Tuesday, July 29th, 2014

RSS Feed for This PostCurrent Article

The Art of Dispossessing Deadbeats: “Cash for Keys” Unraveled

* Note: There’s a fresh, hot and tasty FREE REI form waiting for you at this end of this here article. :-)

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”.

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…

"In response to your question; I want to be NOT be a landlord right now, to get this couple OUT and to dispose of the property as inexpensively as possible!!! Being ignorant beyond my wildest belief, I really don't know how to begin getting him out of the house (he and his wife are both receiving disability from the government)"

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…

OPTION 1: Click here to download my “Standard Cash for Keys Agreement” (MS Word)

OPTION 2: Or click here to get all 53+ of my personal REI Forms…Free (ZIP file)

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?

Tweet About This!

GD Star Rating
loading...

About 

JP Moses is a roughly-hewn man-child who first got into REI after reading Rich Dad, Poor Dad back in Y2K and went full time in 2002. He's tinkered in everything from landlording to short sales to rehabs to Realtoring to REOs to notes to owner financing, blah, blah, blah...Till he finally stuck his flag deep into wholesaling and has since flipped somewhere north of a couple hundred deals.

JP's not a “guru” but also doesn't think it's a bad word. Among his core values are authenticity, creativity, big honkin' value, general fun-ness and being unshaven. He's super proud to be chief blogger guy at REItips.com and host of the free REIology podcast. He also thoroughly enjoys sharing his 53 best real estate investing forms with anyone who wants them. You should totally check that out. :-)

  • http://twitter.com/justinlee Justin Lee

    Great article JP.

    I had this problem once before in DC. My mistake was not offering cash, just telling them that I would forgive the outstanding balance.

    Long story short it took 3 months to get them out.

    Should have offered them the $500.

    Thanks,

    Justin
    http://www.BestForeclsoureSystem.com

  • http://ryanthompson.com/ Ryan Thompson

    This is a good idea. Another spin on it I've learned from a landlord of my OWN in the past many years ago (We were talking about rentals and tenants, not because I was behind on payments or anything)..

    He said he pays some cash up front, tells him he'll give him more when they leave. And if the tenant is scared they won't get the 2nd payment upon leaving, the landlord just says something along the lines of: “You know where I live – I don't know where you're going. Here's some money up front to show you I'm serious.. you'll get the rest when I inspect the property and approve before you leave.”

    Thanks for sharing, JP. :)

    ~ Ryan Thompson

  • http://www.facebook.com/patrick.riddle Patrick Riddle

    Great article, script, and resource jp.

    Nice!

    ~ P-Rid

  • Dawn Vought

    This is great stuff! I can definitely use this form, but I'm having some trouble downloading it.

    Thanks J.P. for the wonderful gold you share with the rest of us all the time!

  • http://REItips.com/ jp moses

    Thanks for the heads up, Dawn – the download link above should be working now. All fixed!

    …jp

  • http://REItips.com/ jp moses

    Hey, that's a great spin on the concept, Ryan! Thanks for sharing!

    …jp

  • Dawn Vought

    Thanks! It's working now. Great form.

  • petefoster

    Not a totally distasteful solution, but let me share another way that is similar but less distasteful. Most tenants post a security deposit prior to moving in. I have gone to my deadbeat tenants early in the month when they first become delinquent and given them the option of using their security deposit as the last months rent if they get out right away, even if it's in the middle of the lease. I then allow a pro-rated refund of the security deposit based on the day they vacate the property. Now granted, it's a bit of a art form in that you are trying to guess if your otherwise decent tenant will be able to keep paying the rent, but I have used this on struggling tenants who have started a “history” of late payments when I felt like I needed to just get ahead of the situation and get them out. This provides incentive for them to get out as quickly as possible so they will get a larger chunk of their security deposit back. This obviously will not work if you don't have a security deposit or your relationship with the tenant has deteriorated. It's more of a pre-emptive measure based on your feeling that the tenant just will not be able to hold on so you have to do this early on before it gets really bad.

  • Lisa

    I have used this technique. It works and is so much less stressful ending up with a trashed house and lots of time & money wasted.

  • Louise

    Great tip and thanks for your form. As a real estate wholesaler, I will share this concept with my buyers. Yes, I do hear about their occasional issues with non-paying tenants.

  • Terry

    Hey JP, I think this is a good idea..Has it been successful for you.. Or do the tenants know it will take months to get them out and just stay rent free for the duration of the time.

  • David

    Hey J.P.
    I have had only one eviction in 12 years, but that one was enough! We won the judgment, but of course collecting it is a joke.
    I send my perspective occupants through the qualification ringer, but with this couple I slacked, Bad me!
    “Cash for Keys”, I like that, and if you only offer them “$500″ -$1000, and they take it, you zeroed out their Security deposit, and have a broom clean place, nice. Much better than the alternative.

  • David

    Hey J.P.
    I have had only one eviction in 12 years, but that one was enough! We won the judgment, but of course collecting it is a joke.
    I send my perspective occupants through the qualification ringer, but with this couple I slacked, Bad me!
    “Cash for Keys”, I like that, and if you only offer them “$500″ -$1000, and they take it, you zeroed out their Security deposit, and have a broom clean place, nice. Much better than the alternative.

  • jvmccall

    JP – You're right on…! I have done this several times and it works great.

    Here's another SUPER important tip… Start the eviction process the day they are late! Yes, the day my tenant is late, I send them a letter with a big bold headline “Preliminary Eviction Notice”. The letter basically says that they have 7 days to catch up or I am going to contact my eviction attorney. That letter works 9 times of out 10 that I have had to send it.

    Thanks, JP – Keep up the good work!

  • Pingback: Deadbeat Tenants: “Here’s Money, Leave The House!” | REI News Watch

  • Anonymous

    Now the government is using Cash for Keys…The government’s mortgage modification plan hasn’t helped as many defaulting homeowners as was hoped, so the Obama administration will try a different tack to avoid foreclosures. Instead of trying to keep people in their homes, the government will pay them to leave, The New York Times reported.Under the new program going into effect April 5, homeowners at risk of defaulting would be allowed to sell for less than they owe. They could also get an additional cash payment.Banks and other lenders will have to accept the short sale, forgiving the difference between the market price of the home and what they are owed.The government money would serve as an incentive to bring all the parties to the table. Aside from the $1,000 payments that servicing banks get for loan modifications, they can get another $1,000 toward a second loan if one is made and, for the first time, the homeowners themselves would get a payment of $1,500 to help them relocate. More than five million households are behind on their mortgages and risk foreclosure, according to the Times.The goal of the $75 billion Home Affordable Modification Program, introduced last February, was to help banks make temporarily reduced mortgage payments permanent. But administration officials concede the program has been slow to take off and more needs to be done.By the end of the year, economists predict 2.4 million borrowers could lose their homes. That would be an increase from 2.1 million foreclosures and short sales in 2009.

  • scri8e

    Thanks for the 2 forms. How do you handle the security deposit? I would imagine that you carry on as usual.

    Do the security deposit accounting and send it to their forwarding address or to their old address that is your rental. You do not deduct for the past rent owed then? Or do you? =shrug=.
    Also is the amount of $500 standard. If you offer less does it not usually work? In CA a flat fee eviction lawyer is $595 usually. I can garnish wages. It would depend if the tenant is collectible IMO if this method would work out the best for me.

  • 20liberty

    Trust me, reclaiming your house in weeks rather than months helps a lot in easing your hurt pride over the whole thing.

  • http://www.filecabinetkey.net/lost-file-cabinet-key Lost File Cabinet Key

    I’ll post the same information to my blog, thanks for ideas and great article.

  • http://www.filecabinetkey.net/anderson-hickey-file-cabinet-key Anderson Hickey File

    I wanna find more info about this, anybody could?

  • http://www.filecabinetkey.net/file-cabinet-parts file cabinet parts

    Excellent! Great article, I already saved it to my favourite,

  • Lanelabbe

    Thanks a bunch for the cash for keys agreement from one investor to another

    Lane Labbe'

  • Marrinb123

    I’m not a deadbeat tenant, having paid our rent every month. My landlady just doesn’t like the fact that I expect her to keep things maintained (bathtub plugged for over a week now – no plumber), disposal not working for over a month, neighbor/tenant moved our laundry appliances out of the garage to a covered patio to make room for his motorcycles, it was in my lease agreement that my appliances and a bookcase/shelf for laundry supplies could be housed in there. The same neighbor tenant plays loud music til 2 a.m. and she does nothing. Then there is her crazy son who threatens to kill us and has the means to do it (a battery of guns in his basement two doors away). I have given our notice,kept her fully informed about our intended move (buying a house), explained we had to wait for escrow to close and anticipated move date. Nothing satisfies her and she has filed eviction papers with the local courthouse. I’ve filed the appropriate response and our move date is 8 days from now. Should I still pursue a ‘cash for keys’ approach to her, because I think this ‘eviction’ nonsense was a legal strategy to keep my security deposit of nearly $2000.00. I will not damage this home, and I will leave it in ‘broom clean’ condition regardless. I just want this eviction thing to go away. How can I achieve this without paying her more money than I already have? She claims I didn’t pay October rent, but she never cashed the CHECK!! Then she returned Novembers check with a 3 day notice. I’m in shock over all of this.

  • Hopefulhomesolutions

    I’m not a lawyer so I am not giving you legal advice, nor do I know what state you are in, but you should receive some sort of notice of a court date. Go down there with your returned November check and anything showing you gave her an October check (copy of check register or whatever you have). I would suggest you write her a letter and list all of the issues above, if you haven’t put it in writing already. Keep copies, and send it out certified mail, return receipt requested. Take copies of anything you have sent to your landlord to the courthouse, along with photos of what you are talking about (appliances outside, motorcycles in the garage where the appliances were), copy of your lease stating they could be housed there, etc. Also, if anyone threatens to kill you, call the police immediately and report it (every time)!

    Check the exact wording of your lease to see if you have any options in terms of getting things fixed yourself (if they haven’t been taken care of for a certain period of time) and taking that out of the rent. You would usually want to put the money being withheld into an escrow account until this is resolved.

    In any case, it sounds like you should try to expedite getting moved into your house that you are purchasing. If you’re purchasing, you’re not going to have to worry about another landlord pulling your record and seeing something negative on there.

    If you wind up not paying the October, November, December and any further rents, I’m assuming that will more than cover the $2,000 security deposit she will withhold. As long as you do the right thing as you go along as you stated above (not damaging the house, etc.) you will be fine. Also, the court may throw out the case if you go with all of the above anyway. At the very least it should buy you more time so you can get your move accomplished in peace.

    And no, I doubt she’ll even offer the cash for keys option to you.

    Best of luck!

  • http://REItips.com/ jp moses

    Hi, Marrinb123 – sorry to hear your landlord’s not keeping your property up.

    I’d say if you’re ready to go, then yes, a good move would be to tell your landlady so…and suggest she invest in giving you back your security deposit back and getting the property back quickly, versus a lengthy, drawn out eviction process. Make sure it doesn’t sound like you’re blackmailing her…not the approach to take at all. Just an offer in compromise of sorts. If your approach is right, I’d bet chances are she’ll seriously consider it – it’s in everyone’s best interest!

    Thanks for commenting, and good luck on the situation.

    …jp

  • http://www.facebook.com/profile.php?id=586907960 Jeff M Cook

    If all that is true. Just withhold rent or call the police. Tenants have rights; you can sue you landlord easily in most states; at the very least just withhold rent until your stuff is repaired. If they refuse then tell them they are not getting a dime until it is.

  • http://REItips.com/ jp moses

    Sorry, Jeff. But it’s not legal to withhold rent until repairs are done. If you have a deadbeat landlord who’s not fixing stuff, you can certainly take him to court over it. But it doesn’t alleviate you from your obligation to pay timely rent. Check the tenant/landlord laws in any state.

    Thanks for commenting.

  • guest

    What happens to the security? They owe you rent, they do not want to pay but you are trying to give them money to leave and forgive bad behavior yet. So if I understand you are giving security back as well and paying them?