So I was reminded recently of an important tactic I learned way back in my first year as an investor. It’s a handy maneuver that 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 also, whether you’re a “keeper” or a “flipper”.
* Note: There’s a fresh, hot and tasty FREE REI form waiting for you at this end of this here article. 🙂
I’d like to share with you my own spin on it, along with the paperwork I use to make it happen. But first here’s the email I got from a local investor (Steve) that’s inspired me to share it with you…
So yeah, without a doubt one of the toughest issues any landlord deals with on an ongoing basis is dealing with deadbeat tenants 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)
One of my early mentors shared an 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…)
It’s called “Cash for Keys”. And simply put, it’s 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…
“Noooooo waaaaaaaay! 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’s 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…
Clear Advantage #1: Weeks vs. Months
In my area, a full eviction and set-out takes 60 days at 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 – two 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 vs. Thousands
In my area, even if I handle an eviction myself (which I don’t recommend), I’ll end up spending $500 – $700 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: An 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 Say It
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 or whatever, but do what you can to “come along side” 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 rents and pay you five hundred 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.
How to Prove It (And 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 have a form I’ve used for just such an occasion and I’ll gladly share it with you, with the disclaimer that, 1) it comes to you “as is”, 2) should be used at your own risk, and 3) is not to be construed as legal advice. Please consult your attorney before using it.
Here’s a short video I made walking through this agreement…
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 down-right 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.
So…what’s your take on this?