Would you raise good tenants straight to market, or phase?

Question

Hi everyone,

Quick follow-up to my last post.

Our other unit is rented at $1,980, and current market is closer to $2,400 as-is. The tenants are good long-term tenants, so I’m trying to think through the right move.

Since this is an freshly acquired owner-occupied duplex, it looks like we may be exempt from Washington’s 10% annual rent increase limit. That gives us flexibility, but I’m more interested in what experienced landlords think is the smart move, not just the legal one.

If you were in this spot, would you leave it alone for stability, raise it gradually, or move it to market once the lease allows? (12 months)

Trying to balance fairness, keeping a good tenant, and making sure this property actually helps us get to the next one.

Thanks in advance.

Victor Huang · Answer

Run the math on both scenarios before you decide. The gap is $420 a month, so about $5,000 a year. Sounds like a lot until you price out what happens if they leave.

On my duplexes I've tracked turnover cost at around $3,000-4,000 per unit when you add up make-ready, contractor time, vacancy during the turn, and any marketing or leasing costs. In a market like Seattle that number is probably higher. And that's before you account for the risk of a worse tenant next time around.

I'd bump it to $2,150-2,200 at renewal and see how they respond. That's a meaningful increase and they'll still feel like they're getting a deal relative to market. Then bring it closer to $2,400 on the next cycle. Two moves over two years gets you there without gambling a proven tenant. The math usually favors keeping someone who pays on time and doesn't trash the place over chasing the last $200 a month.

Kenneth Garrett · Answer

@Jason Khoury

When rents are under market by approximately $500 there is a few things to consider.

1. Can they afford to pay that big increase?  Do you prequalify them again?

2. Vacancy is a killer.  The cost of updates, repairs and vacancy can be the difference in negative.

3. Philosophically, I try to stay a bit under market.  I want my tenants to stay forever especially if they are good paying tenants with no other issues.

4. I would raise rents incrementally.  $150 at a time.  Might take 2-3 years to get there, but keep my tenant.

5. You want to keep your tenant and I would work with them.

Ryan Thomson · Answer

Phase it, almost always.

Here's why the math actually works in your favor: if your tenant is $150 below market and you jump them straight there, there's a real chance they leave. A vacancy costs you 1-2 months of rent sitting empty, plus turnover repairs, plus a leasing fee if you use an agent. At $2,000/month that's $4,000-6,000 in dead money just to get back to where you started, but now with an unknown tenant.

If you phase them up $75-100 now and close the gap over 12-18 months, you keep someone who pays on time, doesn't trash the place, and you already know. That has value you can't fully quantify.

The one exception: if you're more than 20% under market and you suspect they'll leave regardless, pull the bandaid. But a good tenant who's $100-200 under? Phase it.

I've done this with my own Colorado properties. The tenants I phased over two years are still there. The one I jumped straight to market in 2022 left after 60 days and I ate a $3,400 vacancy plus $800 in cleaning and paint.

Good tenants are an asset. The question isn't "how do I get to market fastest" but "what's the total cost of each path."

What's the actual dollar gap you're looking at? That changes the math.

Minho Lee · Answer

Hey Jason,

Good tenants are definitely valuable and can be hard to replace, but at the same time, the property still has to perform—it is a business at the end of the day.

If I were in your position, I’d look at a few comparable units nearby and understand what similar rentals are actually getting today. That way you’re not guessing—you’re anchoring the conversation in real data.

From there, I’d probably have an open conversation with the tenant. Let them know rents have increased across the market, but that you value them and want to be fair.

One approach I like is giving them some involvement in the process—asking what they feel is a reasonable adjustment based on the market. You might be surprised they come back with something reasonable.

If there’s still a gap, you can always bridge it gradually over a few months or over the next lease term to avoid a big jump all at once.

To me, it’s about balancing three things:keeping a good tenant, staying close to market, and making sure the property continues to move you forward financially.

Would love to hear an update on this!

Jason Khoury · Answer

@Minho Lee I like this approach, thank you!

Michael K Gallagher · Answer

@Jason Khoury if they are truly a solid tenant then they are worth their weight in gold to keep, especially in the PNW from what I understand.  If they are coming up on the end of a lease, and you are looking to renew I usually do the following -

Offer a MTM lease if they want the flexibility, at the market rate or even a bit higher.

Offer slightly under for a 1 year lease, and maybe a slightly lesser rate for a 2 year lease, perhaps just a little more than they are paying now.

Bring rental comps for the discussion, have it in person face to face, and show that if they were to leave what they'd have to spend, and show them the value you are offering them.

But in general I'm a fan of doing what you can to keep a solid tenant especially if they've been there a while, they may have history on the property that becomes valuable in the future as things come up.

Garrett Crosby · Answer

Phase it, and the math backs that up clearly here. At $420/month below market, you're leaving roughly $5,000/year on the table. But if they leave, you're probably looking at 30+ days vacancy in Seattle, plus turnover costs, plus screening and placement. That's $6,000-8,000 minimum in dead costs before you even get a new tenant in — and now you have an unknown person in the unit instead of someone you know pays and takes care of the place.

Minho Lee · Answer

Happy to provide something valuable for you. Good luck!

Jason Khoury · Answer

@Michael K Gallagher Thank you for this input!

Would you raise good tenants straight to market, or phase?

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