Proposal to increase rent in Denver

[Devan W.]

My SFR in south Denver currently rents for $2,300/month. My tenant (single professional) has occupied the home for a full 2 years now. She has been a A+ tenant. Always pays rent 2 weeks early and extremely low maintenance. When her original 12-month lease expired, she wanted the option of a month-to-month lease because she has plans to eventually move back to her home state. I agreed and she has been on a M2M lease for the past 13 months.

I continue to notice very similar SFRs in my community pop up on Zillow for rent well above $2,300. For example, my next door neighbor just posted their house today for $2,700. Obviously, my goal is to keep up with market rents without upsetting a very good tenant. What's the best way to handle this?

My gut tells me to send her a letter next month explaining the situation and propose a $200/month rent increase effective Jan 1st, 2019. I feel like this is more than fair and gives her plenty of time to prepare. Is this a good idea? Why or why not??