The concept of cash for keys is unfamiliar to many, but it is a less complicated alternative to the eviction process.
While you must be careful to follow local and federal laws when completing cash for keys agreements, it often makes the transition between an owner and tenant seamless. This will allow you to easily and efficiently run your rental business.
What is a Cash for Keys Agreement?
A cash for keys agreement is where you pay a lump sum of money to the current tenant in order for them to vacate the property. This is 100% legal as long as you follow the correct procedure, as well as state, local, and federal requirements.
Cash for keys agreements are often used in the following situations:
- The current tenant is damaging property
- The tenant is struggling to pay rent
- The landlord wants to sell the rental property
- The landlord wants to increase rent to the market rate
Tenants can be motivated to vacate the property when cash is involved, especially if they are already struggling to pay rent.
This may seem more costly for the landlord at first, but ultimately it is a win-win situation. Eviction processes are expensive, costing up to $7,000, not to mention that they also can take months to complete.
It is important for landlords to know that cash for keys agreements are an option and can help them efficiently run their rental business.
The Cash for Keys Process
The cash for keys process is simple. Here are the most important steps.
1. Communicate with Your Tenants
The first step is to have an honest conversation with the current tenant and explain to them the cash for keys process. Help them understand that this would be less time-consuming and cheaper than a traditional eviction.
2. Give Them a Cash for Keys Agreement Form
A written agreement form signed by both parties is essential for your records. This creates a legal and binding contract that you both agreed to, therefore preventing legal struggles in the future.
3. Collect Transaction Records
You will need written proof of the transaction for both you and the tenant. This can be in the form of a receipt.
Typical Cash for Keys Amount
The amount you give your tenant for the keys will depend on your location, as well as local and federal laws. The general rule of thumb is that the amount is half a month’s rent plus the security deposit, or a full month’s rent. Typically this amount is between $1,000 and $3,000.
Tips for Avoiding Cash for Keys Mistakes
This process is pretty straightforward, but there are some complications you should avoid. These complications can lead to legal fees and lawsuits.
Fair Housing Violations
Be certain you are following fair housing laws and not discriminating against the current tenant. For example, if your tenants have disabilities, pay extra close attention to the Fair Housing and Rehabilitation Act of 1973 so as not to break any laws.
Do not perform any eviction that is illegal in the eyes of the law. This can include changing locks on your tenant’s doors, turning off their water, or removing the tenant’s belongings.
Do not negotiate the cash for keys amount with the tenant. Go in with an exact offer and only reconsider after considerable thinking if the tenant provides valid reasoning.
Foregoing Security Deposits
You should still treat the tenant’s security deposit as you would any other tenant leaving the property. This means doing your usual rental inspection checklist and deducting for any damages as normal. You will send them a written notice of findings and explanation with their remaining deposit.
- Cash for keys is an alternative to the traditional eviction process
- The amount is typically half a month’s rent plus the security deposit
- It is important to avoid mistakes that can lead to future legal issues.
Overall, the cash for keys option can be a beneficial alternative for landlords and tenants who want to avoid the messy and costly process of an eviction.