Can you get TOO BIG for CASH FOR KEYS?
CASH FOR KEYS
Can your portfolio of rental properties grow to such a large size that you can no longer offer cash for keys to your non paying tenants?
This is something that can be debated back and fourth just as we debate whether or not The United States of America should be ran by Democrats or Republicans if the chicken came before the egg.
My opinion YES, yes you can have a portfolio of rental properties that is so big that it becomes counterproductive to off CASH FOR KEYS.
What is CASH FOR KEYS?
CASH FOR KEYS is a method landlords and property managers use to get a tenant to vacate a property willingly in exchange for a cash payment from the landlord or property manager.
Why would a landlord or property manager offer CASH FOR KEYS?
Evictions are expensive and timely. A non paying tenant can usually stay in a property for 6-8 weeks after the landlord or property manager begins the eviction process. The landlord or property manager will also incur court and legal costs along with an inconvenient trip to the court system which could take them away from their other means of earning income for the day. Sometimes CASH FOR KEYS is quicker, easier and cheaper as the landlord or property manager can avoid the lengthy and expensive eviction process.
Why does the size of your rental portfolio matter when deciding whether or not to offer CASH FOR KEYS?
If you have a small portfolio of rental properties it can be a good idea to use this tactic. I have used it with some success myself. You save time and money and quickly move on to a new paying tenant but once you get to a large enough size it suddenly becomes counterproductive as word will quickly spread that you give CASH FOR KEYS.
CASH FOR KEYS can only work if other people don't know you are willing to participate. If you are a large landlord or property manager you are to well known in the neighborhood to do anything under the radar.
Think about the United States of America's policy towards terrorists. The United States of America will not negotiate with terrorists because it would encourage more terrorists to engage in the activity. If one group of terrorists kidnapped a group of American tourists and the United States paid the terrorists a cash settlement for the release of said hostages the United States just created a profitable business model that would undoubtedly lead to more kidnappings. A large landlord or property manager cannot engage in CASH FOR KEYS for the very same reason.
People talk to each other. If a landlord or property manager has a large concentration of rental properties in a particular market they cannot risk word getting out that any tenant who lives in their properties can simply stop paying rent whenever they want to and then avoid all negative consequences and earn themselves a parting gift on their way out.
What may work in a microeconomic sense would prove to be disastrous on a macroeconimc scale. The landlord or property manager would loose all leverage and authority in the neighborhood. The large landlord or property manager would begin to see a huge spike in non paying tenants as all of the potential tenants in the neighborhood would know about the gravy train and be sure to cash in. Saving a small amount of money on a few evictions would be outweighed by the sheer volume of additional non paying tenants.
Instead a large landlord or property manager needs to enforce strict rules and regulations to keep the tenant base in line. There has to be consequences for bad behavior or it will only continue.