Advice on raising rent for a tenant that is far below market rent

[Paul Guarino]

Background:

I have a tenant that moved into my condo in July 2017 (so just over 5 years) at $1,395/mo rent. She is currently on a month-to-month lease, and she is a great tenant.

On 3/1/2022 I raised her rent for the first time ever to $1,435, +$40/mo.

From various sources (including BP), market rent for the condo is $1,700 to $1,800, so she’s well below market.

I have no excuses as to why I didn’t raise the rent regularly over the years. Having recently started to research ramping up my real estate investments, joining BiggerPockets, etc., I now more fully realize the mistake I made. But let’s ignore the misstep for the time being.

My plan is to send her a letter in the next few days explaining that I will be raising her rent $200/mo to $1,635 on 12/1/2022. This gives her 3 months to find a new place if she can’t handle the rent increase. Side note: she left her old apartment because her previous landlord raised her rent $200/mo., so it’s fairly likely she will try to find a new place.

If she moves out, I would have to replace the carpet, paint and find a new tenant, of course. The reward; I should be able to charge $300/mo more.

My questions to the forum:

I would welcome any advice you can give me on how to word the letter.

I would also welcome any other thoughts on my predicament (other than chastising me for not raising rents 😊), or perhaps some insight on something I may have missed.

Has anyone been in this particular scenario before? I’d be particularly curious on how you handled it, and the result.

PS: The condo is in good condition, but builder grade, so this may be a good opportunity to rehab it, but that may be a topic for another post...

[Mo Maktari]

I just recently had to do this to one of my tenants. What you have to ask yourself, is the $200 worth losing a good tenant? Is the unit clean? Is the tenants a pain in the ***? Does the tenant pay on time? You may risk a terrible tenant for the extra cash in the long run. I would personally raise it $100 a month and MAKE SURE you tell them you will have to evaluate it every quarter to match market value.