If a tenant is not paying rent and refuses to move, a Cash for Keys offer from the landlord may be a good option
Cash for Keys makes the most sense if the eviction process will be costly, if it will take a long period of time, or if your non-performing tenant refuses to move
Focus on the financial and practical outcome of the situation
More frequently, real estate investors are asking about Cash for Keys. What does it mean and can it really work?
Cash for Keys is when an investor / landlord pays money to a non-performing tenant in order to regain possession of the property. This may not sound very logical unless viewed through the lens of a worse case scenario: your tenant doesn’t pay rent and won’t move.
If you find yourself in a situation like this, your goal is to either get payment or get possession - that’s it! Don’t make the goal more complicated than it needs to be. Your tenant must either pay and stay, or they can not pay and move - there is no third option. Real estate investors who have tenants staying in their properties without paying are headed for financial disaster.
When would you, as a real estate investor, consider Cash for Keys - giving money to a non-paying tenant in order to regain possession of the property?
If the eviction process is costly. You have to look at this through a financial lens. If the eviction process is going to cost you a high dollar amount, it may be more economical to pay the tenant a lower dollar amount to regain possession. In Colorado, the cost for evictions is rising dramatically.
If the eviction process takes a long time. The average length of an eviction process in Colorado is 90 days. This is three months that you have a property with a non-paying tenant before you are able to regain possession. In this case, a landlord may consider a Cash for Keys scenario to expedite the eviction process.
If the tenant refuses to move. This is a rare circumstance, but it does happen. A tenant may refuse to pay and refuse to move. This tenant may be motivated by a Cash for Keys scenario, freeing up your property for new, paying tenants.
For more information about the eviction process, please reference this post.
Two things to consider:
Remove yourself from the emotional aspect of Cash for Keys and approach the situation from a financial point of view. The cost of eviction expenses, legal fees, missing rent, may outweigh paying the tenant a smaller sum to vacate the property.
As an investor, you have to focus on the goal. The goal is to repossess the property. Have a principled yet pragmatic thought process in how you proceed.
We at Grace Property Management are always ready and willing to help in any way we can. If you as a real estate investor find yourself with your back against the wall in a situation like this, consider Grace Property Management a resource. Contact us at www.rentgrace.com or 303-255-1990.