REAP is not a real estate term you want to hear as a property owner. This Los Angeles city-administered program is in place to resolve severe maintenance problems on run-down rental properties. The process begins with the city identifying a rental house as being in need of extensive repairs and/or maintenance. Once this happens, the property owner is no longer permitted to collect full rent – instead, the city takes over this task until the repairs are made.
REAP properties typically involve a long list of expensive work. Many landlords choose to sell their properties in REAP, to avoid the headaches that come along with it. In this case, the house will typically be put on the market; however, a buyer cannot use financing to purchase a REAP property – they must pay entirely in cash. Once the owner performs all the necessary work to bring the property up to code, they may collect the rent from the city, minus administrative costs. Financing, including refinancing, is then made available as an option.
Due to the typically extensive work needed to bring REAP homes into a legally compliant and livable condition, these properties really need to be attended to by professional contractors or investors. By the time a property reaches this severe of a condition it is usually too far gone to be worth the landlord’s time and/or investment just to collect the past rents. Selling to an investor can be quick and cost-effective way to avoid the nightmare that getting out of REAP can be.