Purchasing a property with rented units

Rio Rancho, NM · Member since 2021 · 5 posts · 1 vote

Hello BP community,

my business partner and I are putting an offer on our first rental property! It is a single family home with an ADU in the back. The back property already has existing renters that are renting well below market value. However, We would like to keep them as tenants while we renovate the front house. They are on a month to month lease and they have been there for 15 years. We want to let them know that we are going to slowly increase rent and give them the option to stay.

Our question is..

since the house is under new management. Should we renew their lease and have them put down a new security deposit? We are unsure of the process considering this our first rental and we have never had previous tenants befor.

thanks again

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Richard F.
Honolulu, HI · Member since 2008 · 3k+ posts · 2k+ votes
5mo
This was covered about a month ago. Read my posts that give you specifics here:
https://www.biggerpockets.com/forums/432/topics/1282814-inhe...
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Drew SygitBusiness Member
Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
5mo
Quote from @Estevon Chavez:

Hello BP community,
my business partner and I are putting an offer on our first rental property! It is a single family home with an ADU in the back. The back property already has existing renters that are renting well below market value. However, We would like to keep them as tenants while we renovate the front house. They are on a month to month lease and they have been there for 15 years. We want to let them know that we are going to slowly increase rent and give them the option to stay.
Our question is..
since the house is under new management. Should we renew their lease and have them put down a new security deposit? We are unsure of the process considering this our first rental and we have never had previous tenants befor.
thanks again

How do you justify charging a NEW security deposit, when the seller should be required to transfer the existing deposit to you at closing?
- Or did you forget to require that in your purchase offer?
LEASE RENEWAL: you should probably get them to sign YOUR lease instead of just accepting the existing one.
- How do you know existing lease is legal?
RAISING RENTS: we've found that when rents are significantly under the market, you can only increase the rent by 10-15% NOW and then 5% annually. Higher increases are likely to cause tenants to move - even if your rent is still under market!
[email protected]248-209-6824
Logical Property Management4.9451 Reviews
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Jim Johnson
Real Estate Agent · Memphis · Member since 2026 · 541 posts · 315 votes
4mo
Good question — and a pretty common situation on first acquisitions with legacy tenants.

On the security deposit, that typically transfers with the sale. The seller should credit you for the deposit at closing, and you inherit responsibility for holding it — so you wouldn’t collect a new one unless there’s a specific reason to restructure the lease.

Since they’re month-to-month, you do have flexibility. Most owners will either:
• Keep it month-to-month and implement gradual rent increases with proper notice, or
• Transition them to a new lease once terms (rent, responsibilities, etc.) are aligned

With a long-term tenant like that (15 years), the bigger factor is how you handle the transition. A measured rent adjustment paired with clear communication usually goes a long way — especially if you’re planning to keep them during renovations.

One thing to double check is local notice requirements and any limits on increases, since that can vary quite a bit depending on location.
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