Is "Cash for Keys" ethical? Thoughts?

45 Replies

I'm curious on others thoughts. I attempted to do a "Cash for Keys" deal with a non-paying tenant. He ended up not following through so now he is being evicted, but going through that process did make me think about the whole thing.

Is there some moral obligation to follow through with an eviction for a tenant who won't pay and won't leave? Isn't using cash for keys just passing the problem on to our fellow real estate investors who may now take on a tenant with no eviction record who otherwise would have a record thus alerting the criminal nature of these tenants to the home owners due to an eviction now being on their record?

Is offering cash for keys just allowing a wolf to continue to roam around amongst the sheep?

Thoughts?

The Romans had an empire that lasted about 2000 years, that's a very long time when you compare it to the 200 years of the U.S.  In Roman law the judges didn't ask "does this make sense?" they only asked "does this work"?  

In Rome, they would make the architect stand under the arch he built so that if it was faulty, it would kill him.  It doesn't make sense because it could be that he did everything right, but the builder made a mistake. It also prevents you from learning from mistakes because one mistake and your dead, so you are extra cautious and use far more stone than is necessary to build a bridge.  So it doesn't make sense, but it still works.  The aqueducts at Segovia are 2000 years old and still standing and were still in use until recently. 

 Cash for keys doesn't make sense because you are rewarding someone for bad behavior and passing the problem along to society.  But it does work.  I don't know any big investor in a tenant friendly jurisdiction like California that doesn't use it.  It doesn't make sense, but it works.  Do you want to make money, or do you want to pick this hill to fight and die on?  

Good thoughts. It's true it doesn't make sense but works. It's just too bad because if EVERYONE just went through with the eviction process we would all make more money in the long run by weeding out bad tenants for each other. 

I suppose it is what it is!

Everyone has their own set of ethics they live by. In my opinion it is unethical to screw other landlords by using cash for keys to bribe a bad tenant and protect them from having a eviction on their record. It is not something that I personally would ever do to another landlord. 

My bottom line is of extreme importance to me but not so important that I put it ahead of protecting other landlords. 

I've used cash for keys twice. It is an amicable resolution to a problem between landlord and tenant. Nothing more, nothing less. I need them out of my unit and they will get out for less than what it costs me in time and money through an eviction. Going through an eviction to "warn" other landlords is not a primary goal.

Well I think  the lesson here is to seek out and find past landlord to see if they did a cash for keys scenario.. its up to the new landlord to vette their tenants..  Caveat Emptor  .. Cash for keys in long drawn out eviction states are simply the best business decision.. you cant protect all the landlords out there.. at your financial demise..

@Jj Horst . Sure maybe do this if you live in a tenant friendly state. If you don’t, then I really don’t see any reason to do it

Bad tenants are taught and learn from bad landlords. 

In a area where cash for keys is common tenants quickly learn that they can demand cash from their landlords when the road gets rough. They will generally stop paying rent whenever they wish to move and demand that the landlord pay them cash to avoid having to evict. It is a standard game I see all the time and is caused by those very landlords that believe cash for keys is the easy path to operating a business. Fortunately it is primarily limited to mom and pop/hobby and new landlords that are a easy mark.

Believe it the word does get around amoung tenants as to who the best landlords are to pluck. 

Extorsion is unethical so I will not be paying bribes to bad tenants.

Originally posted by @Thomas S. :

Bad tenants are taught and learn from bad landlords. 

In a area where cash for keys is common tenants quickly learn that they can demand cash from their landlords when the road gets rough. They will generally stop paying rent whenever they wish to move and demand that the landlord pay them cash to avoid having to evict. It is a standard game I see all the time and is caused by those very landlords that believe cash for keys is the easy path to operating a business. Fortunately it is primarily limited to mom and pop/hobby and new landlords that are a easy mark.

Believe it the word does get around amoung tenants as to who the best landlords are to pluck. 

Extorsion is unethical so I will not be paying bribes to bad tenants.

I think the issue in some states is a landlord can either get the folks out quickly and live to fight another day.. OR  they may be tied up for a year or so and risk having a property go to foreclosure.. with most investors having MAX leverage on all their properties this is a very real scenario for many .. they simply will go under if the tenant squats and take a 6 months to a year or more to move out.. where as 500 to 1000 bucks and they move and the house gets back into service.. but agreed this is a slippery slope for sure. 

Lots of good thoughts. I live in Texas, and although this eviction process seems ridiculous to me, it's not so bad compared to other states. Having an eviction under my belt will probably lead me to not try and offer cash for keys in the future. ESPECIALLY since I did a cash for keys deal this time and he still backed out and didn't move, thus pushing my eviction another 2 weeks into the future. Might as well start the eviction process sooner and not train tenants to try and extort money.

Originally posted by @Jj Horst :

Lots of good thoughts. I live in Texas, and although this eviction process seems ridiculous to me, it's not so bad compared to other states. Having an eviction under my belt will probably lead me to not try and offer cash for keys in the future. ESPECIALLY since I did a cash for keys deal this time and he still backed out and didn't move, thus pushing my eviction another 2 weeks into the future. Might as well start the eviction process sooner and not train tenants to try and extort money.

 well the key is you don't give them the money UNTIL they are out of the house and you set a very quick drop dead date.. if they miss that you have no recourse but to evict.. the joys of landlording.. this is why so many of our note clients really enjoy being the bank  no more dealing with this drama.. 

Yes luckily I wasn't enough of a green horn to give them the money up front. The thing I keep telling myself is that this was all part of the plan.  A flipper put in an offer on this house before us but then backed out after seeing how entrenched these deadbeat tenants were because he knew he wouldn't be able to get it flipped quickly with them there. The sellers then turned to us and we picked up a pretty good deal. Getting these people removed was always built in to the cost, it just so happens to be manifesting now. 

Originally posted by @Jj Horst :

Yes luckily I wasn't enough of a green horn to give them the money up front. The thing I keep telling myself is that this was all part of the plan.  A flipper put in an offer on this house before us but then backed out after seeing how entrenched these deadbeat tenants were because he knew he wouldn't be able to get it flipped quickly with them there. The sellers then turned to us and we picked up a pretty good deal. Getting these people removed was always built in to the cost, it just so happens to be manifesting now. 

reminds me of a tale of my past...  I was one of the larger court house steps buyers in our market for years.. and there were folks that would come to the sale and if we bid they bid.. they knew we did our due diligence on title etc.. so they could just short cut it.

one particular one was this Dentist wife.. it would irk me.. so I run title on this one.. then do my usual 6 am drive by before the sale to make sure its still standing.. and lo and behold  full of bikers and pit bulls and etc etc.. I thought no way am in going to buy that thing and deal with those folks.. 

so I bid dollar over the dentist wife jumps in and I just stop.. she looks at me funny .. but I said no I am done on this one and she had to take it.. I suspect she learned her lesson on that one. 

Considered it several times with difficult tenants we inherited to avoid damages. But we recently had one that's been a great tenant for over 12 years. She is obviously having some recent mental health issues & this month refused to pay rent. So we offered her cash to help her move to a low income housing facility. 

Best one was on a mortgage we held. We owned the home for many years renting it to a small local company for their executives. Finally sold it & we held the financing. They virtually rebuilt the home, added a 4th bedroom on the ground floor with a master ensuite. They also added a 3.5 car coach house with an upper 22x36 man cave. The old 2.5 car garage was converted into a massive new kitchen. All the wiring, plumbing, windows, roof, siding & all the drywall was completely redone. They even went over the old thin oak hardwood throughout with beautiful new wide 4-5" wide hardwood. He was a flooring contractor.

They eventually divorced & she got the home but couldn't afford the taxes & mortgage payments. She attempted to sell it but it was during the down turn. We offered her $40,000 for a deed in lieu of so she could move to more affordable housing. She jumped at it. She even left all the high end appliances. We now rent it to the Coast Guard guys that are based up here on 2-4 year tours of duty.

If it avoids malicious damages, the cost(s) of eviction & allows for a smooth minimum delay tenant transition it's definitely worth the expense. 

Originally posted by @Jay Hinrichs :
Originally posted by @Jj Horst:

Yes luckily I wasn't enough of a green horn to give them the money up front. The thing I keep telling myself is that this was all part of the plan.  A flipper put in an offer on this house before us but then backed out after seeing how entrenched these deadbeat tenants were because he knew he wouldn't be able to get it flipped quickly with them there. The sellers then turned to us and we picked up a pretty good deal. Getting these people removed was always built in to the cost, it just so happens to be manifesting now. 

reminds me of a tale of my past...  I was one of the larger court house steps buyers in our market for years.. and there were folks that would come to the sale and if we bid they bid.. they knew we did our due diligence on title etc.. so they could just short cut it.

one particular one was this Dentist wife.. it would irk me.. so I run title on this one.. then do my usual 6 am drive by before the sale to make sure its still standing.. and lo and behold  full of bikers and pit bulls and etc etc.. I thought no way am in going to buy that thing and deal with those folks.. 

so I bid dollar over the dentist wife jumps in and I just stop.. she looks at me funny .. but I said no I am done on this one and she had to take it.. I suspect she learned her lesson on that one. 

 Ha nice one. Hopefully she did. We actually thought we were the first to offer but apparently we were beat... We thought we won the lottery when the sellers came back, but then had the obvious...wait a minute...what happened to the other buyer? By then the seller had raised their minimum asking price. We decided to go in lower with our original offer and they accepted. We suspected it was because the tenants, and were later told by the sellers broker, yes don't freak out like the last guy on the tenants, it's not that bad and you can get them out....We'll here I am so we'll see if I can or not!

I have used cash for keys with occupants in homes that I purchase out of trustee sales. It gets them out fast, they don't destroy the place, and they take all of their junk. 

Why would need to do cash for keys in a rental? I require good credit, employment, and deposits. If they stop paying rent, then I evict them and charge for the damages. If the damages exceed the deposit then I send them a bill with the choice to pay it or go to court. I remind them that a judgment will trash their credit, and I will garnish their wages. I just recently went through this, and they set up payments to cover the damages and avoid a lawsuit.

As always, seek professional advice. 

@Thomas S.

In my opinion it is unethical to screw other landlords by using cash for keys to bribe a bad tenant and protect them from having a eviction on their record.

In my area there is no way to research evictions. I am not screwing another landlord I am protecting my interest. 

I have the same concerns about rewarding people for bad choices and behavior. However there is too much at risk to not try to mitigate it.  A disgruntled tenant who is evicted can easily do tens of thousands or dollars damage to a property.

For me it was purely a business decision.

I am a foreign investor and its been a massive learning curve investing in US. Had some great wins, and a couple of headaches along the way... Haven't we all????

However, keys for cash worked for me recently. 

Got the sucker out within 1 week, cleaned the place up and we all moved on.

Still out of pocket, but the other was not an option.

There are a number of ways to wreck someone's credit. In Illinois one can sue someone at Superior Court a $100 fine will prevent someone to buy a home so he moved into next county buy a new home with no loan doc and default to live there for free until sheriff serves him often years later.  In CA if you try to let go a non-performing section 8 tenant chances he will win at court making landlord miserable. There are many people in East SFBA who do not know why one needs to work to hang on to a kind landlord as Santa Claus. 

It is imperative to know what kind of person you let in as tenant. As a landlord you should try to find place for non-performing tenant. Some will sweeten or give incentives others want to fight it out at court.  

This is a primary reason not wanting to be a landlord. Those who want 100 rentals just magnify the problem 100X.

Oh yes, that old chestnut.... bad tenants..... who needs them.

However, when housing markets are booming, its the easiest way to grow capital. load up I say

Marisa Rowe

@Jj Horst in San Francisco, cash for keys could be in the $$,$$$. I have heard even up to $15,000 per occupant if you are trying to buy them out, they could still stick around for 6 months or so and not pay rent. But I own in Ohio and it cost about $500 to take them to Court and get them out. However if I can get them out in one week for $250, I would be happy to pay it and just move on as my time is more valuable, I can upgrade with remodel and get higher paying tenants with better background checked.
@Jj Horst .... Ill speak for where I invest (Toronto) . It can be up to 4mths before a full eviction can take place. Ive done cash for keys several times. If the tenant is slowly causing damage or if tenant is a headache for other units(multi unit). I have given back half months rent even a full months rent and its worked. I feel one must protect their investment at all reasonable costs. Eviction is far too much time money and energy. Some people have one bad eviction process and they give up. Do whats best for you.
I would rather pay a couple drunk bikers the deposit money to make my bad tenants life hell ..than pay off a bad tenant to leave . I wouldn’t reward my own children that I love dearly if they boldly refused to do their chores , so why would I reward adults that I can’t stand if they refused to do their part ? ConcernIng ethIcs and morality.. As a Christian I find this concept unbiblical and lacking of justice or of “ fair scales” as the Bible calls . Fools and thieves justly receive lashes from the whip and blows to the back not a purse of sIlver coins to leave town .
While we’re taking about cash for keys, is this a legal method or brought up off the record and in person ?is the offer made in writing or show up and wait until hey leave to pay out
Originally posted by @Eric Burgh :
While we’re taking about cash for keys, is this a legal method or brought up off the record and in person ?is the offer made in writing or show up and wait until hey leave to pay out

It's a bribe. The legality depends on the laws where you live.

Hiring low-life criminals with baseball bats has been touted by some here as a solution to this problem, but that is DEFINITELY ILLEGAL.

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