I’ve had the same tenant in my single family home for 12 years and have never raised rent. They are great tenants that pay on time, never really complain, and generally take good care of the property. Since their fist signing they rent for $1595 but now market rent puts the house around $2100 (possibly more).
What are the thoughts on increasing rent? The lease renews this August.
Another data point is, I’m breaking even each month as is but building equity.
Why don’t you just write them a check for $72,000? That’s how much rent you missed out on. You’re going to wake up one day with a 5 or 10% rent increase cap and they will never move while you continue to lose $6,000/year.
Do you really believe there are no other “good tenants” out there that would like a nice place to live at a fair rent? Raise the rent $400/mo and you’re still losing money. But either you get to keep your good tenants or you find out they weren’t really good tenants when they move out, just people who appreciate a 25% discount on rent.
Ps. This is another case where a property manager would have done all the work AND given you $50,000 more rent in your pocket. You paid $50,000+ to be the property manager.
Have you inspected the interior recently? What is the condition, and how do the finishes compare to units currently on market for the much higher rates in your locale? What will the cost be to make it competitive IF the tenants decide to move out?
Inspection and market evaluation / renewal adjustment should be an annual task (at least, before covid, and now that we are pretty much over it). Sometimes an increase is justifiable based on market conditions, sometimes it is not. What if your bank sends you a change of terms for 25% payment increase, how would you feel about it? How likely is a renter to be able to financially handle it, even IF they love the place?
You should consider all sides before making a decision, and you really need to change your strategy going forward. You probably will need to simply "non-renew" as allowed by local law; freshen the place up and/or make some upgrades; tighten up your screening process and place a new tenant at market rate, following through with a renewal process annually.