Cash for Keys: What California Landlords Need to Know

By Michelle Clardie on 06/08/2024.
Reviewed by Josefin Gatsby
Evictions are trending upward. After the COVID-era eviction moratorium, eviction rates are back to pre-pandemic levels across much of CA. Investors understand that evictions are one of the risks of investing in rental properties, but most landlords would prefer to avoid the time and expense of the eviction process – not to mention putting the tenants through the process.  

Enter cash for keys. When done correctly, this alternative to eviction can benefit both landlords and tenants. 

In this article, we’ll explain what California landlords need to know about cash for keys, answering your pressing questions about the process, including:

  • What is cash for keys?
  • How does cash for keys work?
  • What are the pros and cons of cash for keys?
  • What steps should landlords take when offering cash for keys?
  • What should landlords avoid when offering cash for keys?

Here is your California cash-for-keys crash course!





What Does Cash for Keys Mean?


Cash for keys is when a landlord pays the tenant to voluntarily vacate the property rather than going through a formal eviction. The landlord regains possession of the unit quickly and the tenant gets cash in their pocket and avoids having an eviction on their rental history. 

How Does Cash for Keys Work?


Cash for keys can apply to any situation in which an eviction would otherwise be necessary. Here are a few examples:

  • The tenant is behind on rent and refuses to leave. 
  • The tenant is otherwise violating the terms of their lease and refuses to leave.
  • The landlord has decided to pull the unit out of service once the lease expires so they can reside there themselves, but the tenant refuses to leave.
  • The landlord plans to renovate the unit and list it at higher market rates once the lease expires, but the tenant refuses to leave.
  • The building is changing ownership and the new owner plans to demolish, renovate, or occupy the unit themselves, but the tenant refuses to leave.

Rather than file the eviction paperwork with the courts, the landlord can offer a cash-for-keys buy-out to the tenant. The landlord would pay the tenant a flat fee to vacate the property and return the keys by a certain date. 

If the tenant agrees, the landlord draws up a written agreement for both parties to sign. 

Once the tenant moves out and turns in keys, the landlord disburses the agreed-upon payout.

The landlord can then take possession of the unit and proceed with their plans for it. 

Is Cash for Keys Legal in California?


Yes, cash for keys is legal in CA. However, there are local laws at the county and city levels that govern certain aspects of the deal. These regulations vary widely by jurisdiction, so you’ll need to invest some time in researching the laws that apply to you. You may also want to consult a local real estate attorney specializing in landlord-tenant law.

Local rules and regulations can dictate terms like:

  • How much money can be offered,
  • Whether there is a “cooling-off period” during which the tenant can change their mind,
  • How much time the tenant has to vacate the property, and
  • Whether certain disclosures are necessary. 

Failing to conduct the cash-for-keys process within the legal framework can potentially result in litigation from the tenant. 

Cash for Keys Pros and Cons


Cash for keys offers advantages and potential disadvantages for both landlords and tenants.

The Benefits of Cash for Keys


Cash for keys benefits landlords by:

  • Giving them comparatively quick possession of the unit.
  • Avoiding the eviction process, which can cost thousands of dollars and take several months.
  • Providing an opportunity to add value to the property and re-list the unit with a higher market rent.

This arrangement can also benefit tenants by:

  • Giving them money to help with moving costs and upfront costs of their new place.
  • Helping them avoid having an eviction on their rental history record, which would negatively impact their future housing prospects. 

The Potential Downside of Cash for Keys


Cash for keys comes with a few risks for landlords:

  • The upfront expense of the buy-out can potentially be thousands of dollars (although it is likely still less expensive than an eviction).
  • There is no guarantee that the tenant will accept the terms or adhere to the agreed-upon terms.
  • The property may be left in poor condition. 

Additionally, cash for keys can negatively impact tenants, both directly and indirectly:

  • For tenants in good standing who were hoping to be offered a lease renewal, the prospect of moving may be unwelcome, regardless of the method used to move them out.  
  • Tenants could lose their status in rent-controlled units, requiring them to pay higher market rates for their new place. 
  • Wide-spread cash-for-keys offers from landlords who want to improve the units and rent at higher rates can drive up rental rates for the area, leading to less affordable housing.

Cash for Keys Do’s and Don’ts for Landlords


If you are considering making a cash-for-keys offer to your CA tenants, pay special attention to the following do’s and don’ts. 

Do:

  1. Review your local laws. With cash-for-keys laws varying widely between different cities in CA, you must research the laws in your local market. Failing to do so would expose you to lawsuits from the tenant. 
  2. Explain cash for keys as an alternative to eviction. When discussing your offer with your tenants, explain that eviction is within your legal rights (assuming, of course, that this is true). Make sure they know that an eviction could cost them money and would stay on their rental history, which would limit their future housing options. Then present the cash-for-keys offer as an option that would save you both from the hassle and expense of the eviction process.  
  3. Negotiate fairly. Offer a reasonable amount, based on going rates in your market. In some markets, a flat $500 fee is a fair starting point. In others, you’ll need to offer up to two months’ rent. You can also open up negotiations to terms outside the fee. For example, you could offer to accept the unit as-is, saving them from having to deep-clean, patch holes, etc. Or you could offer a move-out date a month from now to give them time to find a new place.  
  4. Get the written agreement signed by the tenant(s). The terms of your deal must be documented and agreed to by signature. This will prevent they-said/you-said discrepancies. 
  5. Be there for the move-out. It’s a good idea to witness the move-out in person to confirm that the unit is vacated, collect the keys, and immediately re-key the unit. 
  6. Uphold your end of the deal. As soon as you have possession of the unit, send the agreed-upon buy-out fee to the now-former tenant. 
  7. Process the deposit as usual. Unless the deposit was negotiated as part of the cash-for-keys deal (if allowable in your market), the deposit should be processed as usual. This typically means deducting amounts for damage beyond normal wear and tear and returning the rest to the former tenant with an itemized list of deductions. 

Don’t:

  1. Harass the tenant. Don’t make threats or coerce the tenant into accepting a cash-for-keys offer. If they decline the offer, simply begin the eviction process in accordance with your city’s laws. 
  2. Restrict access or allow the unit to become unlivable. You cannot lock the tenant out or otherwise bar access to the unit during cash-for-keys negotiations or the eviction process. Nor can you turn off utilities or refuse to make necessary repairs.
  3. Go into negotiations blind. Have a plan before presenting your offer to the tenant. Decide beforehand what amount and terms you’re willing to accept if they counter your initial offer.  
  4. Violate fair housing laws. Take extra care not to negotiate cash-for-keys deals differently with tenants in classes protected by fair housing laws. For example, let’s say you want to offer residents in two units cash for keys so you can renovate and re-rent those units. And let’s say the tenant in one of the units is a protected minority (by race, gender, nationality, religion, etc.). Presenting a different offer to the minority tenant could easily be interpreted as a violation of fair housing laws. Offering a lower buy-out fee could imply that you are not willing to pay them as much; offering a higher buy-out fee could imply that you are more anxious to get this particular tenant out. Keep careful documentation of your offers, and if you offer different terms, perhaps because of changing market conditions or the size of the unit, document your reason for doing so.     
  5. Hand over actual, physical cash. Cash for keys is a catchy term, but with so many traceable ways to send funds, it is safer to choose a method with a built-in digital paper trail. You could send the payment through a platform like Zelle, PayPal, or Venmo, which will give you both a record of the funds being transferred.   

Rental Investments Without the Hassle of Tenant Management


Cash for keys can be a useful tool to help California landlords avoid the time, expense, and stress of evicting a tenant. But wouldn’t it be nice if you didn’t have to worry about tenant management at all

What if you could gain all the benefits of rental property investing (like recurring passive income, tax benefits, and appreciation) without actively managing the process yourself? What if you had local real estate experts who could handle the whole project on your behalf? And not just the tenant management aspect, but also the:

  • Scouting, analyzing, and acquiring properties,
  • Preparing units for occupancy,
  • Marketing units for rent,
  • Touring prospective residents through the unit,
  • Screening tenants to find qualified, reliable renters,
  • Taking care of move-ins and move-outs,
  • Maintaining the property, 
  • Handling requests for repair,
  • Resolving tenant issues, 
  • Negotiating lease renewals,
  • Etc., etc., etc. …

With real estate syndication, you can invest in rental properties without being liable for any of these traditional landlord stressors.

Similar to real estate crowdfunding, syndication allows investors to buy into expertly managed real estate projects, including multi-family rentals. This investment model enables you to get in on the rental market with just a fraction of the cost needed to buy a property on your own. With low investment minimums, you could even buy into multiple deals, creating an instantly diversified real estate portfolio

Learn more about the pros and cons of real estate syndication, and explore real estate syndication investment opportunities today. You may never have to stress about cash-for-keys deals or evictions ever again! 

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