"Cash for keys" is just what it sounds like: You, the landlord, offer a tenant a cash settlement to leave the property by a certain date. There can be positive reasons for this, of course, such as new plans for the rental property or wanting to get more money in the next lease.
A cash-for-keys agreement is also an alternative to an eviction, which can be time consuming and expensive, especially if you have to get an attorney and, in the worst-case scenario, law enforcement involved to clear the place. Avoiding those kinds of hard feelings can also make it less likely your property will be damaged when the tenants do leave.
Also (not that you would do this) there are lots of consumer protection rules against harassing tenants, so a cash-for-keys incentive might be just the ticket for getting unwanted tenants to move along with a minimum of property damage.
So how much should I offer?
How soon you want the tenants out, what kind of condition the place is already in, your plans for the property after they leave: Those all factor into what you're willing to pay for the keys as you negotiate with tenants. Generally, the amount should be enough to cover moving costs, their next security deposit, and perhaps a cash bonus.
Like everything else in real estate, though, location matters when it comes to a cash-for-keys agreement. According to the California Department of Real Estate, "Anecdotal reports from those who have had experience with 'cash for keys' programs (say) that $500 is generally the minimum and $5,000 the maximum amount offered to tenants for their keys."
Meanwhile, this blog reports the landlord offered the author $35,000 to scram from her rent-controlled apartment so he could charge more for the next tenant.
Keeping cash for keys legal
We're not providing legal advice here: Know your legal rights and those aimed at protecting tenants in your particular situation before you proceed.
First, check your local rules and regulations. As this blogger notes on the Rentec Direct property management software site: "Your local laws will dictate how cash-for-keys deals can be offered, how much money can be offered, how discussion about the offer can be handled, and under what circumstances a cash for keys deal is permissible. You should consult a licensed attorney before making a cash-for-keys offer in order to protect yourself, your property, and your tenants."
In fact, you may want to work with a real estate attorney on creating a cash-for-keys template agreement form, which you can use each time you want to make such an agreement with a tenant in your property.
You can also talk to a housing counseling agency to find out state and local rules. Here's a list of U.S. Department of Housing & Urban Development (HUD)-approved housing counseling agencies by state.
Following a foreclosure
When it comes to foreclosures, the circumstances can be different depending upon whether a tenant or the homeowner defaulted on the mortgage and is still living in the property.
If it's the tenant, check the lease to see if there's a clause that says the agreement survives the foreclosure process. If it does, it may be in your interest as the new property owner to negotiate a departure date and offer a deal that would include the tenant's new security deposit, relocation assistance, and temporary living costs, just as in any cash-for-keys deal.
If it's the homeowner, remember that a cash-for-keys agreement is really a deed in lieu of foreclosure, so if the homeowner signed such an agreement with the lender, it provides much more legal ammunition for you if it comes to that. An experienced foreclosure attorney would be a valuable guide here on how to get the property vacated.
But what if they don't move out?
Some preventative measures can help here. First, make sure the agreement includes an explicit stipulation that the tenants will give up possession of the property and waive their rights to a trial if they don't comply with what they signed.
Even better is to avoid the situation in the first place if possible by carefully screening potential tenants to weed out potential problems. That way, if you find yourself in the position to execute a cash-for-keys agreement with them, they may well be more likely to uphold their side of the bargain.