If you need to get a tenant out of your property before the lease is up for any reason, one potential solution that exists is something called “cash for keys.”
What Is Cash for Keys?
A cash for keys agreement is when a tenant agrees to move out of a property on a certain date and hand over the keys to the landlord in exchange for a set sum of cash.
Cash for keys transactions rose to popularity during the housing crisis of 2008, when many banks struck these types of deals with the occupants of foreclosed homes. These days, cash for keys agreements are often made between tenants of rental properties and their landlords as a win-win solution for both parties.
When and Why Would a Landlord Offer a Tenant Cash for Keys?
The most common scenario when cash for keys is used is when a tenant is delinquent, meaning they have not paid rent for more than 30 days. You may also offer cash to get tenants out when they are violating other terms of the residential lease agreement, such as causing damage to the rental unit or engaging in illegal activities on the property.
Landlords may also offer cash for keys to paying tenants when they need the property for some reason before the tenant’s lease is up. For example, you might decide that a cash for keys agreement is the best option when you want your property back to remodel it, sell it, or occupy it yourself.
Another scenario in which landlords sometimes offer cash for keys is when they have long-term tenants in rent-controlled properties. In this case, you may want to buy them out, so that you can raise the rent to current market rates for new tenants and increase your rental business income. One common way to go about this is to terminate the lease with a notice of nonrenewal and enter into a cash for keys agreement with your tenants.
Can you offer squatters cash for keys?
In extreme cases, delinquent tenants may attempt to squat in your property, and they can even try to earn legal rights to the property through local squatters’ rights laws if they inhabit the property for long enough.
Getting squatters out of your property can be an extremely lengthy — not to mention expensive — process, so attempting to enter into a cash for keys agreement with them may be a better alternative.
The Cash for Keys Process: Step-by-Step Guide
Step 1: Have a conversation
The first thing to do when you want to get a tenant out of your property by paying them is to sit down and have an honest conversation with them. Explain to them what cash for keys is and why you think it is the best option for both of you at this moment.
If your alternative is evicting the tenants, explain to them that this is a long process that will eventually result in them getting kicked out and having to pay. They may also receive something on their record that will make it hard for them to rent in the future.
Step 2: Sign a written agreement
After you’ve had the conversation and your tenant has agreed to do a cash-for-keys agreement, you need to put it into writing (and make sure it’s legally binding). The written agreement should specify that if the tenant fails to move out on the agreed-upon date, they waive their right to an eviction trial and automatically give up possession of the property.
To ensure that your written agreement complies with all local laws and regulations and that it is legally binding, it’s a good idea to have a property lawyer look over it before you and the tenant sign it.
Step 3: Get transaction records
Finally, make sure you have a record of the transaction after you pay tenants to move out. This can be either a receipt or a document signed by the tenants stating that cash was received.
What Amount Should You Offer?
How much you should offer to pay your tenants to move out will naturally vary depending on where you are located and the cost of living/moving in the area. In general, you might offer them somewhere in the ballpark of $500-$5,000, depending on the value of the rental property and your plans for it.
While this may sound expensive, it’s much cheaper than eviction, and you can start renting the property again much sooner to avoid further rent loss.
Tip: Make sure you still treat the tenant’s security deposit as normal when they move out, and deduct any damage expenses from the cash you give them.
What if the Tenant Still Doesn’t Move Out After the Transaction Is Complete?
On the agreed move-out date, you should meet the tenant at the property to get the keys and conduct a move-out inspection of the property.
However, if the tenant doesn’t move out on the date specified in the signed cash for keys agreement, you can get a writ of possession and have the tenants forcibly removed by the local authorities.
Is Cash for Keys Legal?
Cash for keys is completely legal, but the exact laws surrounding these types of arrangements can vary from state to state. Make sure you know the local landlord-tenant laws and what they say about cash for keys deals for your local area.
When in doubt, consult with an attorney who has experience in landlord-tenant matters to make sure you are doing everything by the books.
The Bottom Line: Is Cash for Keys a Good Idea?
While paying a tenant to move out is never the ideal solution, doing so can be much cheaper than going through a formal eviction process, which can cost somewhere between $4,000-$7,000, on average. Plus, you have to factor in the rent you will continue to lose while you go through a lengthy legal process that may take 3-6 months.
As long as you follow the correct procedure for making a cash for keys arrangement with tenants, it can be a good (and fast) solution to your problem.