How to raise rent by $300

[Mindi B.]

Been renting my house for the past 6 years to the same tenant. Rent is $800 and unfortunately I never raised it to keep up with market value which should be about $1100. I figured he was a good tenant, didn't give me any problems and it covers my mortgage + expenses so I'm not losing anything. (I became a landlord only because I couldn't sell it and was waiting for equity to increase. Not in it for the monthly income.) I was waiting for him to move out and then raise rent with the new tenant but he seems to be staying put. (No wonder since rent is so cheap.) But now I no longer want to be a landlord, don't want the hassle of finding repairmen, etc and looking to hire a PM. However at $800 rent I would be losing money and need to raise rent up to $1100 to cover the expense of the PM, but how do I break this to my tenant? He's not going to like it since it is such a big rent increase. Lease is month-to-month so I could just kick him out and start over with a new tenant. What would you do? (I'm not a people person and like to avoid confrontation at all costs.)

[Bill B.]

What Aaron said:  8% is pretty common and the hard part for the PM is finding a tenant and not getting paid while looking. Find that PM and then ask them what fair market rent is. In my opinion I would only go 1/2 way there in one jump, with a $100 maximum. After all, if they move out and you have an empty month there goes 6 months of the increase. If you have to spend $1200+ on a 6 year turnover there goes another 12 months do the increase. So if the new tenant stays 18 months in your in exactly the same position as not raising it too much. 

I just raised the rent $250 and $300 on two different tenants (6 years and 7 years) but their rent was $2100 and $2700 before the increase. I simply explained that I really appreciated their long term, low maintenance tenancy but property tax and insurance increases had required the increase. They both stayed. 

I’m a big believer in turnover and vacancy being bigger negatives than slightly more rent is a positive. Just divide out a turnover every couple years and a month of vacancy and you’ll see how much more rent and work you have to do to make the same for 1-2 year tenants compared to long term tennants. 

GL