You’ve got a tenant who’s behind on rent, and you’re considering your options. You could evict them, but that can be a lengthy and costly process.
You could also try to work out a deal with them to get them to leave voluntarily. That’s where cash for keys comes in.
Here’s how it works and why it may be the best option for removing a tenant.
- Cash for keys is a way to get a tenant to leave voluntarily by offering them money in exchange for leaving the property in good condition.
- It’s often faster and cheaper than going through the eviction process.
- Ensure you follow all the legal requirements in your state or country.
- Decide how much money to offer and whether you’re willing to negotiate.
- Be prepared for the tenant to say no and have a backup plan ready.
What is cash for keys?
Cash for keys may sound like a strange concept, but it’s actually pretty simple. Essentially, cash for keys is when a landlord offers a tenant money to move out before the lease is up. The amount of money offered varies, but it’s typically enough to cover things like moving costs and first and last month’s rent at a new place.
There are a few situations where cash for keys may be the best option for removing a tenant:
- The tenant is behind on rent, and you want to avoid going through the formal eviction process.
- The property needs repairs or renovations, and you want to get started on them right away.
- You’re selling the property, and you need the tenants out so that you can show it to potential buyers looking for a primary residence.
A cash-for-keys scenario can be an effective way for rental property owners to remove a tenant without going through the hassle and expense of evicting them. However, you’ll still need to follow all the relevant state laws and regulations when offering cash for keys.
How does cash for keys work?
Contact the tenant and explain that you’re considering offering them cash for keys. Let them know how much money you’re willing to offer and what the terms of the agreement would be. It’s important to be up-front about what you expect in return, such as a move-out date and the condition of the property when they leave.
Once you’ve reached an agreement, put it in writing and have both parties sign it. This will help to protect you if there are any disputes later on. Finally, make sure to keep good records of everything related to the cash-for-keys agreement, including any communications with the tenant and any money that changes hands.
Benefits and drawbacks of cash for keys
Offering cash for keys can be a good way to avoid the eviction process and get tenants out quickly, but weigh the pros and cons before making a decision. Consider your situation and decide what’s best for you.
There are a few benefits to offering cash for keys:
- Avoid the eviction process. Evicting a tenant can be a long and costly court process, so cash for keys can be a way to avoid that hassle.
- Get started on repairs or renovations right away. If you’re planning on doing some work on the property, cash for keys can be a way to get the tenants out so that you can start immediately.
- You have a new tenant lined up who is willing to pay a higher rent. With cash for keys, you can remove a tenant paying a below-market rent before the lease ends. Then, quickly rent the home to another tenant willing to pay more to increase your gross rental income and net cash flow.
- Receive the property back in good condition. Cash for keys can encourage tenants to leave the property in good condition. This is important if you plan on selling the property or renting it out soon.
There are some potential drawbacks:
- The tenant may not actually move out. Even if you have an agreement with the tenant, there’s no guarantee they’ll move out by the agreed-upon date. If they don’t, you may have to serve an eviction notice and go through the eviction process after all.
- The tenant may damage the property before moving out. If the tenant is angry or upset about having to move out, they may damage the property before they leave. This could cost you more in repairs than you would have spent on the eviction process.
- You may not be able to find new tenants right away. Even if you’re able to get the old tenants out quickly, it may take some time to find new tenants. This can lead to a loss of income and negative cash flow.
- If you own a multifamily property, offering cash for keys could send a message to other tenants that you are willing to pay them to leave. If word gets out, other renters might be encouraged to violate their lease agreement to get a cash payout.
How to negotiate a cash-for-keys agreement
Be clear about what you expect from the tenant in terms of returning the property key and leaving the premises. Determine how much cash you’re willing to offer as an incentive. Be reasonable in your expectations—don’t try to get more than what you’re entitled to or force the tenant into an agreement they’re not comfortable with. Finally, be prepared to compromise—remember that your goal is to reach a fair agreement for both parties.
One way to come up with a fair cash offer is to calculate the cost of eviction and compare it to the amount of rent you would lose if the tenant stayed through the end of their lease. This includes the cost of hiring an attorney and any other associated fees. Another way to determine an appropriate cash offer is to see what other landlords or property managers in your area are offering for cash-for-keys agreements.
Once you’ve come up with a fair cash offer, present it to your tenant. Be clear and concise about what you expect in exchange for the cash, and be prepared to give them a reasonable amount of time to make a decision.
If your tenant agrees to the cash-for-keys agreement, be sure to have them sign a written contract outlining the agreement’s terms. This will help to protect you in case there are any issues down the road.
What to do if your tenant refuses to accept cash for keys
If your tenant refuses to accept cash for keys, you have a few options. You can begin the eviction process, wait for the current lease to expire, or try to negotiate a different agreement.
Starting the eviction process can be costly and time-consuming, but it may be the only way to get a problem tenant out if they refuse to leave voluntarily. If you go this route, you’ll need to go through the legal process of eviction, which can be complicated and costly.
Waiting for the lease to expire may be the path of least resistance, but keep in mind that the tenant may damage the property or not pay rent during this time. Depending on your local and state landlord-tenant laws, you also risk having to renew the lease if the tenant decides they want to stay.
Negotiating a different agreement with the tenant is another option, but remember that you’ll need to be willing to compromise. You may need to increase your cash offer or make some other concession in order to reach an agreement.
Cash for keys can be a good option for landlords who want to avoid the cost and hassle of eviction, but some risks are involved.
Ultimately, the decision of whether or not to use cash for keys is up to the landlord.