Cash for Keys is a controversial process debated often in landlord circles, but something we LOVE and use. Cash for Keys is the strategy of giving your tenants money to leave the property, avoiding the eviction process altogether. We have used this technique several times over the past few years and found great success. However, before throwing money at your tenant, let’s talk about the specifics.
The theory behind Cash for Keys is simple: Giving the tenant money to leave is cheaper than paying an attorney for an eviction. Think about it: Evicting a tenant will likely take a month or longer, depending on your state. It could cost you several thousand dollars in legal fees to do so, on top of the lost rent for at least a month, maybe two, three or more. Then, you have to deal with the clean-up of a tenant who was just evicted, which is never very pretty. All in all, a normal eviction could cost you around $5,000 or more. But what if you could just offer your tenant $500 to leave the property in good condition? Exactly. That’s Cash for Keys.
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7 Principles to Follow When Using Cash for Keys
Of course, $500 is just an example. Maybe you want to give more. Maybe less. It will depend on the unit, the tenant, and the motivation. However, $500 is usually enough to encourage someone to leave, especially someone desperate enough to be facing an eviction. If you are going to try Cash for Keys, the following seven principles should be followed:
- Explain to the tenant in detail what they need to do. We tell them that the unit must be in move-in ready condition when they leave, so they have to clean it and repair any damages. is saves us clean-up costs and reduces the chance that the tenant will damage the property on the way out.
- Give the tenant a specific date they need to move out by. Typically, we will not give any more than four days to move. The point of Cash for Keys is to get them out of the property quickly.
- Give a Pay or Vacate Notice anyway. We’ll talk about this form in a moment, but just in case they don’t leave, you will not have lost much time. This is typically the first step in the eviction process, and you should get it started in the event that the tenant does not leave.
- Meet with the tenant. Next, meet the tenant at the property and verify that the unit is, indeed, “broom clean.” To be safe, make sure to take someone with you.
- Inspect the property. Make sure the tenant lived up to their end of the bargain. e home should be cleaned out and in good shape. If not, show the tenant what needs to be done, and tell them you’ll come back in several hours to try again. Never give the tenant money until they are 100 percent out and have turned over the key.
- Sign the paperwork. Have them sign a simple document that relinquishes their tenancy at the property. is will protect you in case they later say you changed the locks on them or that they did not really move out. Make sure they sign and date the document.
- Hand over the cash. If the tenant has held up his or her part of the deal, hand over the money and thank them for a positive transition. Wish them well on their way! en get into the house and change the locks immediately.
Is Cash for Keys for You?
Yes, Cash for Keys stings your pride. It feels so “un-American,” like the bad guy is getting away with the crime. Some landlords flat-out refuse to even consider this idea because it feels so wrong, but remember, Cash for Keys isn’t personal; it’s business! Brad Pitt sums it up well in a phone call to Andy Garcia in one of our favorite movies Ocean’s 11, when he is stealing a large sum of cash from Andy Garcia’s casino:
“Are you watching your monitors? Okay, keep watching. In this town, your luck can change just that quickly. Take a closer look at your monitor. As your manager’s probably reporting to you now, you have a little over $160 million in your vault tonight. You may notice we’re only packing up about half that. The other half we’re leaving in your vault, booby-trapped, as a hostage. You let our $80 million go, and you get to keep yours. That’s the deal. You try to stop us, and we’ll blow both. Mr. Benedict, you could lose $80 million tonight secretly or you could lose $160 million publicly. It’s your decision.”
Mr. and Ms. Landlord: You could lose $500 this month secretly, or you could lose $5,000 this year publicly. It’s your decision.
That said, Cash for Keys doesn’t always work. Some tenants will refuse it. Some tenants will ignore it. Sometimes you just won’t want to try it. In that case, you’ll need to continue the eviction process.
[This article is an excerpt from Brandon Turner’s The Book on Rental Properties. To read the full book, click here.]
Landlords: Have you ever used Cash for Keys? Why or why not?
Let me know your experiences with a comment!