Advice on Raising Below Market Rent on Good Tenant

[Brian Roberts]

Hi BP Members,

I am looking for advice on my current rental situation as I am not sure what is the best path forward.

The situation:
I own a 4 bed 2 bath condo in Boston (specifically Roxbury), which I have rented out since 2009. I became an accidental landlord due to some personal situations and needed to rent it out quickly. The tenant is section 8 and has been a fantastic tenant. Because I was not in a financial situation to deal with a vacancy, I have not raised the rent for the past 5 years.

Recently, I have learned that the condo on the 3rd floor of my building is renting for $2500. It's basically the exact same unit as mine but mine is on the 2nd floor. Here the problem, I'm currently renting my condo for only $1800. I am currently cash flowing $300 a month, but I am now in a much better situation and wish to start renting out the unit closer to fair market value. I'm unsure how to proceed.

The options:

1. Raise the rent by a small amount $50-100 this year and continue to raise the rent over the next few years.
Pros: current tenant will be able to stay for the near term.
Cons: missing out on significant (>$600) possible cash flow for the next few years.

2. Give the current tenant 60 days notice that I plan to raise the rent by $200 to $2000. Then raise it again next year by $200. Current lease is month to month.
Pros: Gives the good current tenant a possibility to stay.
Cons: missing out on $400 a month possible cash flow. Tenant may move out at a bad time if lease is still month to month.

3. End my tenants current lease in August, cleanup the place and look for new tenants starting September 1 to maximize potential rent. List at $2400.
Pro: max cash flow
Cons: have to end the lease of a good tenant. Possible bad new tenant.

Please let me know your thoughts.