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Being a Chicago landlord in 2024 is proving more difficult than ever. This is especially true when you inherit a tenant or make a huge mistake screening and you have to get a tenant out of your place. Many would-be real estate moguls hang up their dreams after dealing with evicting non-paying tenants.
The legal system in Cook County, where Chicago is located, has always challenged landlords, even prior to COVID. The pandemic simply added more hoops for landlords to jump through and added more strain to an already stretched system. Nearly half a decade later, many of these challenges still remain. So, while staying within legal boundaries, some landlords have taken more creative measures. Enter Cash for keys.
What Is Cash for Keys?
Cash for keys is the exchange of money, certified funds or money order, to a current tenant you want out of your rental unit in exchange for the tenant giving you legal possession. However, landlords should NOT under any circumstance give the tenant physical cash (trust me).
I hear people talk about cash for keys every week in our circle of investors or on our podcast Straight Up Chicago Investor. But many Chicago landlords hesitate to make a cash for keys offer to their delinquent tenant even though it could be the right business decision.
Why Does Cash for Keys Make Sense?
A while ago, I broke down the math behind why cash for keys makes sense for landlords, especially in Chicago and Cook County.
Below I list just a few of the benefits landlords get from executing a cash for keys agreement with non-paying tenants:
Solve The Issue This Week
Humans like to solve problems or just make them go away now. Some people enjoy finding the solution to complex problems; others just don’t want to deal with the stress. Cash for keys serves both types of people.
When I meet investors with tenant collection problems, I have a favorite line: “Do you realize that for a couple grand you can make all of your problems go away in the next two weeks?”
Do The Math
The eviction process in Cook County will take months and you may have more time in repairs afterward. Realistically, it could be a year or more before you can place new paying tenants if you wait for the courts.
Instead, you could cut a $1,000 or $2,000 check to a tenant now and regain possession of your property in a matter of weeks. As a bonus, they’ll leave a bit happier and are less likely to trash the place on the way out.
Controlled Destiny
Bear a few things in mind:
A non-paying tenant can leave whenever they feel like it and take anything they want from the house with them.
They’ll likely leave a huge mess or sabotage you with things like leaving the tub running to cause water damage.
They can leave the back door wide open when to exit, inviting vandals, thieves, and squatters to move right in after them.
On the other hand, with cash for keys, I control the outcome. I know exactly when the tenant will leave. I have a better handle on how they leave the place when they turn it back over to me.
What’s in It for the Tenant?
If you’ve gotten to this point in the process with a non-paying tenant, I feel for you. No one truly wins in these scenarios, but you can stem the bleeding and look for the least-bad option for everyone.
Because believe it or not, the funds you give your tenant for your Chicago rental property could provide them with a fresh start. Some are just down on their luck and want to avoid a long drawn-out legal case that impacts their future ability to rent. Some reeallllyyyy don’t want that much attention from law enforcement or to have their name and whereabouts become public record.
Best Time To Offer Cash for Keys
Warning: Using the cash for keys approach to get your non-paying tenant out doesn't work every time.
However, like most things in life, timing is everything as is finesse. When and how you approach tenants could mean the difference between them accepting cash for keys or you having to ride out the eviction process in court.
From the time a tenant stops paying, till the day they move out is typically 6-8 months in Chicago/Cook County. During that painful period of your investing career, making an offer of cash for keys to a tenant can actually save you thousands.
If you are going to offer the tenant money in exchange for possession, timing is everything to maximize the chances of getting the tenant to accept your offer. Although you can offer cash for keys at any time there are two moments in the process you have to capitalize on. These two moments will give you the landlord the greatest leverage.
Before Filing for Eviction but After 5-Day is Served
This 5-7 day window after your 5-day notice has been hand served to the tenant is the most crucial period of time in this whole process. You have more opportunity in this window to limit your losses as the landlord than any other time during this ordeal. The tenant has the most to gain during these 7 days as well.
Step One: Leverage to Get Payment
At no point in this entire process do you have more leverage to get the tenant to pay and back on track then right after the tenant is served with the 5-day notice. Remember, in Cook County, you want to hand deliver the 5-day notice vs. posting it.
Once you accept any payment, you’ll have to serve a new 5-day notice. Some would argue you don’t have to serve a new notice, but the court is complicated enough and this is the cleanest way. Just make sure the amount you collect makes it worth it.
I suggest never accepting anything less than 50% of what they owe. And don’t feel bad about saying you need 50%. Let them go to friends and family to find the money. If they’re fewer than 45 days behind, more often than not, they’ll magically find the funds for you. I see landlords mess up by feeling bad for the non-paying tenant and accepting a smaller percentage of the amount owed.
This becomes another math problem. If you accept a smaller partial payment, say $500 on $3,000 owed on 2-months’ rent, how long will it take you to get back to this point again with a new 5-day notice served? With rent at $1,500 a month, or $50/day, after just 10 days, the tenant will have built a larger deficit.
I’ve seen plenty of landlords collect 50% or more every 14 days by reserving the 5-day notice. And yes, this gets the tenant caught up… for now.
Chicago 5-Day Notice Tip
Since your attorney will require you to hand-deliver the 5-day notice, if the tenant is making a payment simply exchange the rent payment for the new 5-day notice in one meeting. You can have the tenant come to your office, meet at their front door, or somewhere neutral for the exchange.
A word of caution: this might not work if you delayed getting the 5-day notice served for months. There’s a fine line of where a tenant says: “It’s smarter for me to move vs. paying my current landlord everything I owe so I might as well milk this for all I can.” It becomes a business decision for the tenant if you let too much time pass.
Finally, you shouldn’t serve your 5-day notice any later than 31 days and owing 1.10x the monthly rent. Why? Your chances of saving a tenant and not creating a turnover goes drastically down after 45 days of not serving a 5-day notice. A-month-and-a-half back due rent seems to be the point of no return in most rent delinquent scenarios.
Step Two: No Payment? Insert Cash For Keys Approach
If you can’t get the tenant to come up with at least 50% of what they owe, you can break out the cash for keys approach. As I mentioned above the tenant has the most to win at this point.
Most tenants in this scenario have never had an eviction filed against them so they’re nervous. Believe it or not, sometimes even more than you. Tenants don’t always know how the system works either, contrary to what most people assume. Good people/tenants can end up in tough spots.
At this time you say something like “I know you’re not able to come up with the money but maybe I can help you here. If I give you $______ and you can be out in the next 7 days, I will not file for eviction. This would prevent you from having a public eviction filing record for the next 7 years.”
After The Court Granted You Possession
Cash For Keys is not the only approach with the delinquent tenant and if you need to continue down the road of the eviction process then do that.
Your second best leverage point is the day after the judge grants you a stay and possession. This is the second best time to offer cash for keys.
At this point, some definitive ending is coming. You know you may have 120 days or more before the Cook County sheriff gets to your case. But the tenant really starts to feel the uncertainty and fear of the sheriff coming to remove them from the house.
No matter how much this tenant has upset us, most landlords do not want the scenario of the sheriff knocking on the door. The idea of causing a scene, the sheriff with their hand on their holster (just in case), small children not sure what’s going on, the landlord changing the locks. It just sucks for everyone.
Part of me feels that as landlords we have the obligation to try to prevent that whole scenario from playing out. Cash for keys can help you as the landlord and the tenant prevent all the drama.
How Will Tenants React to Cash For Keys?
Many tenants have never heard of cash for keys. They might assume you’re trying to scam them (since they’re screwing you over) or you’re tricking them into leaving before they have to.
So, put on your best selling hat. Paint the picture that your tenant has a lot to gain from striking a deal with you (because they do).
What’s In It for Them?
Present it as an opportunity they can’t refuse, here’s some pointers on what’s in it for them if they accept cash for keys:
The eviction won’t get filed so won’t go on their record.
They go from owing money to getting some money.
They can avoid the embarrassment of their name being dragged through mud.
Nobody needs to see the sheriff show up to throw them out.
This is a “clean break” (for them anyway) that removes the risk of the landlord coming after them for money.
Convince A Tenant You’re Serious
In addition to having the conversation about what you can do and offering what’s in it for them, give it to them in writing. Email them a cash for keys agreement to review or drop it off in person.
Sometimes when a tenant owes money, communication with them gets dicey and you may have trouble getting them to respond. In that case, you have to be more direct. Text an image of the cash for keys agreement to them or post the template on their door. Continue to reiterate what the tenant has to lose here if you can’t come to terms.
One caveat: Do NOT post this on the door if you have a multi-unit building. Other residents shouldn’t know this is happening or that it could be an option for them.
Do YOU Have a Non-Paying Tenant?
Your goal is to get your property back in your possession as soon as possible and stop the cash flow bleedings. That means you’ll have to utilize both approaches to achieve your goal.
Time becomes the enemy in the eviction process. What you can hammer out with your tenant can solve both of your problems.
If you have more questions about your own personal scenario with a non-paying tenant, grab some time below. If you want to prevent this from happening again, download our Tenant Screening Mastery Guide or hire a Chicago property management company like GC Realty & Development with ZERO evictions in our portfolio in 2023.
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