As a landlord, you want to be earning monthly cashflow from tenants.
The last thing you want to deal with is a tenant who doesn’t pay on time … and it reaches the point where an eviction is required.
The truth is that this may happen to you as a landlord — and instead of it getting messy, you can offer something called a cash for keys agreement to resolve it quickly, cheaply and peacefully.
In this article, I’ll give you a rundown on everything you need to know about a cash for keys agreement — and offer you a template you can use yourself if you find yourself in this situation!
What is Cash For Keys?
A cash for keys agreement is when a tenant agrees to move out of a rental unit in exchange for a cash payment.
I was recently reminded recently of this important tactic I learned way back in my first year as a real estate investor. Cash for keys has saved me heaps of time, money, and hassle since I first learned it, and one you’d do well to have in your bag-o-tricks as well, whether you’re a “keeper” or a “flipper.”
I’d like to share with you my own spin on it, along with the cash for keys paperwork I use to make it happen.
So, an email I ran across more than a decade ago now, from a local investor reminded me of this tactic and inspired me to share it with you…
Without a doubt, one of the toughest issues any landlord has to contend with on an ongoing basis is dealing with deadbeat tenants, but hopefully with as little pain and loss as possible.
And truth be told, “tough” doesn’t quite cut it — it’s more like ridiculously miserable much of the time.
(My fellow landlords… can I get an amen? )
Even non-landlord investors will face this one from time to time…
Let’s say, for example, you snag a killer deal, yours for a song… provided you solve the tired landlord’s real problem by taking over his deadbeat tenant so he doesn’t have to deal with the shyster anymore?
It happens. I’ve done it.
So when it’s time to finally cut the apron strings, what’s the next logical step most of the time?
EVICT.
And sadly, evictions are nearly always expensive, time-consuming, and exhausting.
But… could there be a better way? (Hint: Yes)
How Cash for Keys Works
One of my early mentors shared this eviction alternative with me years ago that, when you can pull it off, frankly beats the pants off wrangling an eviction. But admittedly, it involves a little pride swallowing that can be challenging at times. (And no, you can’t just turn the power off or remove the front door… but oh, a guy can dream…)
Simply put, cash for keys is when when a property owner offers the occupants a cash incentive to avoid eviction and surrender the property quickly instead.
In other words: “You give me house, I give you money… OK?”
Now I can hear some of you already…
“Nooooo waaaaaay! Why in the HECK would I want to PAY someone to leave MY property??? Some deadbeat who OWES ME money and doesn’t have the DECENCY to even act humble about it??? Why I oughta…”
There’s no crying in baseball!
Look, I get it… I really do. I’ve been there myself more times than I care to admit. It actually hurts to even imagine the ridiculous injustice of rewarding that kind of behavior.
But get over it.
Look, you’re running a business here, right? And in the end, aren’t you really just trying to turn profits and minimize losses?
The fact is, if you can set your poor hurt feelings aside for a moment and think clearly, you’ll see it’ll almost always be a better deal for you to pay them to leave than wading through the muck of an eviction.
See if this convinces you… 👇
Advantages of a Cash for Keys Agreement
Clear Advantage #1: Weeks 🆚 Months
In my area, a full eviction and set-out take 60 days at a minimum — and in many areas, it’s a lot longer.
If you’re unlucky enough to have a “professional tenant” on your hands (someone who really knows how to work the system), then you have literally months on top of painful months to look forward to enduring.
My “Cash for Keys” offer dictates that time is absolutely of the essence. I’m shooting for a week — 2 tops — for them to be totally moved out, leaving the place in “broom-clean” condition for me.
And trust me, reclaiming your house in weeks rather than months helps a lot in easing your hurt pride over the whole thing.
Clear Advantage #2: Hundreds 🆚 Thousands
In my area, even if I handle an eviction myself (which I don’t recommend), I’ll end up spending under $1,000 to make it happen…
Hire an attorney (which I do recommend), and you’re over around $1,000—$2,000 or so.
And then, of course, for every month you’re dealing with this, receiving no income for your property, you’re still on the hook for those mortgage payments, aren’t you?
The collective bottom line for a full eviction will almost always be in the thousands… much costlier than the $500 or $1,000 your tenant would likely settle for quickly.
Think about it.
Clear Advantage #3: A Non-Trashed House
Remember, part of the deal is they have to leave the house in “broom-clean” condition. Either that or no dice.
Compare that to the tenant who elects to steal all the copper, knock holes in the walls and smear his dog’s poop inside the cabinets on his way out the door…
(…Yeah… trust me, if you’re a landlord and that post-eviction scene isn’t a familiar one to you yet, it’s a matter of when not if…)
Cash for Keys gives me the leverage to help keep budding, expensive temper tantrums at bay.
How to Offer a Cash for Keys Agreement
First off, don’t go in with guns-a-blazing…
No matter how injured you feel or how much it hurts to offer your resident deadbeats your hard-earned cash to leave, you need a level head when you approach them.
Find your inner Zen monk or put on your best thespian face, but do what you can to “come alongside” them, rather than remaining emotionally charged opponents.
The idea is to try and help them see what a good deal it really is for them, and my own conversation typically goes something like this 👇
“Look, let’s be honest, this isn’t working out. I know we’re both smart enough to see it’s time to part ways. Now I’ve got a powerhouse eviction attorney who’s really good at what he does… but I know we’d both rather avoid all that if possible. That kind of thing can really haunt you for a long time. So here’s another idea, and I think you’ll be happy — it’s a win/win:
Today’s Monday… if you can find a new place to live and move totally out in one week, then I’m willing to cancel what you owe me up to now, and even offer you five $100 bills. I’m willing to do this because, frankly, evictions are a hassle, and I’d rather get a new tenant in here sooner rather than later. And it’s a great deal for you, because you get a fresh start quickly, debt off your shoulders, and some cash to help you get restarted.
So again, (restating for clarity) what I’m offering here is, if you can move out in one week and leave the property in “broom-clean” condition when you go, then I’ll forgive your past due rent and pay you $500 bucks to boot. Would that take a weight off your shoulders and make things a little easier for you right now?”
Now, I don’t use a script or anything, but it typically goes something like that.
The main thing to remember is to NOT be confrontational, no matter how you may feel, and to point out exactly how and why this is a better deal for them.
Cash for Keys Agreement Template
How to prove it (& cover your butt)…
You need to document this to make it formal and binding. It spells everything out in plain English and keeps everyone somewhat more accountable.
I happen to have a form I’ve used for just such an occasion, and I’ll gladly share it with you, with the disclaimer that, (i) it comes to you “as is,” (ii) should be used at your own risk, and (iii) is not to be construed as legal advice.
Please consult your attorney before using it.
Now it’s time to level up your real estate investing game. Download this helpful doc now.
The Bottom Line: Cash for Keys
Now, it’s true that eviction is sometimes necessary…
If you have an unpaying tenant who’s also unwilling to cooperate for some reason, then unfortunately eviction becomes a necessary evil you have to contend with.
But it’s also expensive, time-consuming, often confusing, exhausting, and often downright gut-wrenching. Not for the faint of heart.
So I say, whenever possible, make Cash for Keys your FIRST line of attack, and you’ll save yourself heaps of headache, time, and money more often than not.
You got this,
—JP
