Increasing Rent after 2 year contract

[Marimar Hernandez]

Hello,

We have tenants in our home in Morgan Hill CA since May 2012. They signed a 2 year lease. The rent we wanted was 2,800 but discounted it to 2,600 per month for a 1 year prepayment for the first year and then 2,600 per month on a monthly basis for year 2.

We are getting ready to renew the contract and I am trying to determine how much I can increase rent. Our taxes are going up and so is insurance.

They pay for ALL utilities a gardener, and even their alarm system. They are extremely good tenants. They always pay on time, take care of the house and always keep in touch.

Any suggestions?

Thanks!

[Mehran K.]

IMO, the only way rent increases make sense are if they are still within market rent range (preferably just below).

In the tenants eyes, who cares if your expenses are going up? It's a matter of cost/value compared with everything available in the local market. If my expenses go up an extra $400/mo, raising rent to a level above market rent just to cover that would likely result in a tenant turnover.

There is a chance that if all those costs are going up, you'll see other landlords increasing there prices as well. I just want to harp on the fact that the decision should be made based upon the current market rate.