Rent increase versus tenant retention for a small multifamily in Madrid

That sounds proportionate. When comparing options, record the reason for choosing the final amount: permitted review, realistic comparables, retention value and expected turnover cost. That will help keep the conversation grounded if the tenant asks how you arrived there.
 
Give the tenant space to respond rather than asking for an answer during the first conversation. They may identify a factual issue with the comparables or a maintenance concern you missed. Listening does not commit you to changing the proposal.
 
One more point from Lara’s deposit comment: do not mentally offset refurbishment against the deposit when evaluating turnover. Normal preparation and genuine tenant-caused damage are different matters, and any handling must follow the applicable rules and evidence.
 
Because this is a small multifamily, consider consistency across the building too. Units will differ, but unexplained differences in review approach can damage trust between neighbours. Keep notes on condition and relevant lease terms so any distinction has a property-based reason.
 
I would run the turnover calculation with more than one vacancy assumption. A quick reletting case may favour a larger increase, while a longer gap plus works may favour retention. If the conclusion changes dramatically with a small assumption, that is a reason to proceed cautiously.
 
The discussion seems to have moved away from “current rent versus market rent” toward “certain net income versus uncertain net income.” That is the better framing. Payment reliability, care of the home and low management friction belong in the calculation, even though they are harder to price.
 
Once the local position is confirmed, put the permitted proposal and effective timing in clear writing, while keeping the earlier conversation human. That combination avoids ambiguity without reducing a good tenant to a spreadsheet.
 
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