Cash for Keys Explained
Evictions are a lengthy and expensive process for landlords. Instead of processing an eviction, landlords can effectively use the cash for keys method to move on from a tenant.
Real estate investors look towards rental income as a way to build wealth. Owning a rental property creates another income stream and pays off debts quicker.
That said, what if your tenant doesn’t pay rent or damages the property?
Of course, with every investment, there are risks that can potentially cause setbacks. One of the main setbacks of being a landlord is the risk of non-paying tenants. When tenants don’t pay, investors lose money and have to spend time processing a lengthy (and costly) eviction.
So how can you get past the problem of evictions? One solution is the cash for keys strategy. Today, we break down what cash for keys is and how you can effectively use this strategy as an alternative to evicting tenants.
How does cash for keys work?
When an investor has a difficult tenant or wants to deliver a property uninhabited when they sell it, a popular method is cash for keys. Cash for keys is an alternative to legal action such as eviction which is expensive and time consuming. Landlords already have enough duties on their plate. Cash for keys simplifies the problem of eviction so landlords can retake control of their property.
The landlord proposes to the tenant that they move on from the rental property in return for an agreed amount of money. Usually when the tenant can no longer afford rent or they are mistreating the property is the time where eviction is necessary. However, offering cash for keys is cheaper and helps the landlord move on from the tenant.
Can you enforce cash for keys?
Before enforcing cash for keys, you should formally write up an eviction notice. Let your tenant know that you’re serious about moving through the court system if needed. However, you should encourage a conversation about alternative methods so you can talk about cash for keys. Give your tenant a clear date of eviction, but mention that there is a better solution.
Enforcing cash for keys requires a clear conversation with the tenant. It’s important to carefully outline the consequences of eviction. Let tenants know that an eviction stays on their record publicly for years to come. They should know how difficult it will be to find a home after the eviction. After the tenant understands the negative impact of an eviction, you can transition into the alternative solution of cash for keys.
How do you incentivize a tenant to vacate a property?
At this point, cash for keys will sound like a much better deal than fighting through court. Get the proposal in writing so everything is documented including the agreed amount of money, date, time, and other details about the cash for keys transaction. Mention the incentives next by including if the security deposit will be given to the tenant or landlord. Make clear terms with the agreed upon settlement and how the tenant will be paid before they move out of your rental property.It’s easy for a landlord to get upset about the situation because they are losing money when tenants aren’t paying. This may cause the landlord to shut off utilities and limit the tenant which upsets them too. Incentivize the tenant by telling them that you won’t make their living situation any worse if they agree to a cash for keys. Start low with negotiations and keep communicating until both parties agree on a price.
Is cash for keys legal?
Cash for keys is legal in all 50 states, but you should follow the right procedure and document the entire transaction. As always, it’s prudent to consult with a legal professional to ensure that you are going about everything legally.
Many tenants will be on board with cash for keys as it helps them prepare for finding a new home. To be on the safe side, don’t harass or mistreat your tenants even if you’re frustrated and losing money. The goal is to come up with an agreement to avoid court by settling on a deal where both parties are satisfied with moving on.
Utilizing better solutions
Evictions are long and dramatic that landlords reluctantly want to process. Cash for keys is an alternative solution that helps both the landlord and the tenant move on without the court system. Cash for keys is similar to a settlement that can save you from legal fees and spending too much time removing a tenant from a rental property. Effectively using this strategy is a key towards your success as an investor that eases the burden of setbacks.
Sundae does not provide legal, tax, or investment advice. This material is for informational purposes only. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Any references to other sources or sites, is delivered “as is” and Sundae makes no representation or endorsement of any kind with respect to the accuracy of such information or its suitability for any particular use. Please seek the advice of an attorney, tax professional and/or financial advisor for guidance to properly evaluate particular investments and/or strategies.