The “Keys for Cash” program, the passive approach to handling non-performing (delinquent) tenants that will save you a lot of headache and a lot of money.

When I talk about our Keys for Cash program and how we get our tenants out that are non-performing (not paying the rent) to other investors, I get one of two reactions.  The emotional, usually newbie investor, thinks this program and I are crazy; and the sophisticated, non-emotional investor that usually has been around the block a few times with tenants, love the program and instill it into their system immediately if they haven’t already.  The Keys for Cash program is simple and offers a passive approach to your tenant that can’t pay the rent for whatever reason.  If your property manager will not work with this program for whatever reason, find a new property manager.

If your tenant can’t pay the rent, they are already in a financially stressful situation whatever it may be, so why compound their issues and make it harder and more expensive on you to get them out.

This is how the program works:

1.     Full rent is due on the 1^st every month, no exceptions

2.     If tenant is late, your PM will send out a 3 day pay or quit letter

3.     This letter should include an option for “Keys for Cash” to the delinquent tenant

4.     Keys for Cash program is simple and requires the following verbage:

“To avoid eviction, you the tenant, have an option to move out of the house completely, including all of your belongings within 7 days of receiving this letter.  The home is returned broom swept, cleaned, and in the same/better condition to when you moved in.  In return, the owner will not pursue the eviction or you for the delinquent funds and will not report you to the credit bureaus for eviction which will affect you finding another home to move to.  In return, you, the tenant, will receive ($100-500??) (depending on the rent or situation), cash in 7 days after a satisfactory inspection is completed by the PM at which time you will turn over the keys to the PM and receive your money.
By signing this agreement, you, the tenant, agree to forfeit any security deposit and will not pursue the owner for any further losses or liabilities of any kind in the future pertaining to this lease.”

5.     This letter needs to be signed and dated by the tenant and you/your PM accepting the terms of the keys for cash program so you have something in writing in case they do/don’t meet all requirements.

Understand this, the quicker you can get your non-performing asset back with as little damage as possible, the more money you make or avoid losing, period.  The eviction process is a long and very expensive process including, eviction costs, loss of rents, damages to the property left by an unhappy tenant.  Why not allow the tenant to leave with some dignity and get your asset back in great shape so you can get it filled again asap.  The reality of the KFC program is that you are giving ($100-500) of the tenants security deposit back to them to get them out which you would most likely have to give back to them if their lease was up or they were going to move anyway if they didn’t damage the property.  I recommend having your PM have a locksmith meet them at the property on the move out date with the KFC tenant and have the locks changed on the spot after the inspection is complete.

I will even give the tenant a good recommendation to their next landlord if they were good tenants up to this point, and their situation is legitimate and they just need to downsize to a cheaper rental because of job loss, health issues, etc.  Out of respect to the next landlord, I will explain the tenant was delinquent, but agreed to the KFC and met all of the requirements of the program. I do believe in Karma and simply treat people the way I want to be treated including non-performing tenants and other landlords.

If you are going to get into the buy and hold rental property game, you need to understand that your tenants are the life-line to your business and its sustainability and success.  Without their income to cover your costs, your dead.  Always be creative and keep an open mind to do whatever it takes to make your portfolio as profitable and enjoyable as possible.  Certain things are non-negotiable, but always remain flexible and do whatever it takes within integrity to keep your assets performing. 

The keys for cash program is a great example of an outside the box solution to a problem that every investor will face in managing rentals.

brian scrone, jim sheils