3 "Cash for Keys" Questions Answered

This week I thought I'd mix it up with a Q&A style newsletter. Let me know what you think of this format and if you found it helpful.

Q1: I want to offer my tenant a buyout, but I am worried they will say no? Is it worth making an offer?

The short answer- it may be worth offering because you don't know what the tenant may say unless you ask.

There are a lot of variables that go into presenting an offer to a tenant. Some of them include- your relationship with the tenant (good, bad, so-so, you can't stand each other), past offers to move out, the personal situation of the tenant, the amount of money being offered, and the possibility of other options to gain possession of the rental.

There are typically four answers a tenant can give you: (1) No, (2) Yes, (3) No, to the offer, but willing to negotiate, (4) they ignore the offer and give you no answer. If you have never made an offer before or the topic of moving out has not come up, then you don't really have any basis to know if a tenant would say yes or no either way.

Remember- Buyouts are voluntary. The tenant does not have to accept your offer, and the landlord does not have to accept a tenant's counter offer. A good first step is to get educated on the applicable buyout rules and available buyout data. Run your numbers to see what the maximum amount you are willing and able to pay for a buyout that still financially pencils out. Lastly, be optimistic (a deal is possible), but realistic (assume tenant says no and the status quo more or less stays the same).

Q2: Will a tenant retaliate against me if they don't like the offer(s) I have made?

After an offer is made or negotiations are underway a tenant may file a complaint with housing or some other agency or hire an attorney, in hopes of gaining an advantage in the negotiations or out of spite. Tenants are allowed to go to various government agencies and file complaints or hire an attorney to represent them in the buyout. If your tenant is very adversarial and quick to file a complaint you may want to first talk to an attorney to discuss the particulars of that tenant or simply avoid making that tenant a buyout offer. There is no one size fits all answer, but there is always risk in anything when it comes to the unknown.

Q3: What is the average buyout amount?

There is some data for various cities like Santa Monica, Los Angeles City, and West Hollywood, that gets published showing amounts and averages. This data can help both landlord and tenant determine what is a fair buyout amount. Keep in mind, some cities have minimums in which you cannot offer less than what the applicable relocation amount would be. Santa Monica (recently enacted), Inglewood, and Culver City are amongst the cities that have buyout minimums. In my practice, I see buyouts happen from 4 figures to high 5 figures. I have yet to see a 6 figure buyout cross my desk, but time will tell.