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Cash for Keys: A Better Option When Tenants Are in Trouble

Larry bought his first rental property back in the '70s and is currently working in the Tampa Bay area, rehabbing and renting homes.

Any time you own rental property you are dealing with people and the ups and downs in their lives as well as your own. Sometimes the evaluation process does not catch problem tenants, and sometimes good people with good histories run into financial or health problems no one could foresee.

Many years ago we rented a house to a nice family with a special-needs child. They were good tenants for well over a year and they took good care of the property. However, eventually their problems became our problems and rents started coming in later and later. We were fortunate that they were reasonable people. After we discussed the situation with them, we decided to tear up the lease and part company as friends. Yes, we kept the deposit, but we didn't try to recover the rent we had lost.

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Other Options

We could have tried to hold them to the letter of the agreement. We could have gone to court to try to get money they didn't have. We could have had the Sheriff dump all their belongings on the front yard. We could have developed such a toxic relationship that they would have trashed the house and cost us thousands to repair it. Fortunately, none of this was necessary; we didn't even consider it.

Missed Rent Checks: An Expanding Problem

Missing rent checks are always a problem, even in the best of times. However, during this period of enforced economic shutdown, more people who have regularly been making timely rent payments are finding themselves in the awkward situation they did not plan on. Their problems are becoming the property owner's problems.

Adding to the property owner's problems is the moratorium on evictions. While this is not universal and doesn't cover every situation, it is a way of shifting some of the pain to the property owners. Tenants must qualify for this protection and it does not cover every situation. Even for those covered, it will not go on forever.

A Necessary Accounting

Sooner or later, there must come a day of reckoning. If the bills for the property cannot be paid, a paying tenant must be put in place. No fancy economic theory from an ivory tower academic can come to any other conclusion.

This is not saying the landlord should not work with the delinquent tenant, nor that they should be treated as an enemy. But what do you do?

Eviction the Hard Way

I know of some property owners who begin initial eviction procedures when the rent is a few days late. It may be necessary, depending on the nature of the property and renters, but for regular, hard-working people who just had a big car repair bill, it may be overkill and begin an adversarial relationship.

It could also be an expensive one. Depending on the state, it could cost you hundreds to thousands of dollars and take many weeks. It may create animosity that results in a lot of destruction in your empty house. I've seen holes in walls, appliances taken, cement dumped in toilets, and cabinets destroyed or stolen by angry people forced from their homes,

The "Cash for Keys" Approach

Many landlords have found a Cash for Keys approach works well in some cases. They give the tenant $300 to $500 when they have vacated the home, if the place is not damaged and littered with trash. It gives tenants an incentive not to take their frustration out on your property.

Some will say, “Wait a minute, these people have lived rent free for several months and now you want me to give them money when they leave? It seems like you are rewarding bad behavior."

But who is the real winner here? If you go through the eviction process, it will cost you money. If they trash your place, that could cost you lots of money. And if you can bypass this risk for five hundred dollars, that makes you the winner. Don't be resentful that the tenants come out okay too. We are not in business to punish anyone. As a straight business decision, a negotiated exit is the best outcome to a bad situation.

The practice is not really something new. Banksters have been doing it for years with short sales and foreclosures. If the house is left in good condition, a bank may give the departing borrower three thousand dollars moving money, to make the process go smoothly and keep the property in good shape.

Some Cautions

Do not give the tenants the money until everything is out and you have confirmed it. Unfortunately, not everyone is as honest and reputable as you are.

Once the move out is confirmed, change the locks immediately! You don't know how many keys are floating around. Then take whatever other steps are necessary to secure the property. You may want to only leave one operating access point to the building. Neighborhood kids like to explore vacant houses if they can get in. A recently removed tenant may try to come back and do damage or take something. I've had an unsecured lawn mower taken. Lesson learned.

You never know how much hostility there is in the mind of the exiting tenant. When you confirm their exit and give them the money, you may want to bring someone with you. Or go through the property after they are gone and meet them at a public place to give them the money. Just keep your personal safety in mind, as these days too many people see violence as a way to settle their issues. You are not the bad guy, but the person leaving their home may see things differently.

Listen to the tenant. Do what you can to help with a smooth transition. Be safe. Some people can be very emotional, but this can often be diffused if you are a good listener.