Posted over 6 years ago

Cash for Keys. It’s Just Business.

     Cash for keys is a strategy where a property owner or landlord offers to pay a squatter or holdover tenant to vacate the premises to avoid an eviction proceeding. Is it akin to paying a bribe? Perhaps. Will it save time and money? In many cases it will. Eviction can be a lengthy and expensive process in many jurisdictions. Is it immoral? There are some who claim it is—that it will encourage future unethical behavior in the squatter or tenant, sort of like a gateway crime. I don’t think it is. In fact, I can envision instances where it is the right thing to do. Suppose a long term tenant has lost their job, their spouse, or has experienced another hardship. They can no longer afford to lease your property but they do not have the means to move. Could it be in the best interests of both the landlord and the tenant for the landlord to help pay for the real expense of moving and securing another residence? I think it could. It is simply a tool—one which I do not like to use but would in the right situation. In fact, I have only used cash for keys once. It wasn’t my idea but it worked out beautifully.

     A multi-year tenant had given proper notice to leave a rental property but when the date in his notice came he didn’t leave. I called to see whether he was still in the property. He was. We had a brief conversation in which he informed me that he had a place lined up to move to but that he would not vacate unless I paid him—cash for keys. Again, this was a long-term tenant (most of my tenants have been long term tenants) so I knew him fairly well. He was a decent guy. Usually did what he said he would when he said he would. He was rarely late with the rent—gave notice and paid late fees when he was. He was current on all charges when he delivered his ultimatum. It surprised me to say the least. He told me that he appreciated the tenancy. He also told me he knew it would cost me lost rent, time, and court costs to evict him. I suspect he knew he had me at a disadvantage and was prepared to press his advantage. He said “it wasn’t personal, it was just business”. I realized he was right—he would stay if I didn’t pay and paying would cost less. I don’t recall what I agreed to pay (I believe it was ~$500 plus his security deposit). Our agreement was that I would come by at a specific time in a few days and if he had removed his belongings, left the house clean and returned his keys, I would pay his ransom.

     I arrived at the agreed upon hour and found a moving van in the driveway. The house was clean but the tenant had not finished loading his stuff into the van. He asked for his check. I pointed out that he wasn’t out yet—that our agreement was that I would pay him after he gave me possession of the house. He said he would need a few more hours. Perfect. I knew I now had the advantage. I instructed him to leave the keys on the counter when he was finished loading the van and to call me so we could discuss another meeting. When he called I thanked him for leaving the house clean and expressed my disappointment that he had chosen this way to end his tenancy. He demanded his check. I explained that our agreement was that he would give me possession of the house at a specific time. I was prepared to honor the agreement but he did not perform his part. I would not pay him. “It wasn’t personal—it was just business.”

Comments (14)

  1. I'm sorry you had to go through this, Jeff, but you handled it well and the outcome turned out okay. Many investors would have just handed over the check anyway -- so good for you for standing your ground.

    1. @Kent Clothier, every once in a while landlords are given the opportunity to win one. I try not to let my opportunities pass by. Thanks for your comment.

  2. do you recommend having a sign lease with an existing tenant before the closing date?

    1. @Karen Young, I am sorry but I don't quite understand what you are asking? Would you please restate your question?

  3. only $500? Wow...I just paid $5,000 to get someone out. 

    1. @Sajju Shah, that is quite a large ransom. Was the occupant a squatter or a hold over tenant? What do you think it would have cost you and how long do you think it would have taken to evict the occupant?

  4. Great article.  I've used this multiple times before when buying property that has non/late-paying tenants in it.  I find its a great way to diffuse the situation and avoid time/money spent going through the process of eviction.  Is it fair or right? Well that's up to you and how much pride you are willing to swallow.  I always include $500-$1000 cash for keys cost as part of my formula for potential deals if there are tenants in the property and find that 1-2 weeks is a good timeframe to keep everyone focused on the move out date.  Make sure you have them sign a cash for keys document as part of the negotiation, including specifics on move out date, time, "broom clean", deposits, etc.

    1. Thanks. I agree that if you offer to do this it should be understood that you are agreeing to specific terms. Committing the offer to paper would be best. My adventure did not have a written document as I did not initiate the offer and there was not much time but the tenant (stick up man) clearly violated the terms we agreed to by not being out at the time we specified. He did clean the place up pretty well. I was happy with the outcome and would not rule out using this tool if the situation warranted.

  5. If he had moved everything out by the agreed upon time and then you met him at the house, I don't see why you were still planning to give him the money. He gave notice and it was past his time to be out. What was he going to do if you didn't pay him? Move back in?

    1. Chris, I had given my word. I honor my agreements.

  6. I made an offer on a short sale and I just found out from my realtor that the tenant is asking for cash for keys. I'd never heard of this before and have to say it left a bad taste in my mouth and both my husband and I considered walking from the deal. However if it goes through we would have instant equity in the property so we have decided to hang in there a bit longer as we have contingencies in place to allow us to walk later. This article came at a perfect time and was an interesting read for us.

    1. @Anna Thorell, I agree it is not pleasant being held up but you would only be hurting yourself if you walked away from a good deal. Best wishes.

  7. Glad you didn't end up having to pay the ransom!  It's crazy that a tenant with a good long term history would try and pull something like that.  I guess you never know.

    1. It's not so crazy. He may have had a friend tell him about it and he thought he would get a little cash. He would have had he been out on time. Turns out he miscalculated. I don't recall specifically but am fairly certain I would have charged him rent for the entire holdover month as I would have been allowed to do by law. If he had left on his own I might not have done that.