For many landlords, the goal is to avoid spending money unless doing so will increase their return on investment (ROI). However, there are times when spending money to convince a tenant to leave is preferable to the time, costs, and hassle of eviction.
Cash for keys is an ideal option for landlords who would like to avoid the potential of dealing with a disgruntled tenant while getting the tenant to vacate the property as quickly as possible. It can also be an excellent option if you’d like responsible tenants (who couldn’t be evicted) to move so you can remodel the property, move into it, sell the property, or increase the rent substantially to reflect the current market rate. In a rent-controlled property, this is typically referred to as a “buyout agreement.”
Please note that this is not intended as legal advice, but for information purposes only. Cash for keys agreements are legal in all 50 states, however, laws may vary depending on your location.
Cash for Keys vs. Eviction
Cash for keys incentivizes tenants to move out by a certain date in exchange for a lump sum. Although it may seem counterintuitive to pay a tenant to leave, many real estate investors have found that it often costs less than the cost of an attorney, filing fees, and months of unpaid rent during the eviction process—especially when the eviction process can take anywhere from 5 weeks to three months on average. In addition, it allows you to avoid expensive problems from disgruntled tenants, like property damage.
There are several scenarios where choosing cash for keys may be the best option:
- Your tenant failed to pay rent as agreed upon in the lease.
- Lease violations or property damage.
- Financial reasons, like wanting to raise the rent of a rent-controlled property to the market rate.
- Your rental property has gone into foreclosure.
What Are the Benefits of Cash for Keys?
Between monetary costs, time, and aggravation, it’s easy to see why landlords dread eviction. Depending on how long the case runs, it can easily cancel out several months’ worth of rent payments on the property. And although it’s not mandatory to have an attorney, you will need one if the tenant doesn’t obey the court order.
Beyond that, it can take a long time for the tenant to leave—and every day they stay in the rental equals more lost income. When they leave, you’ll need to prepare the rental for the next tenant and advertise. If the tenant did significant damage to the unit, you’ll also need to worry about repair costs.
If you’ve determined that your tenant isn’t able to pay rent, cash for keys can motivate them to leave—especially if they’re already having financial trouble. Depending on how much you offer them, it may be enough to pay for their next security deposit and moving expenses. It’s not uncommon for tenants who are facing eviction to respond with property damage; this could cost more to repair than if you had bought the tenant out.
Cash for keys offers benefits for tenants, too. For example, even though they’re losing their home, they’re avoiding an eviction judgment on their record. If a tenant were to challenge the eviction judgment in court, they might be responsible for paying the landlord’s attorney and court fees—in addition to their own. The tenant would also receive a negative entry on their credit report, which could have long-term effects on their ability to find housing.
In short, cash for keys is often the most mutually beneficial option for getting a tenant to leave your property.
How to Notify the Tenant
If you choose to offer cash for keys, you’ll need to notify the tenant in writing that they are behind on rent and must pay in full or vacate the property. This should be sent via certified mail with a return receipt, so you have proof it was delivered.
After the tenant has received the notice, contact them to make your cash for keys offer. Make it clear that this is a positive resolution for them. Some details you’ll want to go over include:
- The move-out date
- The amount of money the tenant will receive
- Whether the tenant is required to clean the unit
- Which property should remain in the rental (such as appliances, furniture, or landscaping)
If the tenant agrees, both parties should sign a written contract. Make your payment by check to ensure there’s an official record of the transaction. If the tenant requests a cash payment, make sure the contract states the amount was paid in full and have both parties sign it.
If the renter doesn’t agree to the cash for keys offer, you can move forward with an eviction.
How to Avoid Cash for Keys and Eviction
Unfortunately, there are some circumstances where it’s necessary to have a tenant leave your property. Although evictions are stressful, expensive, and drawn-out, tenants who can’t pay rent will probably have trouble paying any amount the court orders them to pay. Cash for keys can be an ideal solution for everyone involved. To prevent issues that can lead to eviction or a tenant buyout, make sure to conduct comprehensive tenant screening with each applicant. Being vigilant before a tenant moves in is the best way to prevent problems in the future.
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