How to increase rent on long-term tenant in CA renting ~35% below

[Kezia Edmonson]

Long story short, had a very long term lease (5yrs) on single fam home with a small (8%) increase built in already (pre-defined in original contract) in years 5-7 year.  In 6 months we're at the end of year 7, tenant wants to renew lease again BUT we are now VERY below market rate...like 35% below just the avg... How do I increase the rent significantly while navigating a long term very good tenant? 

Also, I don't think the CA rent increase rules apply since this is a single family home (it was previously my primary but moved for military), it's our only one there, and we're in San Diego county. Tenant wants to stay, I want them to stay, but they are at least $12-1500 under market now at $3450, & avg $4700-4900 in 1mi radius.

1) Does anyone have links to actual law on rent increase for my situation

2) How would you navigate this increase?  THANK YOU!

[Dan H.]

Quote from @Kezia Edmonson:

Long story short, had a very long term lease (5yrs) on single fam home with a small (8%) increase built in already (pre-defined in original contract) in years 5-7 year.  In 6 months we're at the end of year 7, tenant wants to renew lease again BUT we are now VERY below market rate...like 35% below just the avg... How do I increase the rent significantly while navigating a long term very good tenant? 

Also, I don't think the CA rent increase rules apply since this is a single family home (it was previously my primary but moved for military), it's our only one there, and we're in San Diego county. Tenant wants to stay, I want them to stay, but they are at least $12-1500 under market now at $3450, & avg $4700-4900 in 1mi radius.

1) Does anyone have links to actual law on rent increase for my situation

2) How would you navigate this increase?  THANK YOU!

You are correct that your SFR is not rent controlled. You can search for AB1482 to see statewide rent control which applies to MF over 15 years old.

I would caution that a unit that has had a tenant in it 7 years is not a comp to the newly rented places.  You would likely need to paint, replace any carpets, possibly replace some fixtures to be a comp.  

Next is how good a tenant are they.  I try to never get a tenant more than 10% under market, yet somehow I have 2 that are more than that.  Both received around 10% rate increases the last couple/few years and still fell further below market.   One of the two is not rent controlled so I can raise is as much as I desire, but 10% seems to be the most that I desire (maybe I am too nice).  I keep thinking rents cannot continue to go up like they have been which will provide the chance to narrow the gap (so far that has not worked).   if they are a good tenant, a $400/month increase would be a large increase and likely result in them happily paying it.  if you went with an $800/month increase, they would still be far below market, but could they afford to stay in your unit?  If you did $1200/month increase the tenant likely will find a fresh unit, you will get the expense to refresh but post refresh you can get market rent with a new tenant (with the associated risks of a new tenant).  

I would likely go with the $400 increase.   I recognize that it results in rents below market but when I let rents go below market, I do not try to catch it up all at once.

Good luck