Cash for Keys: What It Means for Rental Properties
As the owner of a rental property, eviction is never a fun prospect to have to consider. Maybe it’s an issue with a tenant adhering to their lease conditions or has numerous missed rent payments. Regardless, evicting problematic tenants is a natural part of ensuring landlords and rental property owners profit from their real estate investments. For landlord and rental property owners seeking an alternative to the lengthy and often expensive eviction process, there is the option of offering tenants a cash for keys resolution. While this may be a non-conventional approach to replacing tenants, there are many benefits to choosing a cash for keys agreement.
In this article, we’ll answer the question of “What is cash for keys?” as well as some guidelines for coordinating a cash for keys agreement and general tips for success. With the help of CT Homes, you’ll be able to learn an entirely new strategy for managing issue tenants.
What is Cash for Keys?
“Cash for keys” is the nickname for the legally binding agreement between a landlord and their or (rental property owners) and their tenants to convince tenants to vacate their property with a cash payment. A cash for keys arrangement entails the landlord (or bank in a foreclosure) agreeing to pay the tenant an agreed-upon monetary amount to vacate the property. The process of eviction is time-consuming, expensive, and frustrating for all parties involved. A cash for keys arrangement skips all of this and expedites the process of getting a tenant removed and a property vacant.
A cash for keys agreement can help tenants avoid having an eviction pop up within future background checks and lets landlords replace tenants more quickly.
How Does a Cash for Keys Agreement Work?
Now that we understand what a cash for keys arrangement is, it’s time to explore when a cash for keys agreement would most likely occur. Especially for a less-common option, it’s a great idea to become familiar with the scenarios that a cash for keys option would be most valuable.
Vacating Former Homeowners Still Living in a Real Estate Owned Property Post-Foreclosure
A cash for keys offer is a great option when a former homeowner remains within a real estate-owned property after a foreclosure. For a homeowner that has failed to make their mortgage payments but still lives on the property, the bank or lender may attempt to recover their losses through a cash for keys agreement. Once the homeowner vacates the property, the home will be easier to show and eventually sell.
Vacating Tenants from a Real Estate Owned Property
Once a foreclosure process begins, tenants might still live on the premises through an active lease or month-to-month lease arrangement. Similar to former homeowners that go through the foreclosure process, a lender or bank might offer a cash for keys agreement so that the property will be empty and the touring and listing process can finally begin.
Vacating Tenants from Rental Property You Own
For real estate investors with extensive experience owning rental properties, it’s normal to experience a problematic tenant at some point or another. It’s also fairly common to purchase a rental property that might already have tenants living there. For these scenarios, a cash for keys offer can remove tenants or replace tenants without going through an eviction process.
To maximize profits from a rental property, you always want to avoid having squatting tenants. Especially for a foreclosed property that has been vacant for a while, squatters are never good news. These individuals that have moved in naturally need to be evicted or removed as quickly as possible. As we’ve covered, formal evictions can be expensive, so cash for keys can often save money in the long run.
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Tips for Offering a Cash for Keys Agreement
While understanding what cash for keys means is simple enough, there are numerous guidelines for moving forward with a cash for keys arrangement to guarantee success in removing tenants from a property. Here are some of our tips for a cash for keys agreement.
Healthy communication between all parties is needed to ensure everyone is on the same page for tenants and landlords. Especially for a situation in which a tenant is eligible for eviction, communication is a legal requirement for any decision that will affect the tenant’s living situation. Explain to tenants that they will be evicted, making sure to include details of the circumstances, potential expenses, and impact on their future probability of finding a home. Finish by introducing an alternative arrangement, a cash for keys agreement.
Answer the Question “What is Cash for Keys?”
While banks or landlords may understand what a cash for keys offer is, you can never assume the same for your tenants. After explaining that the tenant is at risk of eviction, which can be time-consuming and detrimental, answer any questions about how a cash for keys agreement works. Cash for keys is legal in all 50 states, often encouraged by courts to help landlords settle disputes externally and benefit all parties involved.
Arrange a Written Agreement
For any real estate or rental property scenario having everything in writing is highly suggested. Cash for keys is simply a nickname for a private written agreement between tenants and rental property owners, and the contract isn’t official until there is a signature from both parties. Having a cash for keys agreement in writing is important for protecting yourself against potential legal issues and ensuring tenants are on the same page regarding payment amounts and move-out expectations.
Follow Up on Moving Day
The entire point of a cash for keys arrangement is to make sure that tenants vacate the property. After all, you’re only offering payment under the circumstances of being able to begin the turnover process sooner. The most crucial day of a cash for keys arrangement is the tenant’s move-out day, so make sure to follow up and ensure tenants have moved out at the agreed-upon time.
Act as if Property is Already Vacant
Once the private cash for keys agreement has been signed by both parties, there is no reason for the rental property owner to wait to begin the turnover process after the agreed-upon move-out date. A cash for keys arrangement allows landlords to proceed with the property as if it’s already vacant, meaning they can change locks and begin turnover service at the date and time the tenant communicated they would be gone.
Cash for Keys Agreement Form
Perhaps the most crucial element of a cash for keys agreement is ensuring everything is in writing through a cash for keys agreement form, often referred to as a cash for keys letter. The agreement form will include the circumstances for eviction, the amount of money the tenant will receive for vacating, how the tenant can expect to receive the payment, and the tenant’s move-out date. Rental property owners will usually also include a stipulation that both the landlords and tenant will be present on moving day to assess any potential damages, which affect the payment amount.
Cash for Keys Payment Amounts
As far as the amount the tenant receives within a cash for keys agreement, it will highly depend on the rental property and specific tenant circumstances. The average tenant eviction process costs around $3,500 in lost rent payments and court/attorney fees, as well as potential damages. The goal of a cash for keys offer is to avoid these steep fees by instead offering a lower cash amount.
Generally speaking, landlords should start low and openly negotiate a higher amount to get keys from tenants if needed. Some view $500 as a great starting point, while others will offer half of a month’s rent with their security deposit as well. Landlords can be flexible with this offer to provide tenants with an incentive that will be more profitable for the rental property owner in the long run.
Cash for Keys Mistakes
While cash for keys offers can be great for landlords and rental property owners looking to skip the eviction process and expedite tenant turnover times, there are many ways to complicate matters when choosing this alternative. Here are some of the most common mistakes landlords make when offering cash for keys to potentially evicted tenants.
- Self-Evictions: When landlords take matters into their own hands by manipulating tenant utilities or locking them out, they can get in deep legal trouble. Harassment will not hold up in eviction court. Make sure to keep emotions out of the eviction process, regardless of a cash for keys agreement or not.
- Too Much Negotiating: While landlords should be a bit flexible when negotiating cash offers, they should never forget who the captain of the ship should be. Make sure to have a maximum amount set to avoid over-negotiating.
- Financial Messiness: Document all payments made and received. To keep an accurate record, landlords will often pay with a check rather than physical cash (despite what the name indicates). Guarantee all parties have a receipt of the payment. All security deposits should be returned if the property hasn’t experienced superfluous damages.
CT Homes Can Help Sell Rental Properties!
If you’ve found yourself at any point in the cash for keys process, consider selling your rental property! We can purchase you rental property with the tenants still in place so you don’t have to worry about evicting them or coming to a cash for keys agreement. With extensive experience with difficult tenants, deferred maintenance, we specialize in purchasing rental properties and putting you in a position to maximize your rental property investment. Contact CT Homes today!
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