Very interesting thread. I would tend to agree with the general reaction that it is better to keep the current tenant at a slightly lower rent. My recent experience is that you always lose 2 weeks' rent on a changeover. 1 week for the new leasing fee and up to a week between tenants. 10 years ago I was regularly getting 1-2 days empty, but these days It seems more prudent to have a bond cleaner and a handyman through the place at least between tenants simply for reasons of having the place as pristine as possible on move-in so that you have a better chance of getting bond money for things that are borderline wear and tear at the end of the tenancy. 2 weeks' rent is 4% of the year approximately so I am quite happy to slip behind the market by up to 5%. AS LONG AS IT STAYS AT 5%.
If you have a place that has slipped to 10% below market and you can't get back to 5% for whatever reason, it may well be worthwhile to start again with a clean slate. Also, one thing that Xenia did not mention that is very important is that, if you decide to sell the place then the most recent rent you were getting will be a very key factor in what price people will decide that they want to pay.
I'm not so keen on the idea of testing the market for above-market rent. At above-market rent you tend to get below-market tenants. I'll keep my long-term good tenants in preference.
I've got more than a few properties & my experience is that a tenant that is happy living where they are won't move. Based on this, I push my rents up to market all the time, and sometimes a cheeky $5 above. I've never once had a tenant leave due to the rent being unreasonably high.
When you sit there and analyse all the reasons why you are happy to leave a tenant paying up to 5% below market, just step back for a minute and look at it from the tenants point of view.
When a tenant decides to move house, they have costs and a huge inconvenience. First they need Bond money, then they've got to pack everything up, call on or their friends, or pay a mover, then unpack it all again at the new place. They need to change their address for all their mail, etc.
They also have to find a property they like, in an area they are happy to live in. They will have to pay whatever the market rates are at the time.
This is all time & money!
To me, leaving a tenant paying below market rates is just a guise from a lazy PM who doesn't want to do the work. I'm not a charity & this is my retirement income we're playing with, so like it or not, my tenants will (and do) pay market rates.