Cash for keys is a controversial process that is often debated in landlord circles, but something that is loved and often used. Cash for keys is the strategy of giving tenants money to vacate the rental property, avoiding the eviction process altogether. However, before a homeowner throws money at a tenant, there are some points a homeowner should consider.
Cash for keys is a simple transaction that avoids the legal system and does not explicitly force a tenant to leave. Instead, the tenant agrees to leave voluntarily in exchange for money. The landlord hands them the money; they hand over the keys, sign a waiver, take their belongings and set off.
The theory behind cash for keys is simple: Giving the tenant money to leave is cheaper than going through the eviction process. In short, eviction requires the homeowner to sue the tenant, go to court, and (hopefully) regain possession of his property through a judgment.
Think about it: Evicting a tenant will likely take a month or more, depending on the state. It can cost several thousand dollars in legal fees to do this, on top of lost rent for at least a month, maybe two, or more. Then the landlord has to deal with cleaning up a tenant who has just been evicted, which is never pretty. All in all, a normal eviction can cost about $5,000 or more. But what if the landlord could just offer the tenant $500 to leave the rental property in good condition? Exactly. That’s cash for keys.
Being a landlord can be fun – if you do it right
No matter how good you are at finding good leases, you can lose everything if you don’t manage your properties properly. Being a landlord doesn’t have to mean midnight calls, expensive evictions, or daily frustrations with ungrateful tenants.
7 principles to follow when using cash for keys
Of course, $500 is just an example. Maybe the landlord wants to give more. Maybe less. It depends on the unit, the renter and the motivation – and some negotiation may be required for a successful cash deal for keys. However, usually $500 is enough to encourage a delinquent tenant to leave, especially if they are evicted. For those who want to try cash for keys, the following seven principles should be followed.
1. Explain to the tenant in detail what to do
Tell them that the appliance must be in a ready-to-move condition when they leave so that they can clean it and make any necessary repairs. This saves cleaning costs and reduces the chance that the tenant will suffer damage when leaving the house.
2. Give the tenant a specific date they need to move
Usually, a landlord does not give more than four days to move. The point of cash for keys is to get them out of the property quickly.
3. Give a payment or eviction notice anyway
This is usually the first step in the eviction process. In case the tenant does not leave, the landlord has not lost much time.
4. Meet the tenant
Next, the landlord must meet the tenant at the property and verify that the unit is indeed “broom clean”. To be safe, the landlord must have someone accompanying them.
5. Inspect the property
Make sure that the tenant keeps to his agreements. The house must be cleaned and in good condition. If not, the property owner must show the tenant what needs to be done and set a time for him to come back. Never give the tenant money until he is 100% outside and has handed over the key.
6. Sign the paperwork
Have the tenant sign a simple document waiving their rental agreement at the property. This is protection in case they later say the landlord changed the locks on them or they didn’t actually move. The tenant must sign and date the document.
7. Hand over the money
If the tenant has held up their share of the deal, the landlord can hand over the money and thank you for a positive transition. Then the locks must be replaced immediately. If there is a security deposit, a landlord can deduct rent arrears, but must still provide an itemized list of deductions. Be sure to check state law on how to handle the security deposit.
The benefits of cash for keys
Obviously, the biggest reason to get non-paying residents out of your property with as little hassle as possible is to provide cash for keys. But here are some other benefits of executing this agreement.
Obviously, avoiding the eviction process saves time and money. And because the tenant has to clean up and redecorate the rental property before receiving the money, it also speeds up the moving process.
Landlords must calculate the actual costs of a non-paying tenant — eviction and legal fees, mortgage payments, taxes, insurance and utilities — which can easily add up to thousands of dollars. And those costs do not even include the turnover costs if the tenant moves permanently. Yes, you may have to pay attorney fees to draft a simple agreement. But that’s minimal compared to the amount of money you pay for eviction.
This is an investment in cash flow over the next 12 months. Landlords must calculate the return on a $1,000 or $2,000 cash reward to the tenant versus the actual cost over the time it takes to get the property back. A non-paying tenant today can be in the rental property for months and months if a landlord has to wait for the court to resolve the issue.
Control the outcome
The main selling point of cash for keys is that the landlord can control the outcome. They know when the tenant will leave, can somewhat control the condition in which the tenant returns the property, and can determine the timeline. A non-paying tenant can leave every day with everything they want in the house and without worrying about the condition of the property.
It can also benefit the tenant
In many cases, the money given to the tenant can give them a fresh start. For unlucky tenants, these funds can help them start over so they avoid having their names dragged through the mud in a long, drawn-out lawsuit. Also, the tenant does not get eviction on his or her record and they have a flawless tenant record. Here, landlords can still have empathy and create a win-win situation for both parties.
Obstacles to Eviction
Let’s explore the traditional eviction path so you can better weigh your options and decide if a key deal is right for you. Know that there are obstacles no matter what part of the country the rental property is in. Here are some common hurdles:
- Delivery Notice: Landlords are required to personally deliver the five-day notice (in some states, this may be three-day notice). A process server can do this for $75-$100. The process server will trace the tenant’s whereabouts to personally deliver the notice to them when needed.
- Submission Fee: The US average for filing evictions in court is about $50. This is not so much a hurdle as it is one of the real costs of doing business.
- Serving the suit: Once filed, the tenant must be served with the lawsuit. This process can take up to two additional weeks.
- Trial Extensions: Even if the tenant has been properly served and appears in court, the tenant can request a reprieve or request a jury trial. If they don’t show up to court, the tenant has seven days to file an extension request, which will bring the case back to court in two to three weeks. The options available to the renter can add weeks, if not months, to the process.
- Owner owns: If the process does go smoothly and the judge awards the property to the landlord, more time will be added. Once the process has cleared all the hurdles so far, the judge will see that the tenant is not following the lease and grant the landlord the property at some point in the next 14-30 days.
- Remove tenant: The chance that the tenant will leave alone is small. This forces the landlord to file more paperwork, pay additional fees, and wait for local law enforcement to come to the rental property. This can take a few days to months for the police to come and evict the tenant.
Is cash for keys the right choice?
Yes, cash for keys feels so ‘un-American’, like the bad guy gets away with the crime. Some landlords even refuse to consider this idea because it feels so wrong. But remember, cash for keys isn’t personal – it’s business!
That said, cash for keys doesn’t always work. Some renters will refuse it. Some renters will ignore it. Sometimes the homeowner doesn’t want to try. In that case, the only option is the eviction procedure.