Cash for keys in Chicago - Best procedure?

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Cash for keys in Chicago - Best procedure?

Edouard Pierre
Chicago, IL · Member since 2015 · 72 posts · 12 votes

Hi! I'm in Chicago and in the process of closing my first property where I'm inheriting tenants that haven't paid in a while. The situation: 7-unit building where the top two units are family and are both not paying rent. From what I have gathered from the property management (very poorly run since they're still residing in the unit) the tenants aren't paying because the property was in probate. Doesn't seem like it makes any sense because the other units are paying on time. 

My first thought is to do cash-for-keys but what are some of your experiences with the overall approach, amount, and successes/failures? The last thing I'd like to do is waste money, months of lost rent, and time by evicting these tenants. 

Once I close on the property do I serve them a 5-day notice? Do I then serve them the document I have had drafted by my attorney regarding the sum I'd offer, date that they need to vacate, and overall agreement that they don't trash the place?

Is there a rule of thumb for the amount that a landlord should offer the tenant (1month, 2months, etc?)?

Lastly...these two units are occupied by family members. They share the same last name so I assume they're siblings but I don't know anything else. Could this be seen as an advantage? Could I just offer one sum of money which would equal less than if I offered two individual units or should I just stick to separate but equal offers for each unit? What a dilemma...I understand there's no one answer for this but any advice/experience shared would be greatly appreciated! 

I'm a real estate broker in Chicago who deals with residential, commercial, and investments. If anyone needs any help with anything, referrals for any service, or anything at all I'm at your service! Thank you again you wonderful BP-ers! 

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Jason MarcordesPro Member
Investor · Chicago, IL · Member since 2015 · 154 posts · 91 votes
9y

Hey Edouard,

First of all, congrats on your first investment property! That's awesome!

I manage property for a living so I've been in this dilemma many times. The problem is there's no one right answer or solution that works every time. You can read about it and get all the advice you want but when the rubber meets the road, that all goes out the window. My one piece of advice is that when dealing with people, you need to approach the situation with empathy and treat them with respect. Anytime I'm serving a 5/10/30 day notice or having an awkward conversation like this, approach them like a friend and turn up the heat if the situation calls for it. In this situation, I'd reach out to them and tell them something along the lines of "Hello Mr. Smith, my name is Edouard. As you probably know I purchased the building a few days ago and I'd like to set up a time to stop by and meet you." If we take over a property in Chicago with security deposits, we always return them to minimize liability. If this is the case, and you let them know that you have a check for $X, they will always taking the meeting. When you meet them in person you can feel out the situation and gauge where to go next. Who knows....they may have a legitimate reason that they weren't paying rent and want to pay going forward (if this is the case, I would still go through standard procedures of qualifying/screening them). If they don't want to stay or you get a bad vibe and aren't wanting to keep them as tenants, I would serve them a 30 day notice (have this filled out beforehand just in case) and explain that they need to be out at the end of the following month. I'm always as nice as possible and try to work with the tenant as much as possible (sometimes offering to find them a new place or offering to pay for a moving truck) in order to prevent an eviction. If you haven't been through an eviction, it is very time consuming, exhausting, and costly....especially in Chicago!!! If they don't seem willing to voluntarily leave, I would go the cash for keys route. I've seen people move out for as little as $500 but it just depends on how desperate the tenant is. If they aren't biting on that then you can drop the hammer and serve them with the 5-day. I always walk them through how the process works and remind them in a nice way that we'll put a judgement on their record (ruining their credit), garnish their wages, and ruin they're tenant history (with an eviction on their record). I reassure them that that's worst case scenario and we definitely want to push for an amicable solution if possible. If they are career tenants working the system, they won't be phased. If they're decent people, they'll wise up and work with you instead of against you. 

This is the method that I've used dozen (if not hundreds) of times with great success. Sorry for the long winded response....hope it helps! If you need anything, don't hesitate to PM me.

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  • Kenneth GarrettPro Member
    Investor · Florida Panhandle/Illinois · Member since 2016 · 4k+ posts · 3k+ votes
    9y

    I am assuming the rents have been assigned to you and you have taken over the lease agreement.  It may be month to month if there is no lease.  Cash for keys is a negotiating tool.  You have to decide whether paying two months rent for them to move out is worth it.  I've seen people pay up tp $3000.  If you have to evict them Illinois is not a favorable state for landlords.  The judges will give them plenty of time especially in the winter (welcome to the judicial state).  If you are in Chicago look at the Chicago Tenant/Landlord Ordinance violating this could cost you fines. 

    Having family members could be an advantage.  I would want to know how long they have lived there and were they good tenants at one time.  They may just be milking the system.  Do not give them any money until all of there belongings have been removed from the unit.

    You may want to check out the Chicago Creative Investors Association (CCIA).  They have a lot of good information on there website.  

    0Reply
  • Account Closed
    Attorney · Skokie, IL · Member since 2016 · 270 posts · 109 votes
    9y

    @Edouard Pierre, as an attorney that focuses on Real Estate Law, I generally advise my client's to offer a cash for keys incentive before asking me to conduct an eviction. 

    The reality of the situation is the cash for keys will incentivize the tenant to 1) maintain the condition of the property and 2) will get them out of the property quicker potentially than an eviction will. Also, keep in mind, that If your property is located in cook county, even if you do obtain an order of eviction, the sheriff will not act upon it once the temperature falls below 15 degrees, I've posted a link regarding this below. 

    However, in my experience, there are tenants out there who count on the process being slow in order to stay in the property as long as possible. I've represented landlords whose tenants will hire an attorney to defend them rather than paying their rent. They will then slow down the process in order to incentivize the landlord to non-suit the case in exchange for the keys and an order of no deficiency. 

    If you do end up having to evict your tenant, I recommend the following: 1) obtain an assignment of rents at your closing, assigning the leases to you. This will give you standing in the eviction matter. 2) Obtain a copy of leases and a ledger of any security deposit, etc. You are required to put the eviction funds in a separate escrow account. 3) Send your 5 day notice. 4) Contact an attorney to file the eviction or file the eviction. 

    Feel free to PM me if I can be of any assistance. 

    http://www.cookcountysheriff.org/courtservices/Cou...

    2Reply
  • Edouard Pierre
    OP
    Chicago, IL · Member since 2015 · 72 posts · 12 votes
    9y

    @Thank you for your response. From what I know they've lived there for a while but for the last 1yr-1.5yrs they have not paid any rent. Prior to that one of the tenants were seen as "good" tenants and the other was described as "causing disturbance at times". Since they've had such a long run at not paying rent I'd assume they'd be open to a good offer from my end, no? Thank you for the CCIA idea as well! 

    @Account Closed Thank you for your detailed explanation. This is an assignment purchase and obtaining leases, security deposits, etc. is off the table as the owner passed away recently and all tenants are on MTM leases (the ones that do pay). 

    Do you two have a good rule of thumb when it comes to the amounts or is it really just highly dependent on the particular situation? Rents are $785. I'm going to increase the current tenants to $850 shortly after I move in. I was thinking $1500 each. Too little...too much? Thanks!

    0Reply
  • Account Closed
    Attorney · Skokie, IL · Member since 2016 · 270 posts · 109 votes
    9y

    I would start off with one months rent. You will spend at least $1500 between time lost, filing fees and attorney fees. Therefore, $1500 would not be a bad deal either. Feel the tenant out and see what they are willing to do.

    1Reply
  • Edouard Pierre
    OP
    Chicago, IL · Member since 2015 · 72 posts · 12 votes
    9y

    @Account Closed Thank you very much.

    0Reply
  • Account Closed
    Attorney · Skokie, IL · Member since 2016 · 270 posts · 109 votes
    9y

    My pleasure. 

    0Reply
  • Jason MarcordesPro Member
    Investor · Chicago, IL · Member since 2015 · 154 posts · 91 votes
    9y

    Hey Edouard,

    First of all, congrats on your first investment property! That's awesome!

    I manage property for a living so I've been in this dilemma many times. The problem is there's no one right answer or solution that works every time. You can read about it and get all the advice you want but when the rubber meets the road, that all goes out the window. My one piece of advice is that when dealing with people, you need to approach the situation with empathy and treat them with respect. Anytime I'm serving a 5/10/30 day notice or having an awkward conversation like this, approach them like a friend and turn up the heat if the situation calls for it. In this situation, I'd reach out to them and tell them something along the lines of "Hello Mr. Smith, my name is Edouard. As you probably know I purchased the building a few days ago and I'd like to set up a time to stop by and meet you." If we take over a property in Chicago with security deposits, we always return them to minimize liability. If this is the case, and you let them know that you have a check for $X, they will always taking the meeting. When you meet them in person you can feel out the situation and gauge where to go next. Who knows....they may have a legitimate reason that they weren't paying rent and want to pay going forward (if this is the case, I would still go through standard procedures of qualifying/screening them). If they don't want to stay or you get a bad vibe and aren't wanting to keep them as tenants, I would serve them a 30 day notice (have this filled out beforehand just in case) and explain that they need to be out at the end of the following month. I'm always as nice as possible and try to work with the tenant as much as possible (sometimes offering to find them a new place or offering to pay for a moving truck) in order to prevent an eviction. If you haven't been through an eviction, it is very time consuming, exhausting, and costly....especially in Chicago!!! If they don't seem willing to voluntarily leave, I would go the cash for keys route. I've seen people move out for as little as $500 but it just depends on how desperate the tenant is. If they aren't biting on that then you can drop the hammer and serve them with the 5-day. I always walk them through how the process works and remind them in a nice way that we'll put a judgement on their record (ruining their credit), garnish their wages, and ruin they're tenant history (with an eviction on their record). I reassure them that that's worst case scenario and we definitely want to push for an amicable solution if possible. If they are career tenants working the system, they won't be phased. If they're decent people, they'll wise up and work with you instead of against you. 

    This is the method that I've used dozen (if not hundreds) of times with great success. Sorry for the long winded response....hope it helps! If you need anything, don't hesitate to PM me.

    5Reply
  • Edouard Pierre
    OP
    Chicago, IL · Member since 2015 · 72 posts · 12 votes
    9y

    @Jason Marcordes This helps a lot! I won't have any security deposits for any of the tenants since they're month-to-month, but going about it in a calm & "helpful" fashion as you've described is definitely going to help. I'm not really sure how I'll get in contact with them besides slipping a letter under the door if they don't answer my knock. I'm assuming calling ahead of time is the go-to but I don't have their phone numbers. I also agree that they might even have a legitimate reason for not paying...but at the end the day the deed is done in my eyes. I'm all for second chances of course, however I'd like to install forced air in the unit and I'm sure it needs some sprucing up. All in all...thank you very much for taking the time to explain your method! 

    1Reply
  • Alex Bok
    Real Estate Agent · Chicago, IL · Member since 2016 · 283 posts · 71 votes
    9y

    500 to as high as 1500 for cash for keys is what I have seen

    0Reply
  • Edouard Pierre
    OP
    Chicago, IL · Member since 2015 · 72 posts · 12 votes
    9y

    @Alex Bok I like it...direct and to the point :). Thank you. 

    0Reply
  • Mark AinleyBusiness Member
    Property Manager · Roselle, IL (Chicago Suburb) · Member since 2013 · 2k+ posts · 1k+ votes
    9y

    Don't mess around, offer them CFK for a quick move ouy(5-7 days tops). 

    [email protected]630-781-6744Podcast Guest on Show #72
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  • Brie SchmidtBusiness Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    9y

    @Edouard Pierre - I would also write in that every tenant, including family, must have a legal mtm lease or that unit must be delivered vacant at closing

    Podcast Guest on Show #132
    Second City Real Estate4.821 Reviews
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  • Mags S.
    Rental Property Investor · Phila, PA · Member since 2015 · 276 posts · 111 votes
    9y

    o@Account Closed  - thanks for your detailed post. Very helpful.

    1Reply
  • Edouard Pierre
    OP
    Chicago, IL · Member since 2015 · 72 posts · 12 votes
    9y

    @Mark Ainley With low rents of $875 (which I will be raising of course) you think just going $1500 for each and call it a day? Not worth saving $500 here and there if it's going to result in an TWO eviction processes in my opinion. 

    0Reply
  • Edouard Pierre
    OP
    Chicago, IL · Member since 2015 · 72 posts · 12 votes
    9y

    @Brie Schmidt One of the tenants has been there for 24yrs and takes extremely good care of his unit and the building. Ideally, I'd like to keep him there and keep him at a reasonable rent (including his parking spot for free) so that I have an in-building manager. The others I'd like to get rid of altogether but worried since two other units are occupied by his family (sister and cousin). Any advice? I'm trying to put emotions aside but new to this...

    0Reply
  • Mark AinleyBusiness Member
    Property Manager · Roselle, IL (Chicago Suburb) · Member since 2013 · 2k+ posts · 1k+ votes
    9y

    @Edouard Pierre start with $900 and they will negotiate you up. If they have a deposit tell them they can have it back. 

    [email protected]630-781-6744Podcast Guest on Show #72
    GC Realty & Development LLC4.61090 Reviews
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  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    9y

    Removing tenants is a negotiation process. Landlords that start out by offering cash for keys know absolutely nothing about negotiations.

    You begin by having the present owner send a notice for all rent owed. That will be a large sum of money they can not pay. When you take ownership you send notice indicating late or non payment will result in a eviction. If they do not pay you serve notice immediately and begin the process to evict. If they do not pay as the hearing date approaches you then offer to allow them to leave willingly, with past rent forgiveness, and you will withdraw the eviction application. If they show a interest in avoiding the eviction but whine offer them some cash to cover the moving costs - $500.

    With this process you always have the eviction on the back burner applying pressure on them and acting as a safety fall back for you. Without the notice all you have is trust in someone that has already proven to be untrustworthy.

    Cash for keys    May save money

                              May speed up the process

                              May protect your property

                              May back fire and lengthen the process

    Defiantly Will screw their next landlord.

    If they are on M2M why would you not just give notice to terminate their lease, not renewing is the proper first step and what your tenants expect you to do before they offer to pay. Don't forget they think you are a dumb as dirt landlord with no business skills in managing a property they believe they are in full control of.

    0Reply
  • Brie SchmidtBusiness Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    9y

    @Edouard Pierre - having units delivered vacant is something you would negotiate with the owner, or executor.  They would be the ones who have to get them out.  If I were you, I would increase my offer by $2-3k and have all the units you want vacated.  Chances are he seller won't give notice till you have the CTC so you would extend the closing by 45 days 

    Podcast Guest on Show #132
    Second City Real Estate4.821 Reviews
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  • Edouard Pierre
    OP
    Chicago, IL · Member since 2015 · 72 posts · 12 votes
    9y

    @Brie Schmidt This is a cash purchase. I will get a mortgage on it once we close and stabilize. A/I review letter going out today. This is an assignment purchase as well since it's an estate sale (owner passed away recently). They have other offers waiting behind me so I'm confident they'll entertain vacating the building themselves. 

    0Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    9y

    @Edouard Pierre I tend to agree with Greg that a first step should not be offering money to leave. I would issue them a 5 day notice to pay or quit. Have the notice served by a process server, so it is legally documented. They may just leave the property. If they do not leave, then you can meet with them. I would be firm and tell them that they will not continue to live in this property and that you are prepared to evict them if necessary. Tell them you would prefer they leave on their own to avoid a judgment and eviction on their record, which would make it hard for them to rent in the future. You can tell them that an eviction will take a month or two and cost you around $1500 dollars (just giving estimates so it is not exact). Tell them this is just a cost of doing business and the biggest problem for you is the time and eviction takes. If necessary, tell them you are willing to give them some money for moving costs in exchange for leaving the property quickly and signing a document stating they have moved out on XX effective date. Of course they only get the money after they are gone, give you the keys and sign the document. Then you change the locks immediately or you risk having them move right back in - yes people do that after getting cash for keys, so that is a risk you need to be ready for. If they refuse your offer just proceed with eviction.

    My state is landlord friendly and I would NEVER give cash for keys. I have and would evict because I don't want the tenant to come back. Tenants like this are liars and will break promises in a heart beat. Court may take time, but at least it is final. An eviction in my state is easier than in your state, which is why I understand cash for keys may be more practical.

    0Reply
  • Crystal SmithPro Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes
    9y
    312-681-7487
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