Being a Landlord is never an easy job, despite what is shown on the internet and on tv. In reality, being a successful Landlord is only possible through hard work, some sacrifice, and by having a supportive team surrounding you. Being a Landlord in 2020 has proven to be especially difficult based on the inability to remove non-paying tenants from properties. Here in Chicago, I am pretty confident we will be prohibited from filing an eviction on anyone through the end of 2020 and for Landlords, this is a major problem.
Removing a tenant in Chicago or Cook County was a challenge prior to 2020. Current eviction moratoriums forbid us for filing legal action against non-paying tenants, so we find that we need to find creative solutions as quickly as possible.
There have been many tenants who have felt the financial effects of the current COVID pandemic, and as a Landlord it would be in your best interest to try and create a solution that is a win/win scenario for all parties involved. There are, however, a fair share of Landlords who are stuck with tenants who are taking advantage of the current pandemic. A quick and creative solution, that most seasoned Landlords here in Chicago know about, is called Cash for Keys.
Write The Check
Removing a non-paying tenant from your property immediately can be solved by motivating the tenant to simply vacate the property, however, that may come with a price. Here in Chicago, and pretty much around the country, this tactic has come to be known as Cash For Keys. This tactic is used as a way for the Landlord to convince the tenant to vacate the property in exchange for an agreed upon sum of money.
Many Landlords have an issue with this approach out of sheer principle. It is really easy on the surface to think it is ridiculous to pay a tenant to leave when the tenant already owes them money. However, the reality is that you are never going to receive that past due rent. You will also end up spending a lot more in both hard and soft costs than you are about to give if you do not follow something like a Cash For Key process.
Currently in Chicago, in a worst case scenario, the hard cost for a Landlord with a non-paying tenant to wait out the legal system will exceed $5,000 and the stress endured can take a toll on your personal life.
The Advantages of Cash For Keys
Below are four Advantages in executing a Cash for Keys agreement with your non paying tenants:
Solve your long term issue fast - As humans, we like to solve problems in an effort to make them go away. The solution to this problem is quite simple and that is Cash for Keys.. My favorite line to investors I just met with tenant collection problems is “Do you realize for a couple of grand you can make all of your problems go away in the next 2 weeks?”
The Math Makes Sense - The true costs of a non-paying tenant can be in excess of $5,000 and can easily increase to over $10,000 once you factor in any turnover costs once the tenant finally does vacate. Cash For Keys is an investment into your next 12 months of cash flow. Figure out the return on the $1,000 or $2,000 check that you gave the tenant versus the actual costs you will have over the time it will take you to get possession back. Be realistic because a non paying tenant today may not be out of your property until Spring or even Summer of 2021 if you wait for the courts to solve your problem. Figure out the true hard costs, then take the time to figure out what your soft costs like personal stress, the inability to be present with your family, and opportunity actually cost.
Control Your Future - My favorite part of cash for keys is I can control the outcome. I know when the tenant leaves, I can somewhat control the condition the property is turned over to me in, and can I control the timeline. A non-paying tenant can leave at any time, and with anything from the property that they may want. They can leave the back door open for anyone to come in and ransack the home or they can move out and hand the keys to someone else.
Creates Opportunity For Tenant - In many cases the cash you may give to your tenant may provide them with a fresh start. Don't get me wrong, in these times there are non-paying tenants truly affected by the COVID fallout and there are tenants taking advantage of it. For the tenants who may just be down on their luck, these funds can help them with a new start. It also avoids a long, drawn out legal case that can tarnish their name. This is where you can still create a win/win situation for both parties.
I always say as a real estate investor you are a business owner and as a business owner you are faced with decisions that do not always seem to make sense on the surface. When you break down the math and opportunity costs, using Cash For Keys to solve your immediate issues with a particular tenant will catapult you past all of the aggravation and frustration you are having now and give you your own fresh start. Writing that check will also teach you a valuable lesson in your journey of being an investor that you will not forget.
Be sure to check with your local attorney in regard to the proper documentation to use and any state statutes that may guide some of your negotiations with your tenants.
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