What Should You Include in Cash for Keys Negotiations?

I've had the pleasure of doing several in person presentations for AAGLA and real estate offices going over tenant buyouts aka "Cash for Keys". The presentation is short- 15 minutes, give or take. But the most valuable part is the Q&A. I get some common questions and some real curve balls. Always interesting for the audience and myself. If are interested in a presentation with your office, feel free to send me a message and we can set one up.

A question I get asked a lot about- what are the main terms of the buyout? There are a few details you want to hash out when doing a deal.

The Amount

The flagship term- what will the tenant receive in exchange for moving out. There are several factors that go into this- the situation of the tenants, local buyout rules, and landlord budget. There are numerous approaches and tactics to negotiating the amount. There are nuances such as the landlord-tenant dynamic, prior attempts, age, family composition, and incomes. The strategy is specific to the tenant because no two tenants are in the same boat.

The Move Out Date

The next big thing- how long will the tenant have to move out. Typically, it is 60 days, but this can very. I've seen move out dates as early as four days. The move out date can be a good point of flexibility with negations. However, too long of a runway the agreement is diluted. Parkinson's Law- the work expands to fill the time allotted. If you give tenants a year to move, they will take the entire year to move. Meanwhile the advantage of being able to get market rent (if that is your goal) gets weaker and weaker the longer it takes to turn the unit and re-rent it (Time Value of Money- the value of money today is worth more than the value of money in the future).

The Security Deposit

Often overlooked- if there is a security deposit what is going to happen with it. There are three options- (1) landlord keeps it, (2) landlord returns its, or (3) landlord itemizes is per statute (21 days from move out in California). It is a mixed bag. The last option is rarely used. Usually it is split- landlords keep it to cover any damages or rental arrears or landlords return it to sweeten the deal. If the unit is going to be completely remodeled, returning the security deposit is common. If the tenant has some delinquency, then usually the landlord keeps the security deposit to try and recoup some sort of loss.

Delinquent Rent

If a tenant has delinquent rent this is usually forgiven along with some compensation to help with moving costs. This can be appealing because it avoids eviction court for both landlord and tenant. The tenant also gets a shot to come out from underneath that debt and leave with a clean slate of sorts.

Payday

Tenants are commonly paid when they move out. Sometimes tenants do not have the funds for movers or a security deposit on a new place. In those situations, it is good to tie an advance against the payment to a milestone- tenant provides a signed lease for a new place that you verify, and/or tenant provides an estimate or invoice for moving expenses. Preferably you pay the new landlord or mover directly. Rarely do tenants exercise this, but they do agree to it because in principle it makes sense. You also want to be mindful of doing buyouts in cities that have rules that allow the tenant to cancel an agreement within a certain time. You may want to wait until after the cancellation period has expired before giving any payment.

Cash for Keys can be very straight forward exchanges, but it does help to have a game plan in place before approaching tenants. Keep in mind, not all deals are possible, and some deals may take longer than others. I've helped lots of landlords come up with successful strategies that have pleasantly surprised them.