Updated March 2022
Do you know about cash for keys, and if so, do you find it to be a good way to get unwilling tenants to move so you can retake control of your property?
Cash for keys is controversial whether you’re talking about a landlord and a tenant or a bank foreclosing on a homeowner.
If you want to see how controversial this method is in practice, it’s easy to do. Join your local landlord association and tell your new friends that you’ve discovered an amazing investment strategy for landlords: It’s called Cash for Keys, and it works like a dream. Whenever you have an eviction looming with a tenant, just offer them cash to move out instead of evicting them.
Here’s what will ensue.
- Eye rolls
- Temple flares
- Verbal jabs
- A few people who agree with you
In this post, we’re going to discuss why cash for keys is controversial, along with five tips and five mistakes landlords make when paying their tenants to vacate the property.
A Table Of Contents For Cash For Keys
Cash for keys is a valid practice, but that doesn’t mean it is always the right one. Learning more about cash for keys and how it works in action can help you determine when to add this method to your landlord toolbox. Follow along with today’s discussion below.
- What Is Cash For Keys?
- 5 Tips For Cash For Keys: Step-By-Step
- 5 Mistakes With Cash For Keys
- Cash For Keys Agreement Form: RentPrep Example
- What Are Typical Cash For Keys Amounts?
- Another Perspective: Cash For Keys Programs With Foreclosures
- Does The Cash For Keys Method Work?
- FAQs: Cash For Keys Explained
- Don’t Stay Trapped: Try Cash For Keys
What Is Cash For Keys?
First question: what exactly is cash for keys?
Cash for keys is a way for a landlord (or bank in a foreclosure situation) to convince a tenant to vacate a property in exchange for an agreed-upon sum of money.
Although it may seem counterintuitive, cash for keys is, in many instances, less expensive than going through a lengthy eviction process. Typically, the amount paid comes with stipulations based on the condition in which the property is left.
Cash for keys is common in situations where tenants can no longer afford the rent or are damaging the property. In other cases, it may be an option when a landlord purchases a new rental property and wants to move on from the existing tenants.
Is Cash For Keys Legal?
Many new landlords may wonder if this method is legal. It can feel like a too-good-to-be-true practice in some situations, but there are no rules about not using cash for keys.
As long as you are not forcing your tenant to take this option and both parties agree to the terms, you should be able to move forward with cash for keys. Of course, it is important to always pay attention to state and local laws. Laws are constantly changing, and there may be limitations placed on this type of situation in the future.
5 Tips For Cash For Keys: Step By Step
The biggest part of finding success when trying the cash for keys method is to make sure you do things right. You cannot try to persuade a tenant to accept this method with force or threats, nor should you sacrifice your own financial well-being to do so.
Following this five-step process will help make the cash for keys method as successful as possible.
#1 Have A Conversation
Approach the delinquent tenants and explain that they are violating the lease agreement and that you will be starting the eviction process. Outline the steps for eviction, the consequences, and the expense, and mention the potential impact on their future.
For example, many tenants who are late on rent may not realize that a formal eviction stays on the public record for up to seven years in most states. While some states, like Oregon, only show records for five years, it can be difficult to find housing in the future with an eviction on record.
Tenants who want to avoid having an eviction on their record but do not have the money to pay rent may find it appealing to move forward with a cash for keys offer. This enables them to find a new rental without first fighting through the court system.
#2 Suggest An Alternative
Once the tenant understands that you are offering an alternative to eviction, they may be willing to hear you out about what other options are available to them.
Explain that they can have cash in hand if they agree to be completely out of the rental unit and turn keys over to you by a certain date with no damage to the property.
Share the date and the amount you have in mind with the tenants. Then, discuss.
It might take some time to come to an agreement about when to end the lease, how much money to give them, and what any other applicable terms are going to be, but that’s okay. The time spent coming to an agreement is likely to be significantly less than the time required to prepare for an eviction case, so you are still benefiting from the situation.
#3 Get It In Writing
When doing this type of exchange, you must get things in writing. This is for the benefit of all parties involved.
Ideally, you will use a cash for keys document (example provided below) that spells out the agreement’s details and includes the amount and the date and time of the transaction. The agreement should state that the eviction will move forward if the tenants are not out on time.
Put as much detail into the document as possible, clarifying what will happen to the security deposit, how much money will be exchanged, if the tenant will still be responsible for any owed rent, and more. The more detail, the better for everyone involved. Have all parties sign and date the document once you agree.
#4 Be Present On Moving Day
On move-out day, be at the property with the paperwork and the check. Once the tenant is completely out of the property, you will want to do a walkthrough to ensure the property is left according to the terms of your agreement.
After you do the walkthrough, sign the final papers and exchange the keys for the money. That’s it, it’s over.
#5 Proceed As If Vacated
Now that the tenant is completely moved out, it’s time to go ahead and take care of the property as if it were vacated at the end of a lease or abandoned. Change the locks, get rid of any garbage and food, and do any maintenance and repairs you need to get it ready for the next tenants.
If something doesn’t happen according to the cash for keys plan you have agreed to, you must proceed with the eviction process outlined by your state.
Not every cash for keys scenario works out so cleanly. Many landlords find themselves in a pickle when they make easily avoidable mistakes.
5 Mistakes With Cash For Keys
Even if you try your best to make sure everything goes as smoothly as possible, there can always be things that come up along the way. These are the top five common mistakes that get property owners into hot water when attempting to remove tenants from the property.
#1 Self-Help Evictions
This is the most common mistake that frustrated and exhausted landlords make. While it is understandable that property owners get upset about not being able to regain control of their rental property, that doesn’t mean self-help evictions are allowed.
What exactly is a self-help eviction?
A self-help eviction is when the landlord makes it so the tenant cannot access or safely live in the property.
Landlords cannot take matters into their own hands and make the tenants’ lives miserable by doing lock-outs, shutting off the utilities, refusing repairs, or using any other method to keep the tenants from accessing or inhabiting the property.
Not only is it illegal, but the landlord can also be on the hook for fines and have to pay the tenant for spoiled food, wasted utilities, and in some states, a set dollar amount per day they’re locked out.
Even when the tenant won’t see reason and try to talk to you about moving out or following the lease rules, you cannot resort to this type of method. Instead, you need to file an eviction suit with the court system immediately so that you can legally regain control of the property.
#2 No Harassment
It is illegal to physically or verbally threaten tenants, yell at them, stalk them at work, or harass other family members. No matter how frustrated you may be, always remain professional.
A looming eviction can be a very emotionally charged situation for the landlord and the tenant. Try to remove the emotion as much as possible and clearly communicate the situation.
#3 Don’t Negotiate Too Much
Sometimes tenants will attempt to talk you up in the amount and, if you keep agreeing, they may feel like you will negotiate even more.
You can take the approach of starting low and working your way up to the actual amount you’re willing to pay, so tenants feel as if they are getting a great deal.
Or you can start high, hoping the amount will impress them, and stand firm. Just don’t get desperate and start offering amounts that you haven’t thought through or that are not financially worth it for you.
It’s okay to negotiate some terms of the move out when you’re trying to do a quick cash for keys transfer. For example, you may agree to allow the tenant not to patch holes or repaint rooms when they are moving out on short notice. Alternatively, you may decide that you will negotiate, but only up to an amount equal to your legal fees for eviction.
However, you don’t want to agree to things that will make the situation too expensive or time-consuming for you. Plan what types of concessions you are willing to make in advance, and stick to that line. Otherwise, you may end up in a more trying situation than a court-led eviction would have been.
#4 Keep Transactional Proof
Although it is called “cash for keys,” landlords should always pay via check if possible. That way, you have an official record of the transaction.
If you have negotiated to pay in cash, then make sure you both sign something that records proof of the transaction. Provide the tenant with a receipt and make a copy of it for your records as well.
Why is it so important to keep transactional proof?
Even if a tenant seems very amenable to the situation, they may come back later and try to claim that they were illegally forced out. However, if you have documentation of them accepting payment and agreeing to the arrangement, it will be much harder for them to make any headway with this type of case.
#5 Remember The Deposit
Cash for keys is separate from the tenant’s security deposit. Just because they leave doesn’t mean they forfeit that deposit automatically.
You still have to process the deposit as you normally would, which is to do a formal move-out inspection and deduct for back rent, damages, and unpaid utilities.
Most states require that you send tenants a written, itemized list of all deductions and any remaining amount. Forgetting this important step, even if the deposit is completely withheld for the above reasons, could lead to legal action from the former tenant.
It is highly possible, and even likely, that tenants moving out through cash for keys will not get their deposit back because of damages. However, you cannot just assume that. Do a formal inspection and send out the necessary checks and documentation as quickly as possible to prevent any potential issues.
Cash For Keys Agreement Form: RentPrep Example
A cash for keys agreement form (sometimes called a cash for keys letter) should always be in writing.
It needs to include the amount of money that tenants will receive and how that payment will be made. It should also include the deadline for turning over keys. The agreement should state that the landlord and tenant will both go through the property on moving day to assess any damages.
Just click here to download RentPrep’s free cash for keys agreement form.
The link above includes the cash for keys addendum that you will sign on move-out day. This addendum gives the final update to the lease so that it is clear the lease is no longer active and all parties are in agreement about the move-out. It’s key to get this signed.
What Are Typical Cash For Keys Amounts?
Opinions will vary when it comes to the amount to offer for cash for keys with your tenant.
Keep in mind that the average tenant eviction costs around $3,500 in lost rent, court fees, attorney fees, and additional damages.
This question was posted in our private Facebook group, RentPrep for Landlords.
Here are a few opinions on cash for keys amounts:
- Start at $250 and move up
- Offer exactly how much court fees would be
- Offer half of one month’s rent + security deposit
- Start low and negotiate
We’ve had Lee McEachern on our podcast (we discussed the rental application process), and he teaches property management courses along with managing 500+ rentals in the Bay Area.
I mention this because we tend to trust his judgment and he advocated for starting low and increasing your offer.
If you join our Facebook group, you can see a section of the group called “Topics.”
In the image below, you can see that we’ve tagged 17 posts that you can read through where the topic of discussion is about cash for keys.
You can join our group by entering your email in the form below.
You will be emailed the link to the group along with the password you’ll need to provide.
Another Perspective: Cash For Keys Programs With Foreclosures
Cash for keys isn’t always between a landlord and tenant. It can also be a situation between a homeowner and the bank that owns the mortgage. This scenario plays out the same way that a cash for keys situation between a landlord and tenant works.
The bank (landlord) wants to recover their property as quickly and with as little damage as possible. This is why the bank will offer an agreed-upon amount of cash for the homeowner (tenant) to leave the property.
The biggest difference is that the stakes are much higher and the bank has no interest in owning the property.
A bank may offer $2,000 to $3,000 in a cash for keys agreement because the costs will add up much quicker if they go through a lengthy eviction. Many banks will not offer this without the homeowner bringing it up first.
Does The Cash For Keys Method Work?
When landlords facing a tough situation first hear about cash for keys, they often feel like it is a too-good-to-be-true situation. Why would a tenant who has been causing them grief move out so easily?
Fortunately, the good news is that most tenants who can’t pay rent usually jump at the chance to have cash in hand and avoid a judgment on their records.
A favorite saying of mine is, “Sometimes the juice isn’t worth the squeeze.”
I have come across landlords who want to go through with the eviction process so they can get the judgment on the tenant’s record and feel vindicated for the anguish they’ve gone through.
The idea of paying someone who causes you grief is a hard pill to swallow.
I always recommend taking the emotion out of your decision-making and look at it as a business decision. It may feel like you’re losing by offering cash for keys, but your bottom line may end up as a win.
To make sure you don’t have to go through this process again, give our tenant screening guide a read. It will show you the warning signs of bad tenants and how to find the perfect renter for your property.
Additionally, it can be a big benefit to start doing more consistent and accurate tenant screening. By hiring a high-quality tenant screening service, you can ensure that you are always bringing in the best tenants possible. Great tenants are less likely to cause this type of grief and can improve your business long term. Learn more about RentPrep’s tenant screening options to see what might improve your system today.
FAQs: Cash For Keys Explained
Here are a few of the most frequently asked questions when coming up with a cash for keys agreement.
What does cash for keys mean?
Cash for keys is a situation where a landlord or lender offers a certain amount of money to a tenant or homeowner, respectively, for them to vacate the property. Landlords offer these funds to tenants who are going to be evicted or when they plan to sell the property, while banks typically do this when a home is going to be foreclosed on.
The idea of offering a lump sum of cash instead of pursuing either eviction or foreclosure is to speed up the process and to save money for everyone involved. It is often a better rental business decision for landlords even though it can feel like you are giving money away.
How much do you get for cash for keys?
There is no predetermined amount you will need to give tenants in a cash for keys situation, which is actually one of the biggest variables of the entire situation. The amount that you decide to offer will depend on a number of factors:
- How early are you asking the tenant to move out?
- Why are you asking the tenant to move out?
- Are repairs likely to be needed?
- Will you be able to evict them if they don’t move out?
- How much would you spend on legal fees?
The answers to these questions will determine how much you should offer. Tenants who will be evicted regardless will not need as much to be encouraged to leave, while tenants who can wait out their lease otherwise may need more encouragement.
Ultimately, you’ll have to decide what is a good number for your rental business and see if your tenant agrees. Otherwise, you’ll have to try another option.
How does cash for keys affect your credit?
Some tenants may worry that accepting a cash for keys offer is going to have a negative impact on their credit. However, this could not be more incorrect, and they are likely just misunderstanding what exactly will happen during this process.
Accepting a cash for keys offer will not affect a tenant’s credit because they voluntarily move out in exchange for a lump sum of money. Nothing in the situation will ping their credit, nor will a creditor be involved in the situation.
Take some additional time to explain how cash for keys works if a tenant is concerned about their credit score. It might be prudent to highlight that an actual eviction case is more likely to affect their credit, if applicable. This might be the information they need to decide on whether or not cash for keys is a good choice for their situation.
Is cash for keys taxable?
Some tenants may ask if the money they receive as payment for a cash for keys situation will be taxable. Unfortunately, the answer to that question is likely too complicated for you as a landlord to answer, as it is dependent on many different things. Some of the factors that determine how the tenants will need to file this extra income are things that you will not know and are entirely dependent on their tax status.
In most situations, however, the payment will be considered a kind of extraordinary income rather than rental income, and that it should be filed under miscellaneous funds on their tax return. However, for more specific tax questions, the tenant should discuss them with a professional tax preparer as they will have the most accurate answer.
Can you negotiate cash for keys?
Sometimes when you offer a cash for keys plan to a tenant, they may begin to offer their own suggestions on how to handle them moving out. This type of negotiation may be off putting at first, and you might not want to agree to any of their terms.
Whether or not you allow any room for negotiation in a cash for keys situation is up to you. If the tenant in question is a very good tenant who you simply are asking to leave so that you can remodel or sell the property, leaving room for negotiation is probably within your best interest.
However, if you are dealing with a tenant who has caused many problems and is likely to be evicted, it might be a better business decision to hold firm to the amount you have pre-determined to offer. Otherwise, they might simply be taking advantage of your good nature to benefit from what would otherwise be a very damaging eviction on their record.
Is cash for keys the same as a foreclosure?
No, the two are different. Banks and lenders often offer cash for keys to tenants living in a foreclosed property or homeowners who plan to accept a deed instead of a foreclosure option. In both instances, the bank is trying to get the property into vacant status as quickly as possible so they can resell it now that it is their property. Lenders don’t want to manage rental properties, and they want foreclosed homes vacated as quickly as possible. Thus, they offer cash for keys in many scenarios.
Don’t Stay Trapped: Try Cash For Keys
If you feel trapped by a frustrating tenant but unwilling to try an eviction at this time, you might benefit from cash for keys. This method is typically less expensive in terms of both time and money, leading to favorable outcomes.
This doesn’t mean that it will be the right solution for every situation or every landlord, but there’s a good chance that you might find a use for it in the future. Hopefully, today’s guide has set you up with everything you need to know to give it a try.