Prepaid Rent

When a property being sold is occupied by tenants, the rent is usually collected by the landlord (the seller) at the beginning of the month. If the closing takes place in the middle of that month, the seller has already collected rent for days they will no longer own the property. To handle this fair distribution, the rent is "prorated" or divided proportionately. The seller is entitled to keep the rent for the days leading up to and including the day of closing, but the rent covering the days after closing belongs to the new owner (the buyer). On the closing statement, this appears as a debit to the seller (money they must pay back) and a credit to the buyer.