A Quick Guide To Cash For Keys
February 21, 2023
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A lengthy and costly eviction process isn’t your only option if you need to get rid of a bad tenant.
Cash for keys is a quick way to get a tenant to vacate your property.
This alternative can be a win-win for landlords and tenants.
Let’s look at how cash for keys works and why it can be useful as an alternative to evictions.
What is Cash for Keys?
Cash for keys is often a cost-effective way to remove a tenant from your property. You offer your tenant cash if they vacate the rental without causing issues.
Cash for keys is helpful in other situations as well. If you want to sell your rental but need to fix it up first, this agreement can incentivize a tenant to leave early. Likewise, if the current lease is under rent control, you can incentivize your tenant to leave, so that you can improve the property and charge more for rent to the next tenant.
Most often, though, cash for keys is an alternative to evictions. As shown in this article, evictions can cost thousands of dollars. And, even if you win a judgment against your tenant, collecting overdue rent and expenses can be difficult. Thus, this process could be the best option for your business.
Is Cash for Keys Legal?
This approach is legal, but it’s critical to ensure everything is in writing. The document you and your tenant sign is a legally binding agreement that helps avoid court.
Prior to signing the document, you must make sure you’re following applicable local laws. This agreement is only valid if it follows the relevant regulations and laws. It may be prudent to have a lawyer review the document if you have any concerns.
The Cash for Keys Process
Now that we’ve introduced cash for keys and covered what it is, let’s move into the actual process. There are several important steps in this process.
Deliver Eviction Notice (if applicable)
A Notice to Pay or Quit is the typical entry point for the process. This notice lets your tenant know that they must pay any overdue rent by the due date or leave the premises.
Most lease agreements have a grace period before a late fee comes into play, and the landlord sends an eviction notice. A Notice to Pay or Quit must have proof of delivery through a third-party server or certified mail.
Verbal Offer of Cash for Keys
Once your tenant receives the notice, you can verbally offer them a deal to help avoid a lengthy eviction process.
This stage is where you can break down the risks of an eviction. You can help your tenant understand that cash for keys reduces the risk of negative records on their credit report and poor marks on their rental history. These advantages plus avoiding court fees and appearances make Cash for Keys beneficial to both parties.
A good rule of thumb regarding cash for keys is to keep the maximum amount you will offer in mind and start below that. You want to avoid a long negotiation, so come prepared.
Specificity is your friend. Offer a certain amount, agree on the exact date the tenant will leave the premises, and your expectations for the condition of the property once they move out.
Put Everything in Writing
To be legally binding, the cash for keys agreement must be in writing and compliant with applicable laws. Consult with your real estate attorney if you aren’t sure how to draft the proper agreement.
If you’re having trouble writing an agreement, the American Apartment Owners Association (AAOA) and the National Association of Income Property Owners offer free cash for keys agreements on their sites as well.
Put a Signing Date on the Calendar
It’s critical to get the cash for keys agreement signed as soon as possible. You don’t want this process to go on any longer than it needs to.
We strongly recommend waiting until the day your tenant leaves to hand over the cash. Some landlords do this part earlier, but it may behoove you to ensure your tenant vacates before giving them the incentive.
Conduct an Inspection
On the day and time solidified in the cash for keys agreement, you can proceed with your move-out inspection. This is important because you need to compare the current condition of the property with the prior condition in front of the tenant. Anything beyond normal wear and tear is an issue.
If everything goes smoothly, give the tenant a copy of the inspection report, change the locks and begin preparing the property for the next tenant.
How Much Should You Pay Your Tenant?
What amount is reasonable to get your tenant to vacate the property? There isn’t a standard, but here are some things to keep in mind:
- Start by figuring out the average cost of an eviction in your property’s location, then calculate the value of avoiding that eviction. You can then divide the average cost of an eviction by a percentage and start there.
- You can also make an offer based on how quickly the tenant moves out. The faster they’re willing to move out, the better your offer. For instance, maybe you offer a certain amount if they move out in two weeks and double that amount if they move out in one.
- Like retail, it might be advantageous to avoid round numbers. Many landlords offer figures like $1,150.50 instead of $1,200.
What if Your Tenant Doesn’t Move Out?
A big part of the reason you need everything in writing is if your tenant doesn’t move out. The agreement needs to clarify that your tenant waives their right to a trial and the right to their possessions if they sign the cash for keys agreement. This allows you to get a writ of possession in the unlikely event they don’t follow through on their end of the bargain.
A cash for keys agreement is often the best way to make an unfortunate situation a win-win for you and your tenant. Let’s review some final tips to make sure everything goes as well as possible:
- Communicate proactively with your tenant about the consequences of an eviction calmly.
- Adhere to all applicable laws and rules.
- Put everything in writing to make the agreement legally enforceable.
- Try to get the tenant to move out as quickly as possible.
- Avoid violating fair housing laws.
- Avoid drawn-out negotiations with the tenant.
- Avoid mixing the security deposit and the cash for keys agreement money. You may need the security deposit for damages, and you don’t want to muddy the situation.
Cash for keys is often a viable alternative to an eviction. It gets problem tenants out of your hair quickly without a costly and stressful eviction process.
By following the tips and guidelines in this article, you can efficiently get rid of bad tenants to make way for better ones.