Cash for Keys – 5 Mistakes to Avoid

In the event that you find yourself with a nightmare tenant, you will want to exhaust all possible options before moving on to the formal eviction process. There are many things you can try to do to either convince your tenants to shape up or move out. One of the favorite strategies for landlords is using a “cash for keys” agreement to get problem tenants out quickly. In the long run, cash for keys can save you money and heartache, and help you turn over a unit more efficiently.

What is cash for keys

Cash for keys is a method for getting rid of problem tenants before the rental agreement expires by offering them a cash incentive to vacate the property quickly. This agreement can keep you out of a formal eviction process or an eviction lawsuit and can save you money in the long run. Especially in the case of tenants that are struggling with financial burdens, cash for keys can be an effective method for getting the tenants to vacate. Many tenants will use the money you provide to pay for a security deposit or application fee for a new unit. Because it is mutually beneficial for you and the tenant, they will often move voluntarily and work with you cooperatively.

The cash for keys process is relatively simple. First you should calmly and professionally approach the tenant and let them know that they will be evicted if they cannot fix their violation, such as paying their late rent or getting rid of an unauthorized roommate. Remind them that they will face legal consequences if they cannot fix their violations and cannot stop violating the rental agreement. Explain to the tenant that cash for keys can give them an honorable way out of the rental agreement and that you will even pay them to move out quickly and cooperatively.

Once the tenant agrees to cash for keys, you should set a move out date that is relatively soon. You will then proceed as if it is a regular move out; on the move out day, inspect the property, get the keys and give them the money. Make sure that you change the locks immediately after the tenant has moved out to discourage them from coming back. Lastly, refrain from returning the tenant’s security deposit until after you complete a thorough inspection of the dwelling and determine if any deductions are necessary.

Benefits of cash for keys

Cash for keys is a smart idea if you have a problem tenant that you want to motivate to move out quickly and cooperatively. Because you are paying them, you can give the tenant a quick move out date and turn over the dwelling as soon as possible. This way you will only have a short pause in your revenue stream and be able to replace the problem tenant with a good one quickly. It also keeps you and your tenant out of a lengthy and expensive legal battle. The amount you pay the tenant to move out is almost always less than the cost of an eviction, which will save you money in the long run.

Best practices

When you first broach the topic of a cash for keys agreement, you should bring it up as part of a friendly and professional conversation. Make sure that the tenant does not feel threatened, but rather respected. Bring up the consequences of a formal eviction and gently remind them that it will stay on their record for many years. Let them know that you would like to avoid an eviction and would like to use a cash for keys agreement because it is in everyone’s best interest.

Answer any questions they might have about the agreement and be sure to explain how the process will work. Be clear on the date you want them to move out and the amount that you are willing to pay them. Once you have agreed on a move out date and an amount, you should always document the agreement in writing and have the tenants provide their written signature. This will ensure that you have proof that the tenants understood the agreement and agreed to its terms. The document should include the amount to be paid and the date and time of the move out and transaction. Include a statement in the document that if they tenants do not vacate the premises, you will move forward with a formal eviction.

It’s advised that you are there in person when the tenant moves out and when the transaction is completed. This way you can ensure that the tenant has, in fact, moved out of the residence, turned in their keys, and received their payment.

Lastly, do not forget to change the locks after the tenant vacates because there is always a chance that the process will not work out as cleanly as you had hoped.

5 common mistakes to avoid

1. Too much negotiation

In a cash for keys scenario, the tenant may try to talk up the amount you offer them to move out. Know your upper limit before even beginning the negotiation process and stand firm at this number. It’s advised that you start low and then negotiate; this way, your tenants will feel like they are getting a good deal and you will stay below your upper limit. However, you can also start by offering the highest amount you are willing to offer as long as you don’t budge on the number and let them know you are not open to negotiation.

2. Failing to document the transaction

Avoid making any formal agreements that are not documented in writing. There is always the chance that your tenant will claim that you did not follow proper procedures and take you to court, so you should make sure to have evidence should it come to this. If possible, do not pay the tenant in cash, but rather use a check so that you will have an official record that the transaction took place. Should you complete the transaction in cash, make sure that both you and the tenant sign a written document as proof of the transaction. With both cash and a check, you should provide your tenant with a receipt and keep a copy for your records.

3. Forgetting about the security deposit

Just because you use a cash for keys agreement, does not mean you no longer owe the tenant their security deposit. Even if they have moved because of a cash for keys agreement, you should process their deposit as if it were a normal move out. Inspect the property after the tenants vacate the premises and deduct any costs for back rent, damages, and/or unpaid utilities. Send your tenants an itemized list along with the check as usual that details all deductions along with the final amount returned.

4. Harassing your tenants

Even as your tenants are preparing to move out, you should never stop treating them respectfully and professionally. Until they are officially off the property, tenants can sue you for harassment and intimidation claims. Be as professional as possible even if the tenants are not cooperating; although it can be easy to get emotional with your money on the line, you cannot let these emotions lead to you harassing your tenants.

5. Attempting a self-help eviction

Self-help evictions are illegal in every state and should never be attempted if the tenant does not cooperate with a cash for keys agreement or fails to vacate after the transaction. Do not attempt to force them off the property yourself through neither direct nor indirect means. If the tenant fails to comply with any agreements you have both come too, complete the formal eviction process so you can avoid any fines or lawsuits associated with self-help evictions. Although it can be tempting to try and get rid of the tenant on your own, you should rely on the law’s due process to take care of it for you.

Recommended Amounts

The average costs for an eviction is around $3500, including lost rent and court fees. Because you are trying to avoid these unnecessary costs, the amount you offer should obviously be lower than this amount. Many landlords recommend you start by offering $250 and work your way up; some tenants will try to negotiate, while others may accept this as a first offer. If you want to start off with a higher amount with less room for negotiation, offer the tenant $500. You can also offer the tenants exactly the amount that court fees will cost you; however, you won’t save any money, but you will save yourself from the hassle of going to court. You’ll also be able to turn the property around quickly if you go this route. The last option is to offer the tenant half of one month’s rent and negotiate around this number. Most experts agree that you should start low and negotiate upwards. No matter what route you choose to take, be aware of the most you are willing to pay and stand firm at this price.

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