Gilroy SFR Rental: To raise the rent or to not raise the rent...

[Kevin D.]

Seeking South SF Bay Area landlord advise.  My fiancé and I own a rental property in Gilroy, a small city about 45 minutes south of San Jose (Silicon Valley).  For just over one year we have been renting the property to two brothers in their late twenties which are the breadwinners and their mother who works intermittently cleaning homes.  They have been wonderful tenants proving to be very responsible, always pay on time, take great care of the property, friendly, and easy to coordinate when we need to perform maintenance.  We'd initially gone into a 1-year lease with them which is now month to month.  

As happens with good tenants, one of the brothers are moving out to live with his girlfriend, leaving the other brother and their mother to stay in the home.  The brother works and can cover nearly 3x the rent as we require plus the mother works intermittently cleaning homes which we think gets them close to if not at the 3x threshold.  The remaining brother has asked if we could lower the rent to adjust for their new situation.  He has not suggested an amount but we are inclined to accommodate roughly a $100 a month or so rent drop since this is certainly better than a vacancy.  However, we would like to take some steps to ensure we are moving forward in a manner in which our interests will be protected while not asking too much of the tenants with undue paperwork, credit checks, etc.  Here are some of the details: 

1. They are now month to month, should we renew the lease at a longer term or keep as is?
2. The mother moved in after the two brothers moved in so she did not go through any of the application process; however, they'd disclosed she was likely to be moving in so we noted her in the lease.  Should we insist she complete a formal application now that one of the breadwinners is leaving?
3. Our rent is set about right.  Much of the other units on the market are in the better school district in town, are slightly larger, and are single family detached where ours is a single family attached on a smallish lot with one shared wall.  However, those nicer units are consistently $200-$400 per month higher so we feel ours is at a nice price point for those not seeking the premium school districts at a discount.  

Our goal is to balance our protection against problematic scenarios that might arise (late rent, diminished care, eviction) against levying undue or excessive documentation and due diligence (credit checks, applications, etc.)  We want to protect ourselves but not scare them away.  We are not large volume landlords, this is our only unit at the time. We do value these tenants so it's not just about the numbers for us.  We want to provide a nice home, at a nice price, to good people that will in turn take care of our investment.  

Please share strategies, advise, or opinions on this matter.  

Thanks!

Kevin