Avoiding an Eviction with Tenant Buyouts
Typically, it’s in a landlord’s best interest to only spend money that will increase their return on investment. However, dealing with a tenant eviction can be a difficult, time-consuming, and expensive process. In some situations, it may be more efficient to undergo a tenant buyout rather than carrying out a full eviction. This means offering the current tenants a sum of cash in exchange for vacating the property.
Ideally, you should never have to evict your tenants, but problems sometimes arise. There are a variety of scenarios that may require you to remove a tenant from your real estate property:
- Failure to pay rent: Of course, a landlord can evict a tenant for failing to pay rent as agreed upon in the lease. Legally, you can give a three-day notice once the rent is late for the tenant to either vacate or pay the rent that is due. After this period, you may file an eviction.
- Property damage and lease violations: When the tenant violates the lease or considerably damages the property, a landlord can undergo the same procedure above.
- Financial reasons: When it comes to rent controlled properties, it can be advantageous to offer tenants a cash-for-keys transaction in order to circumvent rent control laws. Rent control ordinances, over time, can lead to significant undervaluing of a property, so a tenant buyout may allow you to raise the rent back up to market value for the next tenants.
- Foreclosure: When a rental property goes into foreclosure, it may be repossessed by the lender, which could result in an eviction or a tenant buyout.
Why opt for a tenant buyout?
No landlord wants to deal with an eviction. The sum of court costs, personal time, and emotional aggravation can easily balance out any profits made from the property for the next several months. While not mandatory, hiring an attorney is always necessary if the tenant does not comply with the eviction order. Additionally, the full process of actually vacating the tenant, potentially repairing any damage done to the property, marketing the unit, and finding a new tenant is by no means fast and is all time spent earning no income from the property.
Offering a buyout to the tenant can potentially be more cost-effective in the long run, and certainly save time and headache compared to a court order. This often incentivizes the tenant to vacate quickly and with less hassle. If the tenant is struggling financially, it also may aid them in finding a new residence faster. Buyouts also greatly reduce the risk of the tenant causing damage to the property, a common response to an eviction notice. If you’re worried about a delinquent resident, the costs of repairs could very well outweigh the cost of a tenant buyout.
Of course, from the perspective of a tenant, a cash buyout is always more attractive than an eviction. They won’t have an eviction judgment on their record, they will avoid paying legal fees, and they won’t receive a penalty on their credit score. A formal eviction appears on public record for seven years. A cash-for-keys transaction is an amicable alternative.
Carrying out a tenant buyout
If you decide to undergo a tenant buyout, thorough communication with the tenant is essential. It’s required by law to present the tenant with a written notice to either vacate the unit or solve the issue at hand within the required period. Always maintain a copy of all notices delivered, and send certified mail with a return receipt so you have proof of delivery.
After delivering the notice, contact the tenant (in person or on the phone) and make the cash-for-keys offer. During this negotiation, you should discuss the move-out date and all other terms involved with the vacating process. This can include requiring the tenant to clean the property, or prohibiting the tenant from removing any items from the property that do not belong to them.
Once the negotiations are made, both parties must sign a written agreement. A check payment is ideal because it offers an official record of the transaction, but if cash is used, both parties should also sign that the compensation was paid in full.
While all landlords should avoid the necessity of an eviction via thorough tenant screening and background checks, sometimes tenants must be vacated, and a tenant buyout can be a simple and even cost-effective alternative to a legal eviction.
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