Are Cash for Keys Tenant Buyouts worth it in 2021?
Updated: Jan 5
Tenant buyouts are something of mythical lore. They sound amazing, people hear about them but so many landlords don't partake. Here in Los Angeles they are often referred to as Cash for Keys. Tenant buyouts can be great for landlords who have cash reserves available to better position their portfolios, either to hold or sell.
There are three main reasons landlords hire me to handle their tenant buyouts.
The Tenant Protection Act of 2019 created state wide rent control that capped rent increases and now require cause for evictions. Los Angeles landlords are subject to more stringent rent controls so this was nothing new. Then Propositions 21 failed to pass, which would have done away with Costa-Hawkins and imposed vacancy controls.
Today, landlords are allowed to buyout tenant leases and in lease the unit at fair market value. This is best for tenants that are long standing with very low rent. The cost of the buyout is usually recoverable between 1-2 years with the increased rent.
Increase Selling Price
Landlords looking to sell get more money per door when the unit is either at or near pro forma or vacant. Delivering vacant units can increase the value of the property allowing the buyer to rehab the unit and place a tenant of their own vetting. Low rent units drive down the value of an multifamily property regardless of rent control and location. You will want to talk to a broker who deals with your area to get an idea of how much more a unit is worth if vacant.
Remove Nuisance Tenants
Truth be told, there are some tenants that you are not fond of and have absolutely no basis to evict. A buyout is a way of throwing money at the issue. While morally a little bruising, your peace of mind is invaluable. Nuisance evictions are very difficult to pull off because landlords don't routinely enforce rules and do not document the ongoing nuisance, making for a poor case.
Tenant buyout agreements are a numbers game. If they pencil out and you have the funds on hand they are a good way to increase your ROI. If you have tenants that are not paying rent because of COVID-19, but are not moving either, this is the time to try to use that for your benefit.
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The information in this post is for general information purposes only. Nothing on this post should be taken as legal advice for any individual case or situation. This information is not intended to create, and receipt or viewing does not constitute, an attorney-client relationship.