Rent increase and lease change

[Malik R.]

We have a single family rental home in a mid-sized town in northern California. It is 1,212 sq ft 4 bed, 2 bath, 2 car garage home in decent shape. When we purchased the property 6 years ago, we let the existing tenant stay at $900/month. Two years ago, we increased the rent to $1,000. The renter always pays the rent but it is always 5-10 days late and he voluntarily pays a late fee of $25. It's a single earner family that has not given me any trouble so far.

Three years ago we had to replace the HVAC system and last year we replaced the roof and installed a new water heater. We're about to replace the bathtub/enclosure (est: $2,500-$3,500) in one bathroom because the bathtub have developed a crack. Property taxes are about $1,200 and insurance runs around $500.

The lease has been month-to-month since we bought the property. I verbally informed him in early December that rent will increase in February. 

I've done rental market estimates and they are:

Zillow: $1,550

Zilpy: $1,494-$2,160

Rentometer: $1,750 (median)

MyRentalRates: $1,550 (Looks like they use Zillow estimate)

I would like to write a new lease that can stay month-to-month but at a rental of $1,250 with $50 discount if paid on time and then increase it by another $100 every 6 months until it gets close to the market rate. Not sure about the process but here's what I'm thinking:

1- First speak to him in person and inform him of my intention to terminate the current lease and write up a new one and that I'll be sending him a letter through certified mail so it is not a shock to him. He doesn't speak English very well so his adult daughter will be our translator.

2- Send him a letter of termination of the current month-to-month lease with 60 day notice and offer of a new month-to-month lease at the new rate & terms, to be effective in 60 days (to coincide with end of his current lease).

Please share your thoughts whether I am going about it the right way and if I should do anything differently.

Thank you.