Appropriate rent increase to catch up to market rates?

[Tracy M.]

I purchased a duplex in 2015. At the time, both units were leased at $450, which was low even for the area at that time. I've raised the rent a couple of times so the long-term tenant who was there when I bought the place and the other tenant who moved in in 2016 now each pay $600.  Over the past few years, the area has become very hot and with real estate prices up, comparable rents in the area are now around $1100.  My tenants are great, we have a good relationship, it's not my intention to gouge them, and I'd like to keep them. Both leases are up for renewal early next year (no, that wasn't planned and isn't preferable) so I want to give them a heads up before the holidays that rent will be going up. My question is, what's appropriate to be fair to them but also start moving closer to comps? $700 would still be a great deal for the area, but that's a ~17% jump and feels like it might be too much. $650 and let them know it will go up $50 every year for a while? 

I've read that a 2-3% annual increase is common and would probably land there once I get closer to market rates, but I'm so far below those right now that I'd never close the gap with that. I'm sure many others have managed through similar situations, and would appreciate your experience and advice.  

Thanks! 

[Maurice D.]

Bring it to market value.  offer them the option to stay, but like @Taylor L.said, you shouldn't be subsidizing.

"Dear tenant, for the past couple of years we have been charging below market rent for your unit.  Unfortunately, due to increasing costs we need to increase the rent a substantial amount.  we appreciate your tenancy with us, and understand if you do not wish to renew, but we do hope you renew your lease with us.  The new rent will be 1,100."