Should we Raise the rent?

[Amber Matas]

Hey there! Looking for some thoughts on raising the rent. Here is my particular scenario: We have a property in Orange County, Ca. It’s in an extremely desirable, historic area, in an A+ school district. Homes rent in a few days at most in this neighborhood. The house is a 3 br/1 ba Craftsman, with a pool, pool house, and outdoor bath for the pool. The family that rents has been there two years and pays on time, takes excellent care of the house, and are all around good people. They have said they will stay as long as we let them. Right now, the rent covers all the expenses, maintenance, etc, plus we have a nominal cash flow of $75. Two years ago, the rent was just right for the market, but it was on the high end for the tenants. It was our primary residence and we moved due to job relo so we were more concerned about maintaining a place to live in OC if the move didn’t work. We don’t want to sell, and all the other properties we own are longer term, buy and hold situations. Now the home is under market, by $350 at least. I would never raise it that much unless it went vacant, but we were considering nominally raising the rent this third year, maybe $25 or $50. I know the tenants love the house and they want to stay long term (their last rental they were in for 7 years) but I also don’t want to lose great tenants over a few bucks. Thoughts? How do you determine raising the rent?