Is "Cash for Keys" ethical? Thoughts?
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Real Estate Investor · Washington, DC · Member since 2014 · 236 posts · 328 votes
8yThe 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?
45 Replies
- Rental Property Investor · Oakland, CA · Member since 2014 · 730 posts · 1k+ votes8y
@Angela Yan its much more now. A friend of mine just paid $80K to get rid of an SF tenant.
I just paid $35K to buy out a tenant in East Oakland. Her rent was $1100. I can now charge $2800 for the same unit (after remodeling for $20K). The increase in value at a 6% CAP is $300K, so why wouldn't I do this?
“Cash for keys” means different things in rent controlled markets vs non-rent controlled markets. Someone like @Thomas S. can simply issue a notice to vacate in their market. But we can’t do that in rent controlled markets so cash for keys is widely used to get units to market rate. Has nothing to do with the tenant. This is probably off topic because I am not talking about problem/non-paying tenants.
- Flipper/Rehabber · Los Angeles, CA · Member since 2009 · 1k+ posts · 732 votes8y
@Account Closed
Yeah I have heard of amounts of $75,000 or so being offered and even turned down in L.A.
What you said makes a lot of sense since you paid $35k but gained $300k in value after remodel .
Was this a new property or one that you had for a while and decided to buy out the tenant ?
- Rental Property Investor · Oakland, CA · Member since 2014 · 730 posts · 1k+ votes8y
Originally posted by @Joseph M.:
@Account Closed
Yeah I have heard of amounts of $75,000 or so being offered and even turned down in L.A.
What you said makes a lot of sense since you paid $35k but gained $300k in value after remodel .
Was this a new property or one that you had for a while and decided to buy out the tenant ?
A 5 unit property that I bought in January of this year. The plan all along was to buy out all 5 tenants (cost me a total of $79K) but rents will go from $5,500 to $11,000. Had to put in $140K in rehab but well worth it.
A friend of mine, who is rather active on BP, had a North Oakland tenant who wanted $200K to move. It’s not always worth buying out below market rate tenants, but it usually is.
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes8y
Originally posted by @Jj Horst:
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?
I'm probably in the minority but I think "cash for keys" is the path taken by the weak. It essentially rewards the tenant for their bad behavior and then ensures they are more likely to pull the same stunt with the next Landlord.
If they violate the lease, hold them responsible. If it costs you more, that's part of doing business and you'll hopefully learn to screen better and create stronger policies and procedures to handle problem tenants in the future.
The DIY Landlord Book4.7248 Reviews - 8yMike CumbieBusiness MemberREALTOR® · Brockport, NY · Member since 2015 · 3k+ posts · 4k+ votes
Generally speaking I consider "Cash for Keys" a last resort or something to use when you purchase a property and really just want that tenant out. You never ran checks on them and they are your tenant only because you bought the place. You want to take it in another direction. In that case I see no problem with doing it and have done it myself. I really don't know how good of a tenant they are, I know the place isn't in the condition I would like it, there is junk all over etc. Perhaps it is a former owner and you bought it at auction, then cash for keys away to get moving on the property.
If it's a non paying tenant, in my area it's better to just file. I don't feel it's out of some "social justice" or "Landlords sticking together singing Kumbaya" or anything :) Our system is fairly consistent here and results move along quick enough. If I lived in an area where you couldn't do evictions between Sept 1 and June 4th or some such BS, I would have no problem using that tactic though.
- Los Angeles · Member since 2018 · 464 posts · 471 votes8y
I have a question on this topic. Can you, or can you not, put a mark on the tenant's credit report that they were asked to vacate for non-payment of rent?
"Asked to Vacate" vs. "Evicted", the latter of course involving legal proceedings that are automatically placed on public record.
I'm thinking you can do the "Cash for Keys" and at the same time put out a warning for any future landlord who does any due diligence on prospective tenants, such as checking their credit report.
- Los Angeles · Member since 2018 · 464 posts · 471 votes8y
Originally posted by @Nathan Gesner:
I'm probably in the minority but I think "cash for keys" is the path taken by the weak. It essentially rewards the tenant for their bad behavior and then ensures they are more likely to pull the same stunt with the next Landlord.
Companies around the nation deal with this kind of thing every day. Somebody will trip on a crack in the sidewalk in front of the business and sue. The business is then faced with the choice of 2, 3 maybe more years of a drawn-out, expensive legal battle, or they can give the a**wipe a few thousands to go away quietly.
Neither choice is a "good" one, but sometimes settling out of court is just simply more expedient.
Will said a**wipe go find somebody else's business to "trip" in front of? Rinse and repeat? Possibly. In some cases, probably; there are shyster lawyers who make a living this way. Legal extortion. But when you are the defendant in such a suit, what can you do? Do you have the Means and the Will to go the "High Road" and teach this shyster a lesson? Or take the "easy way out" because you have neither the means nor the will?
- Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes8y
When someone uses your services and does not pay they are literally stealing from you . That is theft folks . Now why on earth would you reward someone who is stealing from you ? That is why we have a justice system in this country to handle these situations. If you came home and found a local teenager in your bedroom loading your valuables into a pillow case ,would you call the police or offer him a few hundred bucks to stop stealing all your stuff and leave ? It is lunacy to pay off tenants
- Los Angeles · Member since 2018 · 464 posts · 471 votes8y
Originally posted by @Dennis M.:
When someone uses your services and does not pay they are literally stealing from you . That is theft folks . Now why on earth would you reward someone who is stealing from you ? That is why we have a justice system in this country to handle these situations. If you came home and found a local teenager in your bedroom loading your valuables into a pillow case ,would you call the police or offer him a few hundred bucks to stop stealing all your stuff and leave ? It is lunacy to pay off tenants
There is no argument on the principle involved. The question is regarding the practical matters.
Suppose in your example, you knew that if you called the police they'd come by, arrest the perp, then bill you for their services roughly the same as the value as what was being stolen? (the most apropos example to the costs involved with eviction)
Suppose you knew the local police chief was this criminal's brother-in-law, so the chances of him seeing any punishment was between slim and none? So, as they haul the perp way, he waves at you, saying, "See you next week!"
Suppose you live in a jurisdiction where, by the time the police got there, the criminal would be long gone, and then the police would make you sit down and fill out 128 pages of paperwork "for their records"? (again, the time costs involved with eviction, showing up to court when it's the least convenient)
Suppose this was the same guy who robbed you last year, and when you called the police, he tripped on your steps trying to get away, twisted his ankle, then sued you for neglect? (it has happened)
Of course, you can always counter that my examples could only be possible in a Justice System that is Broken.
Yep.
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes8y
Originally posted by @Alvin Sylvain:
Companies around the nation deal with this kind of thing every day. Somebody will trip on a crack in the sidewalk in front of the business and sue. The business is then faced with the choice of 2, 3 maybe more years of a drawn-out, expensive legal battle, or they can give the a**wipe a few thousands to go away quietly.
Neither choice is a "good" one, but sometimes settling out of court is just simply more expedient.
That's a bad analogy. The tenant is not suing you for possible negligence; they are failing to uphold the contract, refusing to leave, and essentially stealing from you.
The DIY Landlord Book4.7248 Reviews - Rental Property Investor · Los Angeles, CA · Member since 2018 · 49 posts · 46 votes8y
Hi Jj, I get what you mean about letting a wolf continue to roam. We could, of course, say it depends on the situation, in my opinion, there are different landlords for different tenants.
When I purchased one of my quads, the sellers' property manager told me one tenant is ALWAYS late so they just considered her rent due on the 15th of the month rather than the 1st. That may have been okay for that property manager, but that is not okay for me. When we closed escrow I offered her cash-for-keys and she happily moved on to a new home. When her potential new landlord called me for a reference, I was honest and did share what I had been told, which I felt was the ethical thing to do for my fellow landlords. She did find a home rather quickly.
I've also accepted a tenant with a bankruptcy and eviction on his record but did all of my due diligence before we signed a lease and that tenant paid the maximum deposit allowed.
- Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes8y@Alvin Sylvain sadly from what ive seen on here The people who push cash for keys are usually left coast /west coast investors who are stuck in communist regime states that requires the landlord to bend over backwards for their tenants . It blows my mind anybody would even want to have rentals in California Washington or Oregon etc. I feel bad for you guys but what works out there might be a poor strategy for us landlords who haven’t been neutered yet
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Alvin Sylvain:
Originally posted by @Dennis M.:
When someone uses your services and does not pay they are literally stealing from you . That is theft folks . Now why on earth would you reward someone who is stealing from you ? That is why we have a justice system in this country to handle these situations. If you came home and found a local teenager in your bedroom loading your valuables into a pillow case ,would you call the police or offer him a few hundred bucks to stop stealing all your stuff and leave ? It is lunacy to pay off tenants
There is no argument on the principle involved. The question is regarding the practical matters.
Suppose in your example, you knew that if you called the police they'd come by, arrest the perp, then bill you for their services roughly the same as the value as what was being stolen? (the most apropos example to the costs involved with eviction)
Suppose you knew the local police chief was this criminal's brother-in-law, so the chances of him seeing any punishment was between slim and none? So, as they haul the perp way, he waves at you, saying, "See you next week!"
Suppose you live in a jurisdiction where, by the time the police got there, the criminal would be long gone, and then the police would make you sit down and fill out 128 pages of paperwork "for their records"? (again, the time costs involved with eviction, showing up to court when it's the least convenient)
Suppose this was the same guy who robbed you last year, and when you called the police, he tripped on your steps trying to get away, twisted his ankle, then sued you for neglect? (it has happened)
Of course, you can always counter that my examples could only be possible in a Justice System that is Broken.
Yep.
ONe thing that was common in the GFC in CA and especially so cal was squatters.. you buy a court house steps or auction property only to find out those living there had no right to be there in the first place.. but there you go 6 months to a year to get them out.
it was very common to offer 2 to 5k to get them to just leave.. your sitting on a 500 to multi million dollar purchase and its tied up over a few grand.. it just becomes dollars and sense. Dead beat tenants that default on legitimate leases I get that.. I have even gotten judgements against them and garnished their wages.. LOL
- Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes8y
For the most part, a non-paying tenant could be caught with proper screening techniques. So, if a future landlord will call you, asking about this guy, you can tell them the truth. Rarely happens, by the way. The main thing for the landlord is to secure paying tenants and get rid of the problems. Avoiding evictions has been a major part of my business plan, because I live in a city that takes a very long time to evict.
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Marisa R.:
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.
Marisa have we spoken in the past ???
- Developer · Atlanta and Detroit · Member since 2018 · 601 posts · 821 votes8y
Hi Jay
Good to see you on this forum, such a great contributor. I have been lurking in the background.
We have spoken some time ago.I am the Aussie gal who purchased in the Atlanta market and now developing in Atlanta.
I am also now playing in Detroit..... I know most will think I have lost my mind, but it comes back to the right people on the ground, I know cliche. This market is certainly not for the faint hearted.
Hope you are doing well with your investments.
Chees
Marisa
- Los Lunas, NM · Member since 2015 · 7 posts · 0 votes8yif the tenant is this bad about making payments where they live, chances are there are other red flags. Bad credit score, being the first. previous resisdence. Repossessions of vehicles or other items.
- Columbus, OH · Member since 2018 · 218 posts · 134 votes8y
In my opinion, cash for keys makes good business sense in some markets and not in others. I live in Ohio, which from my understanding, is a more landlord friendly state. Its possible to go through with the eviction in a similar time and for a similar price as cash for keys. I do not however agree with folks using cash for keys frequently in lieu of proper tenant screening. The wolf disguised as one of the sheep should be caught in the next round of tenant screening if the next landlords are checking references and credit.
- San Jose, CA · Member since 2018 · 16 posts · 6 votes8y
I've done cash for keys 1 time. They had rented for many years. He lost his job and they struggled to pay the rent. We did cash for keys and they moved into a small apartment they could afford. In this case a win/win. Offering cash rest the relationship. They ended up cleaning the place before they left.
- 8yGeorge SkidisPro MemberRental Property Investor · Belleville, IL · Member since 2017 · 875 posts · 529 votes
In almost 30 years I have never tried cash for keys. I will evict someone if they don't get out on their own. That being said, some non paying tenants moved out after I served a 5 day notice. Their new landlord did not call me. THEIR problem. Tenant screening starts with listing the unit. Are you doing due diligence on your prospects.
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