AppFolio second-month rent proration: why the rent roll and loss to market look off
AppFolio set to prorate second month rent? The rent roll should read correctly if the prorate charge box is checked at move-in. Then check the 30-day setting.
Your AppFolio settings prorate the second month of rent instead of the first, and the rent roll and loss to market look off. Is that how this setup reports, or is the team posting the move-in charges incorrectly?
Second-month proration should show correctly on the rent roll, as long as the team checks the prorate charge box in the move-in flow. If the box was not checked at move-in, that is usually the sign that the charges were posted incorrectly. If loss to market still looks off after that, check whether proration is set to a 30-day month instead of the actual days in the month, since that can skew the numbers.
What second-month proration means
When a tenant moves in partway through a month, somebody has to decide when the partial month of rent is charged. There are two common models.
Under first-month proration, the tenant pays for the remaining days of the move-in month, and full rent starts on the first of the next month.
Under second-month proration, the tenant pays a full month of rent at move-in, and the partial amount is charged in the second month. Some companies prefer this model because they collect a full month of rent before they hand over the keys.
Neither model is wrong. Both charge one partial month of rent, in a different month. If you have only worked with first-month proration, the second model looks odd at first. It is a setup choice and not an error.
What the rent roll and loss to market show
A rent roll, in general terms, is a list of your units with the tenant in each one and the rent on each lease. Loss to market is the gap between the market rent for a unit and the rent that is actually charged for it.
Owners and managers read both figures to judge how a property is performing. A figure that looks wrong on one unit is worth tracing, because the same cause is often present on other units.
When loss to market looks off on a unit with a recent move-in, the first thing to examine is how the move-in was entered.
Check the move-in first
Work through the units that look wrong one at a time.
- List the units where the rent roll or loss to market looks off, and mark the ones with a recent move-in. You can use a Tenant Tickler report to quickly see recent move-ins as well.
- For each of those, find out whether the prorate charge box was checked in the move-in flow. You should be able to check this on the tenant's page under "Recurring/Monthly Charges". There will be a box at the top that states when the prorated charge will be posted (if it was not first month proration).
- If you do not see a recurring Rent charge under the "Recurring/Monthly Charges" section or no rent on the Rent Roll, that is your problem. Set a recurring charge for rent and manually post the proration to correct this.
- Compare what the tenant was charged in the first two months with what the lease says should have been charged.
- Note every move-in where you did not see a prorated charge on the ledger, or a memo under Recurring/Monthly Charges. Those are the ones where the charges were most likely posted incorrectly.
Before you change any posted charge, agree with the person who keeps the books on how the correction will be made. A change to a past charge can change a tenant's balance and an owner's statement. It should be made once, with a note that explains it.
Then check the proration method
There are three ways to work out a daily rent. One divides the monthly rent by 30 in every month. The second divides it by the actual number of days in that month. The third divides 12 months of rent by the actual number of days in the year. Check your settings under General Settings > Manage Accounting Settings > Proration.
The difference is small on one lease and visible across a portfolio. Take a rent of $1,500 and 15 days to prorate in October. With a 30-day month, the daily rate is $50.00 and the prorated amount is $750.00. With the actual 31 days, the daily rate is $48.39 and the prorated amount is $725.81. That is a gap of $24.19 on one move-in.
A 30-day setting can skew the numbers. Check which method is set in your database, and compare it with the method that your leases describe. The setting and the lease should describe the same method.
Keeping it right
Proration is a move-in task, so it belongs to the people who do move-ins. Add one line to their move-in checklist: check the prorate charge box. Explain to new staff why it matters, especially staff who learned first-month proration at another company.
Then give the bookkeeper a short monthly review. Once a month, look at every move-in from the past month and confirm that the charges match the lease. Do this before owner statements go out, so that a wrong charge is corrected before anyone outside the office sees it.
After any correction, look at the rent roll and loss to market for that unit again, and confirm that they now read as you expect. If they do not, go back to the proration method before you change anything else.
APM Help's AppFolio consultants are available to help with any questions you may have about proration settings, or any other accounting matter. We offer a free initial 30-minute consultation to review your books and discuss internal issues that you may need help with.
Second-month proration on its own should not make the rent roll look wrong. Look first for move-ins where the box was missed, and then at the proration method.