just
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got to know that per diem simply means
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per day all right so we have $50 per day
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now we have to figure out how many days
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the buyer actually owned the property
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for the month of April we know that
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closing is on the 21st all right so how
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do we handle the day of closing who is
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responsible for the cost and the credits
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for the day of closing well two things
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either the test question is going to
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tell you that and I have seen test
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questions actually say the buyers
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responsible for closing the day of
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closing or the seller is so if that's
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the way that the test question is set up
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then obviously you have enough
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information to do your calculations but
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if the test question makes
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reference to who is responsible for the
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day of closing you must always assume
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that it's the buyers responsibility all
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right
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buyers responsibility for closing for
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debts and credits unless the test
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question specifically tells you
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otherwise keep that in mind that's very
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important all right so the test question
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didn't make a reference one way or
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another so we're gonna assume the buyer
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is responsible for the day of closing
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therefore we know the buyer is getting a
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credit so the buyer gets the credit for
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the day of closing so that means they're
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gonna get that $50 for the 21st which is
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the day of closing so we do the 21st
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22nd 23rd 24th 25th 26 27 28 29 30
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that's 10 days and noticed I used my
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fingers what I have found over the years
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teaching this class with students when
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we're doing proration proration problems
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use your fingers go back to that
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kindergarten math that will save your
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bacon during the test all right so we
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know that it's the per diem day or the
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daily rate is $50 we're gonna multiply
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that by 10 which is the number of days
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remaining in in April so we know that
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that comes to 500 dollars and that is a
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buyer credit of $500 so let's go over
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here remember cuz I said every proration
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problem they want to know a buyer cost
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or credit and a seller cost or credit so
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in this case we know that it was a buyer
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credit um $500 therefore if it's a buyer
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credit for $500 then it must also be a
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seller cost or a seller debit all right
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a cost of $500 now here's something very
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important to remember when you're doing
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proration x' when you're talking about
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taxes or rent whatever that figure is
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it's the same for the other party just
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in a different category so we know that
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it's a cost to the seller for 500
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dollars therefore it is a credit to the
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buyer for 500 dollars here's one other
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tip
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remember let's say one of the options to
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this test question was C and C said that
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it was a seller cost of eight hundred
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dollars in a buyer credit of five
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hundred dollars
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notice that the two figures here are
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different that should automatically tell
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you that C is not an option for the
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correct answer they have to at least be
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the same numeric value so that's just
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another one of those little testing tips
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for you that's proration z' of rent in a
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nutshell hey here's another video that
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may help you with your studies for your
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real estate exam and before you leave
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don't forget hit that circle next door
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to subscribe to the channel if you
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haven't already done so all right that's
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all I have for this video we'll see you
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in the next video
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