Should You Raise the Rent on a Great Tenant? The Math GTA Landlords Should Consider

Introduction

Here's a situation almost every long-term landlord eventually encounters.

You have a great tenant.

They pay on time.

They take care of the property.

They rarely complain.

They're easy to deal with.

There's only one problem:

They're paying below-market rent.

Maybe they're paying $2,700 while similar properties are now renting for $3,000.

The instinctive reaction is understandable:

"I'm leaving $300 a month on the table."

But are you?

This is where I think landlords need to stop thinking purely about rent and start thinking about return.

Because sometimes the tenant paying you less money is actually making you more money.

1. Start With the Actual Rent Difference

Let's use a simple example.

Your tenant currently pays:

$2,700/month

Comparable properties are renting for:

$3,000/month

The difference is $300 per month—or:

$3,600 per year.

At first glance, that's significant.

But $3,600 isn't necessarily what you're losing.

That's simply the difference between the two rents assuming everything else remains equal.

And everything else rarely remains equal when a tenant changes.

2. Now Calculate the Cost of Turnover

Suppose you push aggressively on rent and your tenant eventually decides to move.

Your property now needs to be prepared and leased again.

Potential costs can include:

• Vacancy
• Cleaning
• Painting
• Minor repairs
• Advertising
• Showings
• Leasing costs
• Your time
• Utilities during vacancy

And then there's the biggest unknown:

Who is the next tenant?

If a $3,000 property sits vacant for just one month, you've already lost $3,000.

Add even $1,000 in turnover and leasing-related costs and you're at $4,000.

Your additional $300 per month now takes more than a year just to recover those costs.

And that's assuming the new tenant is every bit as good as the one who left.

3. A Great Tenant Has Financial Value

Landlords sometimes underestimate this because there's no line on the income statement called:

"Value of excellent tenant: $____."

But perhaps there should be.

Consider the value of someone who:

• Pays rent reliably
• Treats the property well
• Reports legitimate maintenance issues
• Doesn't generate unnecessary conflict
• Communicates reasonably
• Doesn't require constant attention
• Wants to stay long-term

That tenant reduces risk.

And reduced risk has economic value.

I'd rather have a reliable tenant paying slightly below market than constantly chase the highest possible rent while accepting greater turnover and uncertainty.

4. But Don't Ignore Rent Forever

There's another side to this.

Keeping a great tenant doesn't mean rent should never increase.

If operating expenses are rising while rent remains unchanged year after year, the property's economics gradually deteriorate.

Property taxes increase.

Insurance increases.

Maintenance costs increase.

Condo fees may increase.

Contractor costs increase.

A landlord who never adjusts rent may eventually find the property significantly below market.

And depending on the property, Ontario's rent-control rules can make catching up difficult or impossible during the existing tenancy.

So there is a balance.

Protect the tenant relationship—but protect the economics of the investment too.

5. Understand Whether Your Property Is Rent Controlled

This is critical in Ontario.

Many residential rental units are subject to Ontario's annual rent increase guideline, while certain units first occupied for residential purposes after November 15, 2018 may be exempt from the guideline.

That distinction can dramatically change the landlord's options.

If the property is subject to the guideline, you generally can't simply increase the rent from $2,700 to $3,000 because that's today's market rent.

You need to follow Ontario's rules regarding allowable increases, proper notice and timing.

If the property is exempt from the guideline, landlords have more flexibility—but that doesn't automatically mean using all of it is the smartest investment decision.

What you're legally allowed to do and what makes financial sense aren't always the same thing.

6. Don't Confuse "Market Rent" With Guaranteed Rent

There's another trap.

A landlord sees three comparable listings advertised for $3,000 and concludes:

"My property is worth $3,000."

Maybe.

But listings show what landlords are asking.

They don't necessarily show what tenants are actually paying.

And in a more competitive rental market, that distinction becomes increasingly important.

If similar properties are sitting vacant at $3,000, replacing your $2,700 tenant in pursuit of "market rent" may be solving a problem you don't actually have.

7. Look at Total Annual Return

Here's the calculation I think landlords should make.

Instead of asking:

"How much more rent could I get?"

Ask:

"Which scenario is likely to produce the best net result over the next 12–24 months?"

Scenario A:

Keep the excellent tenant, apply a reasonable lawful increase where appropriate, experience no vacancy and incur minimal turnover costs.

Scenario B:

Push toward maximum rent, lose the tenant, prepare the property, market it, absorb potential vacancy and take on a new tenant.

Sometimes Scenario B wins.

Sometimes Scenario A wins by a surprisingly large margin.

Run the numbers before making the decision.

8. Factor in the Current Rental Market

The calculation also changes depending on market conditions.

When rental inventory is extremely tight and qualified tenants are competing aggressively for properties, replacing a tenant may be relatively easy.

When renters have more choices, turnover carries more risk.

Your property could sit longer.

You may need to offer an incentive.

You may ultimately accept less than the rent you originally expected.

That's why rent decisions shouldn't happen in isolation.

Your rental strategy should reflect the market you're actually operating in.

9. There's a Difference Between Below Market and WAY Below Market

This is where judgment matters.

A great tenant paying $2,900 when market rent is $3,000 is one situation.

A tenant paying $2,000 when the property would realistically rent for $3,000 is something entirely different.

The larger the gap becomes, the more significant the financial consequences for the owner.

There's no universal percentage at which the answer suddenly changes.

But landlords should know the gap.

Once a year, compare the current rent against realistic market rent—not because you necessarily intend to replace the tenant, but because an investor should understand how the asset is performing.

10. Think Like an Investor, Not Just a Landlord

This is ultimately the bigger lesson.

A landlord sees:

$2,700 rent vs. $3,000 rent.

An investor sees:

Income + vacancy risk + turnover cost + tenant quality + property condition + management effort + future rent potential.

That's a much better equation.

Real estate investing isn't about maximizing every individual number.

It's about optimizing the performance of the entire investment.

Sometimes that means raising rent.

Sometimes it means accepting slightly less rent to retain an exceptional tenant.

The important thing is that you're making the decision intentionally.

Final Thoughts

So should you raise the rent on a great tenant?

In many cases, I believe landlords should continue applying reasonable lawful rent increases rather than allowing rents to fall dramatically behind indefinitely.

But I wouldn't automatically chase every available dollar.

Before making the decision, ask:

How far below market is the tenant?

What would turnover realistically cost me?

How strong is the current rental market?

How valuable is this particular tenant?

What are my operating costs doing?

Is the property subject to Ontario's rent increase guideline?

And finally:

Am I trying to maximize the rent—or maximize the investment?

Those can be two very different things.

Need Help Making the Numbers Work?

At Owl's Nest Property Management, we work with small landlords and real estate investors throughout the GTA.

Our job isn't simply to collect the highest rent possible.

It's to help owners make better decisions around tenant retention, rent increases, leasing, maintenance and the long-term performance of their rental properties.

Because a good property manager shouldn't just manage the tenancy.

They should understand the investment.

Owl's Nest Property Management
Better Tenants. Less Stress. Higher Returns.