It also has a cumulative effect on the perceived value of the complex. 

It may seem or be perceived as expensive, just like insurance until you need it!

The perceived value you added to their residence may go a long way in offsetting any negative perception from the rent increase, and as you as their new LL.

Unfortunately, I have found many times over that being nice can be perceived as weakness especially in the real estate investing game. 

most of my note investors came from the landlord game and tired of it.. .and many own rentals learn of notes and use their spare cash to start stacking up notes.. this gives them nice cash flow that comes in if rent is missed one month but no headaches of landlording.. although must pick notes carefully of course.. so that's an option if you have cash you can do short term lending for when you perceive it may be a buyers market again for rentals..but frankly many that I have had over the years and I have been doing notes since the middle 80s  they never look back.. when they get enough cash they buy another... also no recapture to worry about.. but no tax write-offs either. 

Most of those types Pension Funds, Insurance Companies are investing with REIT's.The institutional money typically only invest with the whales for what they tend to perceive as ultimate security and low risk.I talk to REIT's all the time looking for off market properties for my clients.

That perceived value can essentially serve as a type of second job if the San Jose market continues to appreciate like it is now. 

I perceive the future inability to refinance commercial debt as a greater risk in terms of loosing my buildings.Some people will probably just tell you to buy in your own name and transfer to the LLC; that they've never heard of a note being called. 

Why not make your assessment based on his work and/or reputation, not his perceived ability or disability?

When you do that, you will always be perceived as just like them.