Can I use “cash for keys” before closing on a property?

Question

I have 2 properties under contract, 6 units total. 3 of the units are occupied, and 3 are vacant. I really want at least 2 of the tenants to move out before closing, preferably all 3, due to liability issues (the properties have lead paint and will need repairs before getting lead certs, plus 1 of the tenants is a drug dealer). Should I offer them cash to move out before closing? How much should I offer, and how would you word the offer? It’s an estate sale, so the seller will not be involved at all, but we are getting a great deal (150k under appraised value) so I think it’s worth paying whatever is needed to get them out, but I know they aren’t going to be excited to leave.

Brandon Roof · Answer

No way.  You legally couldn't meddle in the lease of a property someone else owns, but even if they hypothetically gave you the green light, and the properties don't close for any particular reason, you'll be out thousands and the seller gets a fresh start.  If you want them out now, include it in your contingencies and it will put it back on the seller.  They can then begin moving on from any month-to-month lessees or attempt cash for keys if the leases are many months from expiring.

Mike Cumbie · Answer

@Emily McCabe

I wouldn't until you owned the place. Imagine you had a place with 3 tenants. You had it for sale, the buyer came in and bought your tenants out, they leave. Then something happens and the deal does not go through. You now have 1 tenant and 33% of the income coming in. If it was part of the contract to be vacant at closing, then it would be on the owner to get rid of them. If not you have to wait until you become the owner.

Good Luck

Jaysen Medhurst · Answer

Ideally, you put in the contract that the property is to be delivered vacant. I realize we're past that point now.

Are there leases in place, @Emily McCabe?

Here's the thing, if they have leases, you can't really buy them out until you're the owner. You'd basically be paying them to break a legal contract with another party. That could be sticky. Maybe offer cash for keys with a vacate date 1 week after closing.

As far as what to offer...maybe start with 25% of a month's rent. Could sweeten it by offering to pay the movers, make it easier for them.

Kyle J. · Answer

You shouldn’t be paying someone else’s tenants to vacate a property, which is essentially what you’re talking about doing when you’re talking about giving them cash for keys during escrow. Normally, the way this is handled is to request the seller deliver the property to you vacant. However, since you said the seller is not at all involved, you’ll likely need to wait to get the tenants out after closing and you become the legal owner.

Kenny Dahill · Answer

@Emily McCabe, no.  You could make Close of Escrow contingent on the tenants being out of the units.  That's a liability you want the current landlord to burden, not you.

If they're not on leases, then take the legal actions immediately once you own the properties.  Assuming you didn't have the previous landlord remove them.

Jennifer T. · Answer

I agree that you won't be able to offer cash for keys, until you own the property.  Because those simply aren't your tenants yet.  Plus, if something happens and you all don't close, it's a big risk to take.

I've had two situations where I was stuck with inherited tenants I did not want.  In the first deal, I knew I was getting a better deal by not rocking the boat and agreeing to take on the inherited tenants.  It was the seller's brother, lol.  In the second deal (two duplexes, same seller), the seller had long ago "checked out" from the properties and there is no way he would have done what was needed to deliver the two duplexes vacant.  As an example, he refused to even get his own set of keys...only the tenants had keys...even though that meant he had to pay extra fees to both my inspector and my appraiser, when they had to make second trips to the property.

For all of those, I delivered 30-Day Notice to Vacates on the day after closing.  All of them were month-to-month tenants.  For the first deal, the brother, I offered the tenant two different "cash for keys" scenarios.  More money if he moved out in two weeks.  A lesser amount if he moved out in the 30 days.  That's the one and only time I've done "cash for keys".  The main reason I did is because he was living for free and there had been no security deposit.  That was my way to hopefully make the transition go more smoothly and make sure he left the place in the same condition.  Success!  He was out in 30 days and left the place in the same condition I'd bought it in.

For the two duplexes, one of the units was vacant at closing.  Two of the tenants were evicted for non-payment of the next month's rent (after closing).  So then ended up having to vacate, 3 days shy of when their 30 days would have been up anyway.  There's a pretty good chance I would have had to evict them for not complying with the Notice to Vacate anyway, so at least the silver lining of evicting for non-payment is they were definitely out by the end of the month.  The third unit overstayed their Notice to Vacate by about 10 days.  But we could see they were in the process of moving and didn't sweat it.

Malcolm Phillips · Answer

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Emily McCabe · Answer

Just to clarify, there are no leases.

Can I use “cash for keys” before closing on a property?

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