What is Cash for Keys?
Exception: Rent Stabilized or Rent Controlled Units
The number 1 mistake and hangup of 99% of landlords is in not using a "cash for keys" program at all. Long story short, if your tenants have especially bad rental habits or the room they rent is rent controlled or rent stabilized, then a "cash for keys" program might be essential.
A "cash for keys" program means a tenant can leave their unit under one condition: they start the eviction process. The landlord can do this in one day, and a tenant can move out or start the eviction process on that same day. No sitting around, no waiting for months, no dealing with stupid tenants, no dealing with police. It's simple and fast. Get the tenant out the same day.
Excep tions: If your property is rent-stabilized and you do not already have a "cash for keys" program, it is very important to do one NOW. In many communities, the only way the landlord can evict a(n illegal) tenant is with a court order. This takes 3-1/2 months minimum.
5 Steps to a Successful Cash for Keys Deal
Give yourself sufficient time. Cash for Keys tactics are designed to take advantage of tenants who are not paying attention. Often, tenants who are thinking about moving will not be prepared to leave until a moving truck arrives. This gives you time to prepare and be ready for their exit.
Have your money ready. Keep enough cash in your pocket to make the trade to buy your new tenant out. It is always safe to have more than you need.
Walk up with your paperwork and make the first contact. Just walk up to your tenant and let them know you are ready to offer a cash for keys deal.
Gather all the appropriate documentation and make the exchange. Gather the keys, take photos, check for the deed to the property, and do the paperwork.
Give updates and follow up once you receive the funds. If you wait too long without checking in, your cash for keys case can become less profitable. Tenants can take months to shut their doors for good, and your patience will be tested. It is important to get updates from time to time so you can remain positive that your tenant is on the way to moving out.
Send Them an Eviction Notice
It’s an eviction notice, not an eviction notice. It’s the “Notice to Vacate” … and that’s what makes all the difference.
At least that’s the way you might feel when you receive one, or at any point in your career as a landlord. But, the eviction notice you’ve sent in the mail is actually a very powerful tool, not to mention a much simpler and easier process than any sort of “eviction” or “unlawful detainer” action taken by the court to remove a tenant who has broken the terms of their tenancy agreement.
But, what should that eviction notice say?
Make a Verbal Offer
Your verbal offer, or tender, must include the full amount of rent due (not bills or other expenses). You can say something like, ”I’m willing to forgo a late fee and a month’s worth of rent if you can vacate the apartment by the first of April.”
Prematurely offering a tenant money for leaving can backfire. Make sure you would also be willing to take the tenant to court. This is also a good time to decide on your damages (the cost of replacing or repairing the tenant’s property) if the tenant refuses to leave. Remember to include wear and tear, which occurs after the tenant moves in.
What you’ll probably hear back is ”No․, ”I’m not interested,” or, ”Why don’t you wait until the lease ends?”
Not a good sign, but it’s the only way to know for sure whether your verbal offer is reasonable.
Negotiation Strategies: How Much Should You Offer?
From the moment you arrive at your new house, you probably knew that there would be some kind of a problem with the tenant. And your gut might have told you that it would take too much effort to push your current tenant out in a situation where you didn’t have any leverage over them to get them to leave.
What you probably weren’t prepared for was just how much effort would be involved in getting that renter out. There are three basic components of a successful search and lease eviction: set the strategy, research the best tenant and property class, and prepare for the negotiation.
Strategy: What to Offer
Ideally, you’re thrilled to make your move, and you’re ready to send your current tenant off to find something more suitable. In order to avoid creating a new problem with your new tenant, you need to be firm, fair, and honest in your steps to ending the tenancy.
You’re going to make a real move on getting your tenant out. But your offer isn’t going to be one to take (and the tenant’s not going to buy your offer because they know the rooming house is an unfortunate last resort).
Write or Use a good Cash for Keys Agreement Template
A cash for keys agreement is one of the best alternatives to evicting a tenant who owes you money. In this post, we’ll explain the different types of agreements, the pros and cons of each, and how you can start earning some fast cash on your tenant’s keys.
Cash for Keys versus Eviction
Before we get into the different types of contracts and how to deal with each situation, it’s important to understand the difference between evicting a tenant and offering them cash for keys.
The difference is simple: Cash for keys will have your tenant sign away all rights to the apartment as long as they pay you immediately or hand over the keys after signing. Your tenant will basically be surrendering their lease and relinquishing all rights to the apartment as soon as they hand over the keys.
Whereas eviction will invalidate the lease and kick the tenant out. Landlords may only decide to evict a tenant after having a good reason.
But how do you distinguish between good and bad tenants? Tenants who owe you rent and are late with their payments are never good tenants. And the best way to avoid taking on tenants who can’t pay on time is to run a credit background check prior to offering them a lease. That way you can avoid paying for months on end, just to be kicked out at the last minute.
Expert Tip: Consider Hiring an Attorney to Help Draft Your Cash for Keys Agreement
Cash for Keys agreements are entered into when a landlord wants possession of a unit, but they’re not willing to go through the expense and hassle of a full-court eviction. The agreement allows the tenant to move out with only their personal belongings and the refundable security deposit in exchange for their departure, with all damage they caused deducted from their refund.
Although Cash for Keys agreements are helpful in certain situations and can be an effective tool, they require the landlord and tenant to make a lot of important decisions – and when these decisions go south, it’s a huge problem. Ultimately, the only way to trust an agreement you’re not a party to is to have the final say in the agreement. This is where an attorney can help. In addition to helping you ensure that the document is drawn appropriately, and that there are no questions or gaps in the wording, a good attorney will help you negotiate the agreement and help you win in court if need be. A huge advantage of using an attorney for your agreement is the final negotiation and review. Let an attorney help you complete the agreement so that you can sleep at night, both during the agreement process and when you’re in the middle of a dispute.
Arrange a Day/Time to Inspect the Property and Sign the Agreement
If you’re about to rent out a property, one of the first things you’ll need is a cash for keys agreement to get rid of the tenants in the shortest amount of time. The first step is to find a time to inspect the property. If you can’t agree on a time in advance, offer to meet them at a time of day that’s convenient to you.
The inspection should cover the following, in order:
- The condition of the building
- The condition of the fixtures and appliances
- The condition and cleanliness of the windows and doors
- Is the property in good repair?
Ensure that the property is clean, tidy, structurally safe, and that the windows and doors are in good working order.
If the tenant is late for the inspection, don’t let it make you late for your appointment at the bank!
Inspection and Move out Day
If you’re in a lease, you should hire a professional to do a walk through of the unit with the landlord to make sure it’s up to their standards and to document any problems.
The inspector will look at things like:
- If the unit is furnished
- If the floor is clean
- Are there any broken windows
- Does the unit have any major appliance issues
- Are there any violations on file
If your landlord wants to charge you for the inspection, and it’s not included in the rent, then you do not have to pay.
Your landlord should walk through with you to make sure that all your belongings are out of the unit at move out time, so that the next tenant can move in without having to move your stuff out. If the landlord doesn’t do this, you don’t have to move your stuff and you essentially have 24 hours to move out with permission from the landlord before they can consider you to be in breach of your lease.
Bad Tenants will probably put you in a difficult situation where you are forced to move out the day before your lease is up or before you can find another place to live.
Expert Tip: Make Sure You Thoroughly Inspect the Property Before Paying
Why Offering Cash for Keys Can Get Property Owners a Good ROI
Tenants who find themselves without a place to live for any reason can be a huge headache for property owners. Without adequate security to prevent tenants from destroying their property, landlords can have expensive repairs and damages to contend with. If the reason for the tenant’s eviction is more serious, such as criminal behavior or overcrowding, the property owner may be left with the burden of cleaning up and repairing the property as well as the tenant’s belongings. Trying to pursue these tenants through the eviction court system can be extremely time-consuming, and tenants can easily find themselves on the street because many landlords refuse to go through the effort of evicting them.
One way to resolve the situation is to offer the tenant a sum of money in exchange for the keys to the property. Most tenants will gladly accept the cash because they know it’s the only sure way they will be able to get back on their feet. Although money for keys can accomplish the task of getting tenants out right away, it isn’t the most effective method and can drive up your eviction costs significantly.
For people who are interested in learning more, an excellent article can be found in the October 2013 issue of Advisor Perspectives. The article, ”Cash for Keys,” discusses the pros and cons of this cost-saving measure.
You Can Greatly Reduce Lost Rent + Lawyer Fees + Filing Fees
One of the objectives of this post is to show you how to get lost tenants out of your property in a few days instead of months. This can save you Rental Loss money – and reduce empty spaces at your neighborhood – by taking some action today.
There are a few obvious reasons why evictions can be expensive: From lawyer fees to filing fees, you’re likely looking at thousands of dollars in expenses. But there are other expenses and risks to having an unruly tenant.
Not only can bad tenants be a hassle to manage and clean up after, they can also cause serious health hazards. Bad tenants can create unpleasant living conditions and damage your property. So in this post, we’re going to suggest several ways to clean up bad tenants in a few days instead of months. That allows you to save money by avoiding the costs of an eviction and also getting tenants out of your property more quickly.
First, lets talk safety. Most people will not evict a tenant for breaking the law – but many of us know someone who has broken a bad law (such as smoking in the bedroom or having unsanitary conditions). Your tenants should not smoke or do drugs anywhere in the apartment. When making this a criterion, ask yourself; Is this really worth it? Ask yourself; Is this really something I want to spend money on?
You Can Avoid Cleaning and Repair Fees Entirely
Running the Numbers: The Cost of an Eviction vs Cash for Keys
If you’re an apartment manager interested in avoiding an eviction process, you’ve come to the right place. Building owners in the US are already familiar with Cash for Keys, a cash settlement that allows a tenant to avoid the time and expense of an eviction session. Now there’s a new option that reduces the time to get rid of the bad tenants – and the money to pay for it – even further. It’s called an evictions buyout. And like Cash for Keys, it costs less than an eviction.
Cash for Keys
In 2010, the US Department of Housing and Urban Development (HUD) issued new guidelines for the way a property owner handles an eviction. What the guidelines didn’t do, however, was legalize cash deals to keep non-paying tenants in the building. An option for property owners to buy a tenant’s contract out of the lease with a cash payment was not on the list of things that HUD wanted the private property owners to do.
In addition, the guidelines required a landlord to serve the tenant with a three-day, written notice to end the tenancy, giving the tenant the chance to comply with the eviction notice.
As it turns out, property owners are not required by law to comply with these eviction rules.
Expert Tip: Leave Your Ego at the Door
If you’ve ever dealt with tricky or unpleasant landlords, you know how hard it can be to convince them to provide your tenant with proper notice to leave. A similar situation can arise when it comes to evicting a tenant or any difficult tenant, really. If you’re not careful, your ego can get in the way.
- You’re in a situation where you’re trying to do something that has been weighing heavily on your conscience, something that you think is in the best interest of your business, but you’re not being afforded the same consideration.
- You’re being ignored and that gets you pissed off and your emotions get in the way. So the cycle of angry tenants, angry landlords, and people losing money stakes just perpetuates.
- That’s where a lot of people screw up and make really bad decisions and do things which are not in line with what they should be doing to help themselves.…
The Bottom Line: Cash for Keys
Cash for keys has been around a long time. Its first documented use was in 1881 when the owner of 100-seat theater in Chicago used it to speed the eviction of 100 of his tenants.
The procedure is simple. When the tenant is absent, you stop by their place at the prearranged time with an envelope containing the cash for the key deposit. The money is going to the landlord, but it doesn’t matter because you’re getting rid of the tenant.
Deadlines for notice to terminate a lease are relatively short before potential fines or actions by the tenant’s credit-card provider are triggered. If a tenant’s going to be late paying rent, they can be late on their key deposit and get evicted.
There are other benefits to using cash for keys. A tenant’s deposit can be put on the line for the rent, so you are essentially reducing costs, rather than increasing them. The landlord has to spend the money for the key deposit and you can take the keys to the tenants’ place. Tenants don’t want it, they can lose their deposit, and they have to go out and get a new set of keys, which are expensive.
There are no collateral risks and the tenant can’t complain about unfair treatment.