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What Is Cash for Keys? A Program That Can Benefit Landlords (and Cash-Strapped Renters)

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If you’re a landlord dealing with a tenant who won’t pay rent, you’ve likely considered starting the eviction process. But as any seasoned landlord or property manager will tell you, eviction isn’t always the best solution.

For starters, evicting a tenant can cost landlords between $1,500 and $2,500. Other burdens a landlord faces include potentially losing thousands of dollars in unpaid rent and the repair fees for any property damage.

What if there was another way to get your tenant out at a fraction of the cost (and headache) involved in a full-blown eviction? It turns out there is, and it’s called “cash for keys.” Here are all the facts you’ll want to know before attempting this eviction alternative, explained by the experts.

What is cash for keys?

In a nutshell, cash for keys is an alternative solution to eviction that’s typically cheaper and faster for landlords. The landlord gives a tenant cash, and the tenant turns over the keys.

And while the idea had a resurgence during the COVID-19 pandemic (when many tenants faced eviction due to job loss), the idea got its start at least 10 years before.

“Cash for keys gained popularity in 2008 due to the housing crisis,” says homebuyer and builder Ryan McMahon of San Diego Home Solutions. “Cash for keys is a buy-out agreement between a tenant and their landlord. The landlord pays the tenant to voluntarily vacate the property and leave it in good condition.”

Typically, landlords will pay a tenant between $1,000 and $2,000 in a cash-for-keys deal. And although this can be a huge savings (both time and money-wise), it isn’t always the best solution.

So when does cash for keys make sense for landlords? We’ll dive into that next.

Cash for keys scenarios

Cash for keys is best employed by landlords trying to negotiate with a willing tenant they need to get out quickly to protect the property, the neighbors/neighborhood, or their business reputation.

“Cash for keys also makes sense if you anticipate the occupant will accept a reasonable offer instead of taking an eviction judgment,” says Heather Peake of property management software company Rentec Direct.

Another reason you might want a tenant out fast? If you already have a new one lined up.

“If you anticipate that the current tenant won’t leave peacefully without a financial incentive, then cash for keys makes sense,” says real estate expert Marina Vaamonde of HouseCashin. “It can help you avoid an extensive eviction process.”

Cash for keys pitfalls

Assuming most of the above conditions apply, pursuing cash for keys might be a landlord’s best option. But there are some common downfalls to be aware of as well.

“Be sure you know who you are dealing with in the negotiations,” says Peake. “Is it a squatter situation with no lease? Did the original tenant bring in roommates, relatives, or significant others?”

In other words, don’t give cash to anyone whose name is not on the lease.

And there are situations, such as subleasing, that can be tricky. For example, a landlord might negotiate a cash for keys offer with an occupant who isn’t the original tenant—but who may believe they have a legal claim on the property.

“Be sure to understand the situation so you can negotiate with all parties necessary to accomplish a vacancy,” adds Peake.

How to close a cash for keys deal

Once you’ve established your tenant’s willingness to accept a cash-for-keys offer, there are a few steps you’ll want to take to ensure the tenant honors the agreement.

“Always get the agreement in writing with witnesses present,” says Peake. “Also, make sure you have proof of the transaction on the day you receive the keys, such as a signed receipt. Keep a copy of these documents in the event the occupant attempts to stay past the agreed upon vacancy date.”

Another precaution worth considering? Don’t give your tenant the cash until they’ve turned in the keys and you’ve had a chance to inspect the property.

“The main disadvantage of cash for keys is that tenants could simply take the money and run, thus reneging on their agreement,” cautions Vaamonde. “There’s little the landlord can do in such a situation given that the trouble of suing the tenants is probably more effort and expense than the benefits they would gain.”

The bottom line

If you choose to use a cash-for-keys program for reclaiming your property, you will want to formalize the process as much as possible.

Spend some time researching the local laws around cash for keys in your area, and be sure you’re complying and leaving a long paper trail. Conduct this program as professionally as you would an actual eviction, and you’ll be much more likely to have a positive outcome.

The post What Is Cash for Keys? A Program That Can Benefit Landlords (and Cash-Strapped Renters) appeared first on Real Estate News & Insights | realtor.com®.

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