Landlording & Rental Properties

Cash for Keys vs. Eviction: Which Is the Lesser of Two Evils?

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If you are in the landlording business long enough, you will eventually have to get rid of a tenant. When that time comes, you will have two choices.

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One, you can go through the legal maze and evict. Two, you can try to persuade your tenant to leave on their own by offering some type of incentive. The latter option is often called “cash for keys.”

I hate to have to use either one. Getting rid of a tenant is not fun, and both of these methods cost money. The situation is full of potential problems, and it also means I probably messed up the screening process.

Understanding Cash for Keys vs. Eviction

Given the choice in a problematic tenant scenario, I would choose the persuasion and incentive route over eviction every time. This route involves less hassle and is less expensive. It often causes less damage and is less time consuming, as well. All make this the better path to take.

Before I explain more, let me make sure everyone is on the same page. In brief, eviction requires you sue the tenant, go to court, and (hopefully) regain possession of your property through a judgment.

Cash for keys, on the other hand, avoids all of this. Instead of going through the legal system and forcing a tenant to leave, you pay him or her to voluntarily leave. You hand them cash; they hand you the keys, sign a release, remove their stuff, and go on their way.

landlord-headache

Related: The Complete Tenant Screening Process: The Application

Removing Bad Tenants Quickly & Easily

No, it’s not ideal. It can be painful to hand a tenant cash. But in my opinion, it is less painful than eviction. Here’s why.

1. Less Hassle

Evictions are a hassle. Going to court, hiring process servers and set out crews, and littering your front yard with junk is no fun. Paying a tenant to take their stuff and move on an agreed upon date is not much fun either, but it is definitely less hassle.

There is no court, no process servers, no deputies, no set out crews, etc. However, the result is the same. You get your property back, and soon enough, it will cash flow again.

2. Less Expensive

Because my properties are owned by an LLC, I personally cannot represent the LLC myself in eviction court. If I did, the bar would consider that practicing law since I would technically be representing another entity (my LLC).

Thus, I must hire an attorney. Attorneys cost money. Courts have fees. Process servers cost money. Writs cost money, and set out crews do not work for free. All of that adds up!

Since I am going to have to spend this money anyway, why not negotiate a less expensive cash for keys deal? This is what I often do.

seated man looking down with hands on back of head and elbows on desktop worried, sad or frustrated at work

3. Less Damaging

Your landlord-tenant relationship has already taken a nosedive if you are at the point of considering eviction. All parties are likely upset; it’s best not to fan the flames.

After all, the tenant still lives in the property. How would you feel about the walls getting punched in or concrete poured down the toilet?

Personally, I just want my property back in the best condition I can get it. By negotiating a cash for keys deal, I’m usually pleased with the way the property is returned, since part of the deal is that the tenant takes their stuff and broom sweeps the unit clean.

Alternatively, by hauling someone into court and applying force, you just never quite know what the end result will be.

4. Less Time Consuming

A cash for keys deal usually takes a couple of meetings: one meeting to negotiate the deal and one to collect the keys. I do not have to go to my attorney’s office. I do not have to go to the courthouse downtown.

A cash for keys deal is simply less time consuming. The whole process may only take a week, instead of several—or worse.

Related: Using Cash for Keys to Get Rid of Problem Tenants

The Bottom Line

The most important lesson to learn, of course, is to not let yourself get in this landlord-tenant situation in the first place through proper screening. Unfortunately, no matter how good your screening process is, you will eventually come to the point of having to get rid of a renter.

There will be times you are forced to evict; other times you will want to, in order to get it on their record. Most of the time, however, something bad (such as job loss or illness) has happened to the tenant. They are between a rock and a hard place, and I do not need to pile an eviction on them. I just need them to go, because I cannot operate as a charity either.

For these reasons, cash for keys is just the way to go. Sure, I hate it. But I hate evictions even more.

Would you ever go the cash for keys route? Have you used any other strategies to remove tenants without evicting?

Share in a comment below!

 

Kevin Perk is co-founder of Kevron Properties, LLC with his wife Terron and has been involved in real estate investing for 10 years. Kevin invests in and manages rental properties in Memphis, TN and is a past president and vice-president of the local REIA group, the Memphis Investors Group.

    Marcus Robert Investor from Worcester, Massachusetts
    Replied 2 months ago
    Agreed! The only caveat is the tenant who doesn’t want to leave to make your life miserable. I had this once and not a very smart person who showed up late in court and fought with the magistrate. In this case, I hire the most heavy weight firm. Most of the time I have been able to do cash for keys. Allot of landlords I know take it so personal and feel that there’s no way they would pay a pest of a tenant to move out. Way too personal and not business minded. A no brainer for me! A possible bill of thousands to an attorney (who loves the checks by the way), along with months of unpaid rent or pay a thousand bucks to a tenant to leave?
    Kevin Perk Investor from Memphis, Tennessee
    Replied about 2 months ago
    Marcus, You are right. It does not work all the time, but it is at least worth a shot. Thanks for reading, Kevin
    Tom Phelan Real Estate Investor from Miami, Florida
    Replied 2 months ago
    Wow, that’s like taking your girlfriend and the Tenant to a Motel, paying for a room, and pick them up in the morning for breakfast. I admire your ability to handle it this way. Me, I’d probably hire a Security Guard to camp next to their from door 24/7 and film everything until they left.
    Kevin Perk Investor from Memphis, Tennessee
    Replied about 2 months ago
    Tom, Cash for keys does not make you warm and fuzzy for sure, but the goal is to get my property back and cash flowing as quickly as possible. So sometimes it is best to swallow your pride to move forward. Thanks for reading and commenting and the kind words, Kevin
    Kim Martin Rental Property Investor from Wenatchee, WA
    Replied 2 months ago
    Thanks Kevin, for a great article. My first eviction was miserable but I sure learned a lot. Cash for keys is definitely less painful and the preferred method.
    Kevin Perk Investor from Memphis, Tennessee
    Replied about 2 months ago
    Kim, Thanks for reading and for the kind words. Kevin
    Cindy Larsen Rental Property Investor from Lakewood, WA
    Replied 2 months ago
    Kevin, You are right, cash for keys instead of eviction is probably the right business decision, if that is your only choice. I have a question; you said: You hand them cash; they hand you the keys, sign a release, remove their stuff, and go on their way. What release? Can you tell me more? Maybe there is a step I should be doing that I am skipping? Back to the cash for keys issue. It seems to me that there are steps you can take to lessen your chances of getting to that point. One thing I do is make it clear to the tenants, while signing the lease, that if they break the lease I will kick them out. I take the time to walk them through every page of the lease and make sure they understand every provision and why I have put each of those requirements into the lease. I do periodic inspections so they know I am keeping an eye on my property. All of my leases are fixed term so there’s no question about when the lease is ending yet I still remind them that that is coming up, and that if they want to stay They will have to sign a new lease with new lease terms. I set up times to start showing the property during the last month of the tenants lease, And set an appointment with them a week before their move out to do a walk-through and check their progress in cleaning the place to the standard in the cleaning checklist that is in my lease. That gives them a week to finish the cleaning of anything that they have missed. I tell them that my goal is to have them do all the cleaning so I can give them back their whole deposit minus any repairs cost. I do like doing that but I am also trying to minimize vacancies by not having to clean the place after they leave that way I can move a new tenant in sooner. So far this process has resulted in even inherited tenants (that came with properties when I bought them) leaving at the end of their lease without me paying them. I have given some of them back their whole deposit when they didn’t deserve the complete amount just to get rid of them and have them feel that they were winning. I think a lot of it is setting expectations upfront and trying to develop a relationship with the tenants were they see you as nice but firm. I sincerely hope that I never end up at the cash for keys decision. Imagine a world in which tenants believed/knew that landlords would trade cash for keys as a common thing. That could really eat into your profits. If we trade cash for keys we are creating a set of tenants with this mindset and passing them along to the next landlord.
    Kevin Perk Investor from Memphis, Tennessee
    Replied about 2 months ago
    Cindy, Thanks for reading and for going into detail about how you run your business. I am sure readers will find it helpful. As to your question on the release form, please see this post. https://www.biggerpockets.com/blog/2012/08/06/release-rights-possession-form-landlord/ We also do most of the things you mention in your comment and like you it all works pretty well for us also. But there are times. Tenants always manage to surprise you. Thanks for commenting, Kevin
    Kay Khan Flipper from Dearborn, Michigan
    Replied about 2 months ago
    @ Kevin Perk ” Tenants always manage to surprise you ” So true. When you think you have seen it all they’ll come back with a new trick. I guess you keep learning because not all evictions are the same but they are all messy. Cash for the keys is one tool in your toolbox. Thanks for the article.
    Alishea B. Rental Property Investor from Warner Robins, GA
    Replied about 2 months ago
    Great article. Cash is king. I plan to use it his concept in the future. Good read.
    Tom Phelan Real Estate Investor from Miami, Florida
    Replied about 2 months ago
    Alishea, “Cash” is the Knight. Tax Free Cash is the King. Guaranteed, “No Risk” Cash is Queen.
    Laurice West
    Replied about 2 months ago
    Cash for keys? What happens when it becomes known to the next tenants?
    Nathan G. from Cody, WY
    Replied about 2 months ago
    I have been listening to this for many, many years and think it’s some of the worst advice given on BiggerPockets. There are always exceptions to every rule but far too many Landlords use cash-for-keys as their default process. It’s rewarding the tenant for bad behavior, training your tenant to behave badly, and handing your problem off to the next unsuspecting Landlord. I hear people constantly complaint about how long it takes to evict or how expensive it is. That’s typically because they don’t know what they’re doing. If you know the law and have solid policies and procedures in place, you can typically nip the problem in the bud quickly and cheaply. I start the eviction process quickly and efficiently. With hundreds of rentals, I haven’t had to evict one of my tenants through the court system for almost five years because the vast majority of them pay up and the remainder move out before I can get them to court. When they know they’re wrong and they see you’re not playing games, they’ll move on. If you act weak, they’ll recognize that weakness and play on it until you get tired and offer to hand them cash. If you are going to do cash-for-keys, I recommend you only pay the tenant AFTER they have vacated and turned in the keys. There’s no way I would give them cash up front.
    Eric H. from West Linn, Oregon
    Replied about 2 months ago
    Thanks for the comment. I was also going to write that it’s training and paying people to behave badly. It encourages them do it to the next guy. It’s like suing corporations because they always pay out.
    Dave Rav from Summerville, SC
    Replied about 2 months ago
    @Eric H actually you could look at it that way. I guess because you are “paying” them your point is valid. However, let me say this. When I do cash 4 keys, it ain’t no windfall! The tenant may get a few hundred bucks. I’ve never gone above like $400. They are still losing out. They lose their home, their remainder of deposit, have to pay moving costs, and have to come up with a deposit and 1st mo rent once again for the “next guy”. I wouldn’t say they are all that encouraged to “run the scheme again” because it isn’t very fun (or financially rewarding) for them. In essence, the small payout truly is damage control to your property.
    Matt Sicignano Investor from Smyrna, Georgia
    Replied about 2 months ago
    Lets see, how do you reward bad behavior and screw the next landlord down the road? I know, lets bribe a deadbeat to move out of our place in order to save some time! Laurice, I’m 100% behind your statement, and Nathan, a little less but still on board. What does Biggerpockets reinforce almost on every post for new landlords-that’s right, check their credit and references!! References can be faked, but an eviction is a red flag and you are doing us, as landlords, a disservice by letting those deadbeats avoid that. How would you feel if a tenant I bribed to leave moved into your place with an eviction free record?
    Christopher Colburn Property Manager from Dallas, Texas
    Replied about 2 months ago
    Cash for Keys is definitely an option to get problem tenants out of the property before going the eviction route. Though if one of our clients brought this up to us we would suggest a less expensive method that we always do before filing an eviction. If/When we have a problem tenant that meets the eviction requirement we would first offer them the option to get out of the lease without having to pay the rent for remainder of the lease. Also, this would keep an eviction off their record. This is usually the good incentive for them to move since an eviction on a tenant’s record makes it very hard to rent another home. Also, if you have a Cash for Keys policy you have to be careful and make sure you apply that policy as an option to all tenants. If you don’t you could be accused of discrimination.
    Dave Rav from Summerville, SC
    Replied about 2 months ago
    Yes! I do this. Though I’ve done both methods. There are times when eviction makes sense…lots of factors to consider when choosing. Cash for keys makes sense though, in probably 75% of my scenarios. Damage control to property – literally. They could break all your windows and destroy your HVAC – that alone ranges $3-6k. More if larger prroerty. Contrary to what others have said it’s not “encouraging” the tenant to “run the scheme again” nor is it a major payout. I pay a couple hundred bucks. Most tenants are ok with it because they expect to be evicted and get nothing. And tenants still lose out. Big! Running this scheme doesn’t really help them. They still likely lose $1000 or more, as to move again they will need to come up with another deposit and 1st mo rent. And let’s not forget the lack of notice – most probably haven’t been saving up for this occurrence!