Risk tenants moving out or take a lower rent?

[Salil J.]

Hi BP folks,

Looking for some advice here. I acquired a duplex (one 2Bd/1ba, one 3Bd/1ba) in the Holly Hill / Hilltop area near West Frankin Elementary school in April 2021. It came with good long-term tenants who have been paying on time and have not caused any issues.

For reasons I myself do not know, the topic of increasing their rents never came up between my property manager and me. The 2Bd/1ba tenant is paying $625 (+water bill) and the 3Bd/1ba tenant is paying $700 (+water bill). The market rent is $900 & $1100 respectively.

I have the choice of:

1) Being conservative in bumping up the rent (PM recommended $675 & $750). This comes with a comparatively lesser likelihood of tenants moving out and gives me $1425 * 12 = $17100 annually.

Or

2) Pushing an aggressive rent increase ($800+ & $1000+) and risk tenants moving out. Replacing tenants would mean ~$7000 costs (1 month of lease fees ~$2000 and turn costs ~2500 per unit), but assuming I am able to find tenants at market rate then I'll get 2000 * 12 = $24000 annually.

I'm inclined to go with #2. I figure 1) it'll take approximately a year to recover the $7000 turn costs 2) with option #1, it's going to take me years to get the rents up to market rate.

Is the rental market in that area conducive for this aggressive approach, or would you recommend caution? Am I missing something in the equation here?