Landlords dealing with delinquent tenants who break the lease agreement sometimes have a difficult decision to make. Should you start a formal eviction process or offer a cash for keys deal? In many cases, just paying a tenant to move out is the quickest and easiest option. However, in other cases, you may need a court order to evict a rogue tenant.
A successful cash for keys arrangement is an effective method for landlords to move out a tenant who isn’t in breach of contract. For example, if you are the property owner, maybe you want to remodel the property, increase the rent to better represent the market price, or even move in yourself. In these cases, offering a good cash sum for the tenant to vacate the rental property may be your only choice.
In this article, we’ll compare the differences between a cash for keys contract and the formal eviction process. You will also find out when a “cash for keys” offer makes better sense than an eviction order..
What is Cash for Keys?
Cash for keys is a cash incentive to get bad tenants out of the property in days, not months. You can offer a cash lump sum for the tenant to vacate the premises if they can’t pay rent or have broken the lease terms. Cash for keys helps the tenant with moving costs and a security deposit for a new place. Very often, giving an incentive to move out willingly is better than forcing an eviction.
Some rental property owners may think that if a tenant can’t or refuses to pay rent that it’s counterintuitive to give them cash to get out. However, many investors find that offering a buyout agreement to vacate costs less than an expensive court hearing. And, as a property investor, you know just how expensive attorney fees are.
Then there is the question of time. A successful cash for keys arrangement with a tenant who doesn’t pay can resolve the matter in the quickest time. In the end, it can be a win-win situation for both you and the tenant.
What Does an Eviction Involve?
Starting a formal eviction process is the only legal way to force a delinquent tenant out of a rental. Even if the tenant refuses to pay rent or has trashed the place, you still need a court order to evict them. In most states, a “self-help” eviction—where the landlord repossesses the property without a court’s help—is illegal activity.
Of course, any kind of process that involves attorneys, judges, and courts is going to take time, money, and resources—something frequently in short supply. Some estimate put the average legal eviction cost at around $3,500. For example, the steps to take in an eviction generally involve the following:
- Serving appropriate notice about an eviction.
- Filing a court action against the tenant.
- Preparing documents to back up your claim that the tenant has broken the active lease agreement.
- Waiting for the hearing.
- Attending court.
- If the judgment goes in your favor, you get a writ of possession.
- You can then start the eviction process, often with the help of the Sheriff’s department.
Of course, during this lengthy time—which can take up to a few months—you are missing out on rental income. You also risk getting your property damaged if the tenant feels they have nothing to lose.
Benefits of Cash for Keys Deals
Whatever your reason for wanting the tenant out quickly, a cash for keys arrangement has several benefits. Let’s look in more detail at these:
- Save time—Offering a cash is a powerful incentive to vacate the property that can save you a load of time. A lengthy, drawn-out court process and a stubborn tenant’s non-compliance can seem to take forever. All the while, the legal proceedings are physically, emotionally, and mentally draining—definitely something you want to avoid while running a successful rental business.
- Secure rental income—If a tenant can’t pay rent and it seems there’s no resolution, it makes sense to get them out ASAP. Every month they don’t pay is a loss of income for you. Sometimes, it’s best just to cut your losses and get a paying tenant in the unit as fast as you can.
- Repair costs—Tenants can become furious if they receive an eviction notice. They can sometimes vent their anger on the property and trash the place when they leave. In some cases, the repair bill could cost more than the cash for keys deal. In most cases, you can offer the cash buyout incentive as something that benefits them.
- Save on legal fees—As we already mentioned, soaring legal costs make evictions costly. Attorney fees can soon rack up, and before you know it, you’re thousands of dollars out of pocket.
How to Make a Cash for Keys Offer in Place of an Eviction?
Most landlords offer a cash for keys incentive when it’s clear that the tenant is in breach of the lease agreement. So, this means that it’s just a matter of time before you request or force the tenant to leave.
Usually, before serving an eviction order, you need to offer a notice to cure or quit. This notice allows the tenant time to resolve the issue. But, how should you proceed if the tenant continues to violate the lease?
Now it is time to brush up on your negotiation skills to ensure the experience goes as smoothly as possible. Here are the steps to take to make the cash for keys settlement pain-free for you and the problem tenant.
1. Start the discussion
Some landlords serve an eviction notice first of all, whereas others have a conversation first. Whichever you choose—after all, you know your tenants best—it’s vital to have a sympathetic, yet open discussion about the violations.
You can explain to them that eviction is not the best option for them. If the court evicts them, the eviction will stay on their credit report for seven years. Also, they may have difficulties finding a new place to rent because the eviction will also show up in a tenant’s screening process. So, a cash for keys contract will be in their best interests in the long run
2. Offer an alternative
When offering a cash for keys contract, try to emphasize the positives. For example, they avoid the implications of being evicted from a property. They also get money to relocate to a new place. You can offer them a cash sum if they vacate by a specific date without any damage to the property.
3. Make a specific offer
Before the negotiation, you should work out how much cash incentive you’ll need to make it worthwhile. When calculating the dollar amount, take into consideration their relocation costs, the security deposit, and maybe something extra to sweeten the deal.
4. Put the cash for keys transaction in writing
If the tenants agree to a cash agreement, you need to put all the details in writing. You should include the agreed amount, the move out date, and other legal obligations required by your state. The written cash agreement should also clearly state that if the tenants don’t vacate by the agreed time, the eviction will proceed.
5. Attend moving day
If everything goes to plan, you should be at the property when the tenants move out. After checking the property for wear and tear, as well as damage, you should sign the paperwork and hand over the check.
The next step is to get rid of any junk that was left behind, make necessary repairs for the next tenant, and change the locks.
Mistakes to Avoid in Cash for Keys Agreements
A cash for keys settlement in the place of an eviction is legal in all 50 states. However, as a landlord, you have to avoid making certain mistakes. Even though your nightmare tenant hasn’t been paying rent or even if they trashed the place, they still have a legal right to live there. So, anything you do to get them out has to be legal.
If you need to evict a tenant but decide to offer a cash for keys deal, what mistakes should you avoid? Here are the five most common mistakes:
- Self-help evictions—It’s illegal to change the locks, shut off utilities, or make the property uninhabitable if you want the tenant out. Unless they agree to the cash for keys deal, you need to go through the proper channels to evict them.
- Harassing the tenant—Even if you’ve got the tenant from hell living in your property, you can’t verbally, emotionally, or—worse still—physically abuse them. You also can’t force them to sign a cash for keys transaction if they don’t want to.
- Keep negotiations to a minimum—When you offer a cash reward to get them out quicker, some tenants just hear a “ka-ching.” They think that they’ve got the upper hand and may try to squeeze more money out of you. You can negotiate some figures, but stick to the amount that keeps the deal financially in your favor.
- Get proof—Cash for keys doesn’t mean handing over a wad of banknotes to the renegade tenant. Give them a check or make a bank deposit. This way, you have proof of the transaction
- Return the deposit—Even though you may have had significant problems with the tenant, the terms of the active lease still apply to the security deposit. You still have to send an itemized list of deductions and the remaining balance. Even if you have a right to withhold all the deposit, you should always send the itemized list of damages
Cash for Keys vs. Evictions: A Takeaway
Let’s face it, filing an eviction order or offering a cash for keys deal is going to cost you money in the end. The question is: how much? After all, you’ve probably already lost rent while dealing with your tenant.
In most cases, offering a cash incentive makes the best business sense. It costs less, saves you time, and you get your property back faster. You can then start the process of finding responsible tenants who will—hopefully—cause less grief than the previous one.