I notice my sidebar title is “Investor”. OK, I can run with that. But please don’t expect fun and easy tips on how to get rich quick. I haven’t quite mastered that yet.
However, as the owner, operator and manager of a few residential rental units within the City of Los Angeles, I can speak with a little authority on understanding and coping with rent control regulations.
Like any bureaucracy, Los Angeles Housing Dept is alphabet soup of departments, divisions, and special programs.
The acronym that most strikes fear into the heart of Los Angeles property owners is REAP: Rent Escrow Account Program. Which basically means that if the City determines your property is “unsafe” or “untenantable”, the city collects your rent and places your money in a city escrow account, after first reducing the amount due based on a sliding scale of whether the conditions are “nuisance” or “hazardous”. You don’t have access to the money. Administration fees are charged, the City pockets any interest earned.
But then, the City makes the needed repairs with the money, right? Hmm, no, not automatically. The tenants or the property owner must petition for a release of escrowed funds, with the burden on the property owner to show “financial hardship preventing payment of such services beyond a mere negative cash flow for the property.”
“Mere”?
Back in 2001, city controller Laura Chick admitted that the REAP program was “broken“. To me “broken” implies something that no longer works, but did in fact work at some point in time.
Speaking as a pragmatist, REAP never worked. It takes money to make repairs. Reducing a property owner’s cash flow reduces his or her ability to make the needed repairs.
What would work? Speaking again as a pragmatist, make low-cost/no-cost funds available to rental property owners for the sole purpose of repairing their properties.
Brian Brady says:
Great inaugural article about a hot topic, CJ. The REAP program doesn’t solve the problem, does it?
Now, rent control? When will we talk about THAT?
February 9, 2008 — 5:24 pm
CJ, Broker in L A, CA says:
Brian, rent control presents several issues from registration to inspections to relocation assistance-in addition to the familiar increase caps. Over time, I hope to touch on all of the issues, and serve up a few war stories, too. 🙂
February 9, 2008 — 6:07 pm
Michael Cook says:
“What would work? Speaking again as a pragmatist, make low-cost/no-cost funds available to rental property owners for the sole purpose of repairing their properties.”
I would think it would be easier to turn back rent control than to fork over free money to an investor. Here in New York City, the rent control issue certainly contributes to more rundown properties because a)there is no point in throwing money at a property that you cant raise rents and b) most tenants are so scared of leaving and losing their rent control its impossible to get them out for much need repairs.
I would love to see rent controlled turned back, but that would be a very tough sell.
February 10, 2008 — 12:30 pm
Michael Cook says:
Oh, I also forgot to welcome you to this wonderful place. Its always nice to get more investors here.
February 10, 2008 — 12:32 pm
Robert Kerr says:
REAP is horrible, but it’s been the law in every major metropolitan city (in New England) where I’ve owned rentals.
The system is easily gamed and I’ve never seen a city actually enforce on-time and complete payments into the program, in lieu of paying the landlord.
Rent control? (shudder) I imagine if you want to turn a good neighborhood into a slum, rent control is one of the most efficient means to that end.
This subject brings back bad memories as a landlord in a big city. I admire anyone who can actually provide good housing and make money in a city like Los Angeles. I don’t have the patience or temperament for it.
ps: Welcome, Cheryl.
February 10, 2008 — 1:30 pm
Cheryl Johnson says:
Michael and Robert, thank you for the welcome.
Yes, it really doubles the fun to have both REAP and Rent Control in place.
Many older properties just don’t generate enough cash flow for top notch maintenance. Rent Control restricts the property owner’s ability to improve cash flow.
If the property owner does not have other income sources to fund the property’s maintenance, it is a slippery slide towards REAP.
February 10, 2008 — 5:15 pm
carl says:
Last weeks winning article featured on the “Carnival of Real Estate” at Searchlight Crusade was also about Rent Control. Seems like the City of Los Angles has their hand in everything that is broken and not performing well. Dare I say “Los Angels Public Schools”
http://www.searchlightcrusade.net/2008/02/carnival_of_real_estate_1.html
February 11, 2008 — 4:51 pm
Brett says:
If Los Angeles wants low rent, high quality housing how about they build it themselves and ask the tax payers to pay for it? Nope…not going to work is it? The tax payers are too smart to delve in such a costly endeavor.
It’s just easier for the city to enforce their socialist agenda on the property owners.
February 12, 2008 — 6:14 pm
Ken in Chicago says:
Government regulations restricting free trade are never the solution. This all starts with the bad idea of rent control. Next landlords look for ways to cut corners instead of being able to raise rents to cover increasing costs. The landlords don’t have to worry about demand as the rent controlled tenant will never leave. What would have been a great landlord is now turned into a slumlord. So now the government needs yet another restriction to try and fix the problems created by the cities first attempt to restrict the free market.
February 12, 2008 — 6:25 pm
Eve Aruguete says:
as it is in what some posters here deem and restricted free market or a “socialist agenda” rent eats up an ever increasing proportion of income for the middle and lower class. Perhaps property owners suffer under rent control, but as a renter who can’t afford to buy property Los Angeles neighborhoods would be totally unaffordable. Rents in Los Angeles have more than doubled in the last 8 years in Echo Park (where I live). But the incomes of the inhabitants have increased a matter of percentage points, everyone is being forced out and replaced with higher income people unless they have rent control, which is only the buildings built before 1975. Gentrification still happens, just a little less quickly, rent control is just a stopgap… It’s all about balance, we need to look at the needs of everyone… you can judge civility by how a society treats it’s poor (and animals, incarcerated and elderly).
March 20, 2008 — 11:43 am
Nouveau Riche says:
You made a nice introduction for the REAP program. I am very curious about it but I don’t really think that it will be very efficient.
June 25, 2008 — 2:46 am
Hunter Jackson, Columbia SC says:
This is a bit crazy to me as being from Columbia SC. Our government does not get involved in this stuff (though they get involved in plenty more). Rent control? whatever happened to the rights of the business people. The Gospel of Wealth, being a capitalist nation?
How far away is socialism?
July 10, 2008 — 7:26 pm
Hunter Jackson says:
Being from Columbia, SC, I do not understand rent control. Why is the government getting into the business of messing with small businesses?
July 10, 2008 — 7:35 pm