If & How would you increase rent? (Unique situation)

[Shane H.]

Hi fellow BP'ers!

I recently purchased a duplex to owner occupy and have been living there since December 2017. I inherited the tenants on the other side who also happen to be excellent neighbors. 

They are long term tenants of 8 years, and their rent hasn't been increased in the last 6 of those. I increased their rent from $900 to $1050 in April, but the market rent in this area is $1200-$1600 for a 4/2.

The odd thing is almost the entire neighborhood is a collective group that have lived there and rented from the same two landlords for almost as long. It's one of those situations where everyone knows everything about everyone else and i was definitely not aware of this dynamic when i decided to buy and move in.

Getting back to my tenants/neighbors dilemma. I consider myself very fortunate as they truly are amazing neighbors. They'll text if i left my garage open, they've brought our runaway dog back, signed for deliveries, they don't make a ruckus on weekends, etc...

That being said, I would like to get their rent up to $1200-$1300 come lease renewal but that would be another significant increase. On the one hand this is a business and not one of charity. But on the other, i run the risk of having a whole neighborhood that's out to get the new landlord on the block. I caught a lot of grief for increasing it the first time, with of course the comments from the tenants that maybe they should move out. I explained at that time that i understood if they needed to go that route, but I explained that I couldn't maintain the rent that far below market.

Fast forward to now and as more time goes on, they are growing on me as neighbors and so not only would i not want the wrath of the neighborhood if they are forced to move, i also would like to keep tenants that i know are great neighbors while i reside there.

So all that being said, if you were in my shoes would you take an income hit and not increase the rent or only increase it by $75 or so in favor of maintaining a quality life with good neighbors? or would you go for the solid increase of $150-$200 and let the chips fall where they may?

If the latter, how would you approach an increase like that to someone you know on more than just a professional level? And as a side note to this, i have tried everything I can to remain respectful, but not become "buddy-buddy" with them. While they're great and have invited me over numerous times for a beer and BBQ, I don't want to blur the lines of our Tenant/Landlord relationship. But of course that position can only be maintained so far when living next to someone.

Any advice is appreciated! Thanks in advance BP! =)