The higher rent is visible and the cost of turnover is not. A calculation showing when an increase actually pays.
Raising rent at renewal looks like free income, and sometimes it is. When it prompts a good tenant to leave, the arithmetic changes substantially, and the costs that follow are the ones landlords consistently forget to count.
The situation
A landlord is considering raising the rent at renewal for a reliable tenant who has occupied the property for three years and maintained it well.
Assumptions (illustrative)
- Current annual rent: SAR 48,000.
- Proposed increase: 8 per cent, taking it to SAR 51,840.
- Assumed market rent for comparable units: SAR 50,000 to SAR 52,000.
- Assumed vacancy if the tenant leaves: 6 weeks.
- Assumed letting cost including agency and marketing: SAR 4,000.
- Assumed preparation between tenancies: SAR 6,000.
- Assumed minor maintenance during the current tenancy: minimal, given the tenant's care.
Step 1: Gain if the tenant accepts
SAR 51,840 less SAR 48,000 equals SAR 3,840 additional income in the year.
This is the upside, and it recurs in later years, which is the strongest argument for raising rent to market level.
Step 2: Cost if the tenant leaves
Six weeks vacancy at the new rent equals approximately SAR 5,980, plus SAR 4,000 letting cost and SAR 6,000 preparation, totalling about SAR 15,980.
Turnover costs roughly four times the annual gain from the increase, which is the figure that should govern the decision.
Step 3: Break-even period
SAR 15,980 divided by SAR 3,840 equals about 4.2 years.
If the tenant leaves, the increase takes more than four years to recover the cost of replacing them, assuming the next tenant stays that long.
Step 4: A moderate increase
A 4 per cent increase to SAR 49,920 produces SAR 1,920, with a much higher probability of acceptance.
A smaller increase that the tenant accepts frequently outperforms a larger one that triggers turnover.
Step 5: The value of a good tenant
A tenant who maintains the property and pays on time reduces maintenance and arrears costs that are real but rarely quantified.
Tenant quality is an asset. Replacing a good tenant with an unknown one carries risk that no rent increase compensates for.
What changes the answer
- In a strong rental market with short vacancy, the calculation shifts toward raising rent.
- If the current rent is far below market, a larger correction may be justified even with turnover risk.
- A tenant with a history of late payment or damage changes the analysis entirely.
- Preparation costs vary considerably with how the property has been kept.
What the numbers tell you
- Count turnover cost, not just the increase, before deciding.
- Keep rent close to market continuously rather than correcting in large steps.
- Value a reliable tenant explicitly, since their care reduces costs you would otherwise pay.
- Discuss increases early rather than presenting them at renewal, which gives both sides time to decide.
Limits of this example
Every figure above is an illustrative assumption used to show the method, not a quote, valuation or market rate. Costs, rates, fees and regulations change and must be confirmed with the relevant authority, lender or supplier before you commit.
If you are buying, selling or investing, Domira can verify the documents, assess the property and build the numbers with you before you commit to a transaction.
Frequently Asked Questions
How do I know what market rent is?
Look at comparable units currently letting in the same area, with attention to how long they have been advertised. Units that let quickly indicate the market level; units advertised for months indicate an asking price the market is declining.
Should rent increase every year?
Small regular adjustments in line with the market tend to work better than infrequent large ones, because they avoid the situation where a correction becomes so large that turnover is inevitable. Predictability also helps tenants plan, which supports retention.
What if the tenant asks for improvements instead of accepting an increase?
This can be a good outcome, particularly if the improvement is something the property needs anyway, such as replacing ageing equipment. You retain the tenant, improve the asset and defer the increase to a later renewal, which often costs less than turnover.
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