Using Cash for Keys to Get Rid of Problem Tenants

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Building a profitable buy and hold rental property business can be tough. A lot of folks fail to treat real estate investing as a business and end up getting into trouble. Having systems and following those systems is so important if you are to be successful and keep your sanity. It’s pretty easy fly by the seat of your pants when you only have a few properties. Later on when you have added more rentals, it gets much harder.

In the beginning when I bought my first few rentals, I set myself up to have tenant problems. To be blunt about it, I was just too nice.  You hear so many “sad stories”, and you want so badly to believe them. It takes a little while but you eventually learn that some of these folks are master storytellers, and they really know how to work the system.

Your Tenants Haven’t Paid Their Rent (Again)

One of the biggest problems landlords face is what to do about tenants that don’t pay their rent.  Tenants will tell you they will have the rent tomorrow, next week, or you just fill in the blank. And, some of them will actually do what they say. A larger percentage probably won’t.  We all know that you can evict them, and that is what may eventually have to happen.

If you are a landlord that gives tenants a grace period of a few days and they still haven’t paid at the end of the grace period, you should immediately send them a 7 day letter. Always begin the process right away and assume that you will be heading for an eviction. In most states the courts are more interested in protecting the tenant than the landlord, so be sure you know the law and what you are required to do to get them out of the property in the event that they become delinquent.

Every day a tenant stays in the house without paying is costing you money. Not only is it costing you money in lost revenue, there is a high probability that they will damage the property. Evictions and set outs are nasty events, and I don’t like them. Most tenants that can’t or won’t pay the rent aren’t going to pay the costs associated with an eviction even when these provisions are in your lease.

I figured out early on that it was almost always cheaper to pay them to move than to fix a damaged property and pay legal and court costs.

Find Out What the Problem Is

The first step is to find out what the problem is, and it’s important to remember that you need to move quickly. In most cases, I believe that if you can work out an arrangement with a tenant that has been a good tenant in the past, this is better than finding a new and possibly worse tenant.

But if the tenant has lost his job and there is no way he can get caught up or pay future rent, then he needs to move. After the tenant has stopped paying rent, he may just decide to stay until he is forced to move and this is what you don’t want.

Using Cash for Keys

Once you have determined that your tenants need to move, find out what it would take for them just to leave. A technique that many landlords will use is dubbed “cash for keys,” where you essentially offer to pay the problem tenant to leave in hopes that they will do so “nicely.”

Sometimes they will say, “I just need to be released from the lease”. Other times they won’t have the money to rent a truck to move, and you can offer to pay for the truck rental. If they are being really difficult, you might offer to pay them an amount to equal to one month’s rent and release them from the lease. You have to ask them what would make it possible for them just to move on. Trust me, it’s always cheaper to do cash for keys than go through the eviction process and repair the house.

The next step is to draw up paperwork that states the terms you agreed upon and add a couple of things to protect yourself. You need to specify that the property will be left broom clean with no garbage on the interior or exterior, and state that there will not be any damage to the property.  Also I always instructed the tenants to have the utilities taken out of their name, and I checked to see that this was done. I might add that I never had a tenant agree to the cash for keys process and not follow through.  My procedure was to meet them at the property so we could inspect it together. I would get the keys and give them the check if everything was OK. For me, this was a lot less stressful than an eviction.

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About Author

Sharon has been investing in real estate since 1998. She owned and operated a successful home inspection company for 17 years. In January of 2008 she took the leap of closing her business to become a full time real estate investor.

18 Comments

  1. Jeff Brown

    Hey Sharon — In places like CA, cash for keys is cheaper both in time and money. Been there, lived that. In states like TX however, tenants go in knowin’ in their hearts that the judges will help the landlord get ‘em out quickly and efficiently. Texas respects everyone’s rights to be sure. But they respect the (cliche alert) sanctity of the contract too. The first time I saw it in real life, I got a bit glassy eyed.

    How’s your state? I’ve not been there. Thanks

    • You are looking at about 2 months here. After your 7 day letter, it takes about 3 weeks on average to get a court date. (You have 30 days here to call the Sherrif here). It take a about a month to get a set out date. The judges here make sure that the tenants are protected and look carefully at your leases etc. I guess all in all, it’s not too bad Jeff.

  2. Hi Sharon….that is a great idea. I am new to landlowrding and I never thought of that.

    How much do you usually offer? Is it a percentage of the rent?

    thnx,

    Dave

    • Hi Dave – I ask them what it would take for me to let them out of the lease and move on. Sometimes you just have to let them out. One fellow said “$200″, and I said OK. The most I have ever paid is an amount equal to one month’s rent.

      Just ask them. The amount may be less than you think. One time the family wanted $59.00 to rent a truck, so you never know.

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  4. Sharon:
    Fabulous post about a process most landlords have never considered. The time and mental stress this saves is amazing.

    The majority of tenants who don’t pay are going to wait as long as possible to move. When you offer “cash for keys,” they’re typically surprised and thrilled. It’s something they’ve never heard of and most jump at the chance to get paid to move.

    Thank you for your post.

    • Karen –

      You are so right. It saves time, definitely is less stressful, and they don’t tear up the house in the process. You get the tenants out faster so you can get it rented again. For me, it’s just a much easier process.

  5. “You have to ask them what would make it possible for them just to move on. ”

    This advice is golden. I hear so many horror stories for angry tenants destroying the property and the landlord end up losing his/her shirt. Your method is definitely more tactful.

    Thanks Sharon!

    • Robert –
      I have found that they don’t always want or need a lot. For someone that has lost their job, a $69.00 truck from Home Depot to moven in with family may be all they need. Glad it helped.

  6. My tenant drove me out of the house recently. I am living in a friends basement. He gave me three days notice that he was leaving. On the end date, I asked him to leave me the keys so that I can show the apartment the next day. He was infuriated. He said that now he is not leaving unless I fill out a rental assistance form for him that states he is a tenant there for the month after he leaves. i refused. He hit me in the head. Cops came. They said they couldnt do anything since he wasnt opening the door. But another incident and it will warrent me to open it.
    That happened Nov 30. Hes still there and threatening me, actually forced me to leave in fear. Now all I can do is wait. If I had the money Id offer it to him at this point. I hate to be victimized and bullied. I can only imagine what hes going to do to the apartment. Scared and shaking in good old NJ. Where you are a prisoner if you own your home…..

  7. Hi, Interesting action and never thought of that. I live in South Africa and believe me I bet your laws don’t come near ours..oh well, just thought i would mention that ir read where someone had the tenant sign a KEYS LEASE so when they defaulted he had the keys returned to him and thus bypassed any Lease laws…I’n not sure of the legality of that though. have you heard of the like?..regards..fred

  8. Hi Sharon,
    Very interesting to read you. Could you please advice me on what to do with a bad tenant like this?
    Always pay rent late if she has to pay it sometime around 19th of the month now she has
    Stopped paying since December 1st 2013 so own me December and January right now
    Her lease will end on March 16th 2014 but we agreed that she can move out before then. She has on month deposit paid before moving in.
    Since she no longer taking or return my calls or text msg. Please advice me on next step to take for my keys. Thank you.

  9. Amina –

    If she won’t answer or return your calls, I would hand deliver 2 letters. I would put one copy of the letter to her mailbox and tape one up on her door.

    You can tell her that you will (put whatever you want to say ) and then tell her in order to avoid the eviction procedure (which will prevent her from renting at many places), all of the legal fees she will be required to pay, and the process of you taking her to small claims court to collect all money owed, she can just move out within 7 days.

    Sharon

  10. Yes, it does lessen the financial damage on the property and owner, but what is really messed up about this, is you continue to reward problem tenants who then expect a handout, pay off, etc., and it contributes to the problem of “professional tenant.”

    • …and you shift the problem to the next landlord. So you get yours, contribute to a growing problem, and pass it on to the next ….

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