Rent increase at the two year mark

[Linda Thomas]

BP,

I have a tenant that moved into a property Jan 2021. I did not raise the rent at the one year mark. The rent is $900.00 a month for a 3bed house. Rents have gone up drastically and after doing a market analysis they are going for about $1350.00. Would you recommend increasing it that much 60 days prior to the lease expiration - a $450.00 increase? or maybe somewhere in the middle at like $200.00? So far they have been a good tenant. Always paid the rent on time and taking care of the place. What would be the best approach and how would I go about justifying it? just put in the letter that it is due to increases in taxes and insurance costs and rent market rate? 

[Nathan Gesner]

Quote from @Linda Thomas:

Check your laws. Most states allow you to increase rent as much as you want, but some have limits.

I do not recommend compromising on the rate unless the Tenant is perfect (always pays on time, communicates well, and you've verified they care for the home with in-person inspections). Even then, I don't want Tenants more than 10% below market and 5% is what you should aim for. If the home is worth $1,350 then offer then a renewal at $1,300. If it's truly worth that, and they can afford it, they'll stay.

I personally don't increase rent that much on an existing tenant. I prefer to terminate their lease and start fresh with a tenant that I know can afford it. Existing tenants may struggle to afford or they may resent you increasing that much and cause problems later on.