Tenant Moved 3-4 People In

[Katrina Cebrian]

10 months ago we rented a brand new construction 3-bed 2-bath home to a woman who claimed the sole occupants would be herself and her daughter. Since then, my husband and I have seen several other people regularly at the house as well as 4-6 cars regularly in the driveway and parked in the street in front of it. My husband and I are night owls and our properties are not far from our home, so we sometimes find ourselves driving out there around 2-3am and we invariably find at least 4 extra cars in the driveway and in front of the home. Also, we know that at least two people regularly receive mail at the property's address. 

It seems she has moved in a man her age, a younger man who might be her son (or the older man's son), her daughter's boyfriend, as well as her sister (who incidentally is sometimes the person who pays the rent, and who also several months ago was interested in renting another property of ours but then became disinterested-perhaps because she decided she would just stay with our tenant). 

About 2 months ago, the tenant asked us if she could have some extra interior wall paint, stating there were areas that "needed a bit of touching up". My husband and I are new landlords, and we probably shouldn't have let her do it, but we did. In our defense, painting houses is the tenant's profession - she is a small business owner/contractor who paints new construction homes for several well-established homebuilders.

We have not mentioned that we know other people are living in the house, although it is very obvious. 

She is not a 'bad' tenant- rent always gets paid on time (albeit at the last minute). We have not had any serious complaints - only two letters from the HOA: one regarding garbage receptacles that were placed in areas visible from the street (which was immediately remedied), and the other regarding the lawn needing to be mowed and trimmed (also promptly remedied). So, not terrible, right, but definitely notable.

To note: we have three other single family homes in this neighborhood and none of those tenants ever caused the HOA to send us a single letter. None of those tenants have moved 3-4 people into the home, either. Oh, and of the four rentals in this neighborhood her rent is the lowest of the four - $250 less than the others of the same quality and size. 

My question: Her lease is up in January. What should we do? 

1. - We want to raise the rent to get it closer to what we're getting for the other rentals. How should we do this and by how much? 
2. - Have her roommates fill out applications and get put on the lease? What if the reason some of these people aren't on the lease is because they are undocumented? What do we do in that case? 
3. - Should we not renew her lease? 

Are we being too lenient? 

Would love the opinions of more experienced landlords. Thank  you in advance!