$300-$400 below market rent: to raise or not?

[Jack B.]

Had the same tenant two years now at $1,350 a month. Current market rent is $1,750, so I'm leaving about 5K profit on the table each year...They are for the most part taking care of the place, a few stains on the carpet but looks like carpet cleaning will get it out. Other than that, they don't bother me and seem to keep the place up.

That said, on paper the house is a loss. It shows up on my DTI ratio because at 70% of the rent being counted when I buy new houses, it shows up as something that isn't generating profit and thus hurts my DTI ratio.

On top of that, all but $100 a month goes to budgeting for expenses. Luckily it's not really a really time consuming tenant, and the house is in pretty good condition so minimal needs. I do need to put a new roof on it soon but with such low rent, it's a hard pill to swallow.

I may move back into the house in a year or two. It would be nice to use the extra rent money to fix up the roof, paint, etc. At the end of the day, I'm leaving roughly 20K on the table over four years by renting so low. As much as I like having a stable tenant, for 5K a year extra profit, it seems worth it to me to start raising the rent by $50 each year on this tenant. They won't be able to even get an apartment at what I'm charging.

If the tenant moves out, well, it's an easy property to turn, doesn't need a ton of TLC, just some cleaning and back to being rented. Even if it sits empty for 2 months once I get it rented I'm still 3K ahead first year, 8K ahead (total) second year, etc.

[Lauren H.]

If they moved out what would it rent for? I like to research fair market value in my area, then increase rent close enough to fair market value to get my value, but not so much that the tenant is likely to move. For example, the range of similar properties in my area is $750-$1050. The vast majority of units in similar buildings with similar layouts are renting right at $825 per month. I raised rent to $800 per month from $650. You have to remember that this is business. If the tenant decides to move out when you raise rent, you will just price the unit to get someone in there quickly. A large increase in rent can be tough for a tenant, but you have to think about it like this: if the rent was already market rate and the tenant said they couldn't afford it, would you let them stay at a lower rate? If not, then why wouldn't you raise rent?