April 10, 2014
Last Updated
Evictions can be very costly for landlords, so a growing number are using a cash for keys incentive on bad tenants, where landlords pay cash to tenants to move out quickly and cleanly. On this episode of RentPrep’s Night School, we’ll take a look at the pros and cons of cash for keys and the proper way to pay bad tenants to vacate.
Episode Transcription for Cash for Keys – Paying Bad Tenants to Vacate
Jeff: Welcome back to another episode of Landlord University Night School. This is Jeff.
Stephen: And this is Stephen.
Jeff: And tonight we’re gonna talk about paying bad tenants to vacate. So, essentially, you’ve got a tenant, they’re not paying their rent or they’re causing problems on the property and you’re basically giving them cash money to leave. Tell us a little bit about that.
Stephen: Well, I think formally it’s called “cash for keys” and it is super controversial topic. Not only in a blog article that we’ve written, we’ve seen a lot of engagement, controversy on social media when we posted this article, but I’ve seen it mentioned a number of times in landlord associations that I have gone to or spoke at. It’s always 50-50.
Some landlords say this is a great idea. It makes so much sense. You’re saving money on the cost of having to evict them. You’re saving the headache of having to deal with somebody who has a problem. And then on the other side of it, I’ve heard landlords say this is a terrible idea. You’re setting the tone for other tenants that, if they become a problem, they’re gonna actually get paid to leave.
So I can understand both sides of it and, honestly, I think I lean towards the side of using cash for keys. I like it. I think that it’s effective. I don’t think it’s something that other tenants are gonna catch wind of and wanna do the same. I don’t think anybody wants to reach that point where they’re asked to leave. But I think it’s a super effective strategy for landlords to really just reduce landlord stress. I mean it really comes down to is this something you want to be thinking about when you’re sitting at home, eating dinner with your family?
I think for a lot of landlords, dealing with bad tenants, that’s when it does affect them. It affects them constantly. It’s always in the back of their mind thinking about it. So getting that person to leave and leave amicably is really the best solution to avoid an eviction, to avoid having the place destroyed, that’s the best route for everybody.
Jeff: Yes, and I’ve been through an eviction with a tenant. And if I had thought about doing something like this, it would have made a lot more sense.
Stephen: Yeah, there’s some key components to it really that help you, the landlord, out. For example, one of the conditions of everything…in case anybody doesn’t know, cash for keys, basically, you’re paying that person to leave. You come to them and say, “Listen, this is not working out.” For one reason or another, maybe they didn’t pay or maybe they’ve just been causing problems and getting police calls or noise complaints, whatever it is, you approach them and say, “This isn’t working. I want you to leave and here is the arrangement that I’ll make. You don’t have to pay the next month’s rent and I’m gonna pay you x amount of dollars,” say it’s $500, “if you’re about the 1st and the place has to be in good condition.”
Because what happens a lot of times, when people get evicted or forced to leave, they’re gonna trash the place. They’re gonna shove socks down the toilet and punch holes on the walls and do those type of things that just insult to injury when you’re dealing with an eviction. The eviction cost money itself. You’re losing rent, but then you have to repair the unit.
So you’re paying this person to leave and to leave the unit in good condition. And so they’re motivated to leave clean.
Jeff: Makes sense. Yeah, you talk about leave in good condition and I would think in my mind like okay if I’ve got a problem tenant, maybe they have created a few problems in the place or whatever, I would almost think of talking to them and saying, “Look, let me go through right now and do a walkthrough. And as long as you leave it in the same condition it’s in today, I’m not going to mess with you about anything that has happened, just don’t make it any worse. And when you walk out the door, we’ll do another walkthrough and make sure it’s just like this and you get your money.”
Stephen: I think that’s a great idea and I think, obviously, if you walkthrough and the place is just completely destroyed, you’ve got a whole different problem in your hands but…
Jeff: Exactly. You can call off the cash for keys offer and go through all of your other remedies.
Stephen: Exactly, right. I mean I’m sure there is definitely a breaking point where you say, “Oh my God, this is way worse than I would have ever expected.” I wouldn’t wish to anybody, but of course it does happen. So but definitely…
Jeff: But then you have to balance that against the concern that if you eliminate the cash for keys option and you start to take your other options which would include eviction and maybe lawsuits and things like that. Do they have the money? Can you go after anything from them to be able to get enough money to fix it beyond where it is now? And what if they make it even worse? What if they go through and trash it and, you know, knock holes in every single wall and all of the things that we’ve seen people do. You have to balance that for yourself. It’s that whole head versus guts concept.
Stephen: Yeah, definitely, and you’re absolutely right that when you go through it and see, you may find even if they did a lot of damage, you may never ever be able to recover that. The only thing you’re ever gonna have is their security deposit and that’s that. And so, yeah, you might be chucking it up as a lost no matter what. So, yeah, that definitely does happen, but I would agree with you that you want to set it to say it can’t get any worse than this.
Jeff: Right. So what are the steps that a landlord needs to take to make sure that they do this properly to protect themselves?
Stephen: Well, the first thing, obviously, if they’re late on paying rent, follow all the steps that you would normally follow for somebody’s who’s not paying rent. Give them a pay or quit notice, late fees, late notice. Use cash for keys as basically a last resort. Once you do decide to go ahead and pull that last resort, push the emergency button and say this is it, there’s a notice that you can use, and actual cash for keys notice. We have it on the RentPrep website for free. I’d recommend using it, because, again, trying to portray yourself as being a professional landlord, you should use notices for everything especially being one of them.
And in the notice, you just want to outline all the details. What it is that you’re gonna pay them? What you expect of them? Fill in the blank spots basically in the notice where you can highlight all that information and say, “This is exactly what I expect, this is what you’ll get upon this date that you’re going to be leaving,” and it’s not a bad idea also if you’re one of these landlords that are concerned that other tenants are gonna catch wind of it, to also make it sound like you’ve given this person a good deal, keep it to themselves kind of a thing.
Even though I honestly really don’t believe that a tenant’s gonna hear that another tenant was paid to leave and they’re gonna wanna do the same thing. If you’re renting and you’re doing a good enough job screening and you’re really trying to get a good high quality tenant, these problem tenants should be far and few between. If you got a unit full of problem tenants, then this is a concern, then you’ve got bigger problems than just paying one person to leave.
Jeff: Right, and you mentioned the concept of making sure that you follow all of your eviction process and even when you’re doing the cash for keys, you don’t want to let any of the eviction steps fall by the wayside because you think you have it solved, because you never know, this thing could fall apart right at the very end and they might decide they’re gonna stay and you might still have to follow through on that process.
So any steps that are left to be taken in the eviction process, be sure that you continue all of those things on the advice of your attorney or the way that you handle eviction processes for yourself.
Stephen: Right and people do crazy things. So you never know how it’s gonna turn out. Even if you hand them the best possible deal and you think there’s no way that they’re gonna blow this. There’s always a good chance somebody will. So you’re right, you want to make sure that you’re still covering yourself, you’re not leaving anything to the wayside, you’re following all the steps that you would normally follow. Anyway, it’s just really at the very end of it, you’re either going to move forward and file that eviction or you’re going to accept the cash for keys agreement that you offered them.
Jeff: Makes sense. So you’ve done the paperwork. The tenant has agreed to it. You’ve done a walkthrough to confirm the current condition and, like I said, I would take pictures and make notes. You will give them a copy so that they understand what you’re using for your record and the day has come, they’ve moved out, you’re meeting them on the front lawn, you just hand them the cash and sign them the dotted line saying this is done.
Stephen: Yeah, basically, cash for keys. Give me the keys, I’m gonna walkthrough, make sure that you’re holding up your end of the deal. I’ve got the $500 cash in my pocket and you’re on your way. You’re done here. We’ve agreed to split ways and go our separate ways.
And I think for a lot of landlords, that really is the most peaceful way out. I’ve talked to tons of landlords who have used this method and they’ve said this is what helps keep their sanity, this is what keeps them from thinking about that tenant late at night or over dinner. That having that problem in the back of your mind just tends to consume you when you’re an independent landlord and these properties, these investments are really…they’re personal to you. You may treat it like a business, but ultimately, it’s really your investments. It’s your money so it’s that much more important, so it’s hard to say don’t take it personal.
It’s easy for a property management company to not take it personal, because they chalk this up as a cost to doing business, but an independent…
Jeff: Exactly.
Stephen: Yeah, but for the independent landlord, this is a big deal. So just for their own sanity, I’ve found that the cash for keys works great. It’s a great way to just leave on the best terms possible and agree that this is just not working out for anybody.
Jeff: Right and from a cost benefit standpoint, whether you do an eviction by yourself as a DIY process or whether you hired attorney, it’s an expensive process. You have court fees. If you’re gonna do it yourself, you’ve got to go to court, you have all of your time and maybe some people have the time and they’re willing to forego that, so for $100 to $200 court cost, they might be willing to do that rather than pay $500 plus a month’s rent, but when all is said and done, again, even if you do an eviction, you go through the process, when they walk out the door, you have no idea what you’re gonna see inside.
Whereas, if you approach them, you make an agreement to do cash for keys, you go in and you do an inspection. Now you have a reference point. You know what the condition of that place is now and you have an agreement from them. They know they’re gonna get money and if they’re agreeable to it, you have to believe that more often than not, probably far more often than not, they’re going to hold to that standard so that they can be sure to get the money that you have promised them.
Stephen: Yeah, and I think even if you consider the fees that it would cost you for the eviction and the rent payment and everything else that you’re considering, just to have a date that you know that you’re gonna get them out of there, so they don’t drag on the eviction process, so you don’t continue keep missing months’ worth of rent. The longer that you can shorten that vacancy time, get them out of there, turn that property back around and get somebody in there as fast as you can that can start paying and make it right.
And I think, again, in the long run, you’re definitely saving time, stress, energy by just getting them out of there, paying them to get out of there rather than going through all the hoops that you’re gonna jump through and, like I said, you may not even have them out of there at the date that you’d like them to be out of there. So this gives the landlords a little bit more control and keeps the ball in their court.
Jeff: It’s a great approach. Well, Stephen, that wraps up another evening of Night School.
Stephen: All right, Jeff.
Jeff: Have a good evening.
Stephen: All right. You, too.