By now, you are probably aware of the effect COVID-19 has had on real estate. Due to the closure of businesses and massive job losses, many people in the US housing market have been unable to pay rent. To protect such tenants from homelessness and from contracting the virus, the Centers for Disease Control and Prevention (CDC) announced an eviction moratorium in September 2020. This meant that someone facing financial hardships due to the pandemic could live in a property without paying rent, and not get evicted. A tenant not paying rent obviously means lost rental income for a landlord.
Though the CDC order mentions that tenants will still have to pay what is owed after the coronavirus pandemic moratorium expires in 2021, there’s always the possibility that some might not live up to this obligation. After living under eviction protection for many months, some renters are likely to simply move out when the moratorium expires. Additionally, depending on the state where your rental property is, you could be dealing with eviction bans for months to come. Here are a few states that have already extended local moratoriums:
- New Jersey
- New York
Cash for keys for rental properties is, therefore, a great strategy that landlords can use to protect themselves during COVID-19.
Related: COVID-19 Eviction Moratorium Update: What Landlords Need to Know
What Is Cash for Keys for Rental Properties?
As the name suggests, cash for keys is an agreement where the landlord offers cash to a renter as an incentive for them to surrender the house keys and move out. Landlords have been using this strategy for years to avoid filing eviction notices, paying court costs, spending months in housing court, and sitting on empty rentals. Banks have also used cash for keys for convincing homeowners to vacate their properties, thus avoiding the time-consuming and costly process of foreclosure.
Is Cash for Keys Legal During COVID-19?
Under normal circumstances, cash for keys is legal in all 50 states. Actually, such agreements are encouraged to relieve the court system from too many rental dispute cases. Our research did not turn up any evidence that it is illegal to form such an agreement with tenants during the pandemic. However, real estate investors must ensure that tenants are given proper grounds and notice for cash for keys eviction.
Why might a landlord want to consider going this route during COVID-19? Here are some of the benefits of cash for keys:
- Avoid possibly dealing with a non-paying tenant for months to come – As mentioned, when the national COVID-19 eviction moratorium expires at the end of this month, some states will still have eviction bans in place. Since it is not clear if such bans will continue to be extended, you can save yourself the hassle by pursuing the cash for keys option.
- Start earning rental income again – Each time a tenant fails to pay rent, it means lost rental income and even a missed mortgage payment. With cash for keys, you can convince the nonpaying tenant to move fast and then replace them with a paying tenant.
- Avoid costly legal fees – If you decide to go through with the eviction process after the moratorium expires, you might need to pay for a lawyer. There will likely be other costs as well like filing the eviction notice, lodging a court complaint, and court fees. Cash for keys allows you to avoid all these legal expenses.
- Avoid repair costs – When being evicted, disgruntled tenants have been known to damage property as a way of getting back at the landlord. To avoid the cost of making extensive repairs, it would be advisable to use a cash for keys agreement.
Related: How Much Does It Cost to Evict Someone?
So, How Do You Go About Cash for Keys During COVID-19?
Follow the steps below for a fast and efficient cash for keys process:
- Decide how much you are willing to offer – Preferably, the amount paid in a cash for keys arrangement should be less than what you would pay for an eviction. However, make sure the amount can at least cover the tenant’s relocation cost, as well as the security deposit for a new rental property.
- Communicate with the tenant – Meet your tenant in-person and explain the risks of a formal eviction. This includes damage to their credit score and the possibility of being blacklisted by future landlords. Give them the option of cash for keys and explain how it works. Let them know how much you are willing to offer and when they will need to vacate the home.
- Put it on paper – All details of the cash for keys agreement should be put on paper and signed by both parties. Consult an attorney to ensure that all the terms of the agreement are compliant with the local regulations.
- Inspect the rental property – On the agreed-upon move-out day, be sure to show up at the rental property to inspect for damage and cleanliness. If everything is in order, sign the agreement and exchange the keys for cash. Immediately thereafter, change the locks.
Mistakes to Avoid When Offering Cash for Keys
While the process can be fairly easy, here are some common mistakes you should avoid:
- Violating fair housing law – The fair housing act prohibits landlords from discriminating against tenants based on religion, sex, nationality, skin color, race, family status, or disability. Some local or state laws even expand on these protections. Be sure to comply with this law and renters’ rights when asking the tenant to move out.
- Negotiating – Always remember that your tenant is not entitled to any cash. Therefore, avoid negotiating the price. Simply make your offer and be firm.
- Not having proof of transaction – Once payment is made, be sure to keep a copy of the receipt in your records. This will protect you from potential problems in the future.
- Self-help evictions – This refers to anything a landlord does to evict a tenant that violates local or state laws. This includes things like removing a tenant’s belongings, turning off the water or heat, and changing the locks.
- Forgetting about the security deposit – Even with a cash for keys agreement, the tenant is still entitled to a refund of their security deposit. However, be sure to deduct unpaid utilities and damages. Some states even require landlords to send renters an itemized list of all the deductions. Failing to refund the deposit could result in legal action from the tenant.
Dealing with a tenant who can’t afford to pay rent or worse, simply refuses to, can be very difficult. Cash for keys is a great way to convince tenants to move out fast, thus saving you months of lost rent, potential legal fees, and extensive repairs. Again, remember to consult your attorney to ensure the agreement is compliant with federal and state laws.
Related: What Landlords Can Do During the Coronavirus Eviction Ban