Should I keep a good tenant or raise the rent to market rent

[Sean O'Lone]

I have a townhome which I have had a tenant in for about 6 years.  She is a retired lady on a fixed income and when she got into the house the rent was $1400.  The rents in the area have climbed pretty rapidly over the last few years and market rent is about $1850.  I have been slowly raising the rent on the tenant over the last few years at $50 per year to keep a good tenant knowing I was behind market but didn't want to lose a good tenant by raising it too fast.  

The rent is currently $1550 and the lease is up at the end of July. I talked to my property manager who also agreed market rent is about $1850 based on MLS. They offered the tenant a renewal at $1650 (maybe I got too aggressive this year). This is the first time the tenant has complained about a rent increase and said she could not afford the rent increase because she is on a fixed income.

I am generally willing to accept somewhat below market rent on a house for a good tenant who has been in a house for a long time and shown a good record of being good to the property and paying on time.   My question is at what point is it worth losing a good tenant to get to market rent?

[Donald J. Kindwald]

I like to look at the cost of losing one month's rent with a tenant turnover vs. keeping a good tenant that is paying less rent.  An increase os $100/month is only $1,200/year. The loss of one month's rent which is bound to happen with any tenant turnover will cost you at least $1,550.   Keep the tenant.