Cash for Keys - pros and cons

[Bobby Narinov]

OK. We all have been there. You have a bad tenant and you want to evict them fast.

But the process is long and expensive. Here in CA it takes 1.5 to 3 months to evict someone and about $800+. If your rent is $500-$600/month that is $1,500-$2,500 not counting potential damages to your property.

So what do you do?

You offer cash for keys so the tenant moves out faster and you save yourself some dough. But do you really? Are you just kicking the bucket down the road and postponing the inevitable?

This may work for a single family house but in an apartment complex it creates a perverse incentive not to pay rent especially in a low income blue collar small community rental properties.

I have a 21 unit apartment complex where the previous owners offered generously cash-for-keys. When I took over half of my tenants though that paying rent is optional. On the top of it they felt that they deserve to get paid so they can move out after stopping to pay their rent. They even knew how much it costs me to evict them so they offered to save me the wait and move out for the generous amount of $1,000.00. I suspect that was what others got from the previous owners. In my area this is the first month rent and the deposit. The amount is fair but it teaches everyone not to pay their rent. because what is the downside for not paying your rent - you get to live a month for free and you get paid your next month and deposit and you even get your deposit back. And you get a clean background.

Now if you are a good tenant that pays on time every time, you look like a sicker to those guys. You are a complete idiot if you don't want to play that game. So you decide to try it once. And it worked. And even though you felt bad for your landlord initially, you decide that he can afford it . He is what the others call it "The MAN". So you tell all of your friends how you screwed up the man and how there were no negative repercussions to it and you made money out of it. And because you are on a fixed income (social security, or any government help) the additional money can go for buying some pot or even something better.

Your dead beat friends start doing it and soon the whole community stops working and starts playing this game. Why work for $1000/month ($800 after taxes) when you can not work, get $600 from the government and $500 from your landlord? And you can feel great because you are sticking it to The MAN and the government at the same time.

Meanwhile all the landlords are wandering why their "good" tenants stop paying their rents after the first month, why their places are half full and have a churn of 50% or more per month. So what do they do - they offer a nice incentives of first month rent at 50% to attract more potential tenants and fill in the empty rentals just to realize that they are loosing money even faster than before.

This scenario may seem a bit far fetched to you but I assure you it is real. The churn may not be 50% per month but it is starting to pick up. Another recession and it may get there.

So what can we all do: STOP INCENTIVISING PEOPLE TO NOT PAY THEIR RENT.

You are hurting the other landlords that are trying to make a living. As I said I had to evict 50%+ (11 units) in my apartment complex to train the rest of them that I do not pay you to not pay me rent. The new ones that come, are aware that I don't play this game and try to avoid my place. Occasionally there are some that didn't do their homework and try to get me to pay them but they quickly learn that I am willing to loose money to get them out.

I know that I am loosing money on the occasional bad guys but this is way better than loosing money on 50% of my rentals and the bad tenants get reported to the courts and hopefully when the next landlord checks their background he/she will not rent to them so they'll pay for their bad behavior.