Raise Rent to Market or keep good Tenant?

[Nathan Langdon]

I just closed on a duplex in April using FHA financing to do a house hack. The market rent for each of the units (both 3 bedroom + 2 full bath) is approximately $900 each. I have inherited the tenant living on the other side, and on a month to month lease. She is a great tenant with only one college aged daughter and no pets. This tenant has been in the unit for 10 years and never had any problems. She also keeps the unit very clean, so I really want to keep her.

However, her rent is much lower than the market rate. She started out at $725, and only two years ago got raised to $775. So I’m looking at hitting her with a $125 increase if I want to get the market rate for the unit.

My question is this: should I raise her to $900 and risk loosing a long term steady tenant or should I discount it by only raising to $850 and more likely keep her.

I’m brand new at this so any advice is welcome. I will be putting together a new 12 month lease for her to sign this month, so any thoughts about that are also welcome. Thanks in advance!

[Kenneth Garrett]

@Nathan Langdon

Raise the rent moderately.  If you raise the rent to $825 that's approximately a 6% increase.  She has been there for 10 years the cost of the vacant unit will probably be at least $4,000.  New paint, flooring, carpeting, etc.  If you raise the rent to $900 she moves out, the unit takes 30 days to rehab and fill.  That cost is $4900.  One month vacancy plus rehab.  The increase of $50 increases your annual revenue by $600 annually.  Raise rent moderately.

Good Luck.