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That Was a Close One!

That Was a Close One!

January 14, 2018

Greetings!

What follows is a newsletter that I subscribe concerning the real estate market in Orange County. I find it useful in understanding where the real estate market is heading and how it affects property values. I hope you agree.

After starting the year with nearly nothing on the market, the inventory of active homes is on the rise.

Not 2013: The active listing inventory increased by 9% since New Year’s Day.

The housing market has been on a tear for six years now and is showing no signs of letting up. Two long-term trends emerged during the run that are also showing no signs of diminishing anytime soon: unrelenting, hot demand and a chronic lack of homes on the market.

Demand has been juiced by historically low interest rates for the entire six-year run. In spite of experts and prognosticators forecasting a rise in the long-term rate for years now, mortgage rates have remained steady, never exceeding 4.5% (reached in September 2013). In fact, today’s rates are still bouncing around 4% and are not expected to rise much in 2018. These persistent, historically low rates dramatically improve home affordability, and, ultimately, prop up demand.

The chronic lack of homeowners placing FOR SALE signs in their front yards has been the Achilles heel to this housing run. Years of juiced demand and a low supply of homes on the market has resulted in rapid appreciation, fewer total yearly home sales, and frustrated buyers, especially entry level, first-time buyers. Multiple offers and sales prices at or above their list prices is the norm for homes priced below $1 million (81% of all closed sales in 2017). It has been a deep seller’s market for years now with nothing indicating a change on the horizon. Buyers will have to continue to navigate the harsh reality of plenty of competition with very few choices.

Fewer choices is exactly how 2018 started. On New Year’s Day, the active listing inventory was at 3,397 homes, the second lowest start in the past 13 years. Only 2013 was lower, with 3,161 homes on the market. With such an anemic inventory, the biggest worry to start the year was that 2018 would shape up to be just like 2013. In 2013, the inventory did not increase much at all for the first three months and the market heavily favored sellers (typically, the inventory rises from January through mid-August).

The expected market time dropped to 33 days for all of Orange County by March 2013. Sellers were able to stretch their asking prices quite a bit over the most recent sale and they often got their price. It felt impossible for buyers to secure a home, especially if they had a small down payment. They just would not be able to compete. The 2013 housing market proved to be extremely challenging.

Yet, 2018 is shaping up to be completely different than 2013. Since starting the year at 3,397 homes, the active inventory has increased by 9%, adding an additional 310 homes, and now totals 3,707. The expected market time is currently at 77 days, quite a bit slower than the 45 day expected market time at the beginning of 2013. It is not as deep of a seller’s market; so, homes will not appreciate as fast as they did in 2013. Remember, home prices are a lot higher today compared to 5 years ago. Buyers are not willing to dramatically overpay for a home compared to the most recent closed sale. If a home is placed on the market and is not priced according to its Fair Market Value, opting to significantly pad the price and take a stab at getting more, it will sit on the market and will not sell.

Careful pricing is a fundamental ingredient in achieving the objective in selling a home. In December, 59% of all closed sales had to reduce the asking price at least once. It was not the time of the year; it was the inability for many sellers to price their homes accurately right out of the gate.

From here, we can expect the inventory to continuously rise from now through mid-Summer. It will fall short of the long-term average of 8,000 homes, which is where the inventory needs to be for an extended period of time for the market to transition into a balanced market, one that does not favor a buyer or seller.

Demand: Demand decreased by 10% in the past couple of weeks.

In the past two weeks, demand, the number of new escrows over the prior month, decreased by 158 pending sales, or 10%, and now totals 1,447. This is a true reflection of cyclically the slowest time of the year, the last 30-days. This period encompasses all of the holidays and all of its distractions. Also, with so few homes coming on the market, coupled with very limited choices of active listings, it’s no wonder demand has dropped to such a low level. As more homes enter the fray, expect demand to start to rocket upward by the end of this month.

Last year at this time, demand was at 1,562 pending sales, 115 more than today, or 8%.

The expected market time, the amount of time it would take for a home that comes onto the market today to be placed into escrow, increased from 67 to 77 days, a slight seller’s market with mild appreciation. Last year’s expected market time was at 84 days. The expected market time will significantly drop by the end of this month.

Luxury End: Luxury demand continued its holiday/winter plunge.
In the past two weeks, demand for homes above $1.25 million decreased from 187 to 170 pending sales, down 9%. The luxury home inventory decreased from 1,391 homes to 1,376, a 1% drop in the past two-weeks. Since the start of November 2017, luxury demand dropped by 52%, while the luxury inventory dropped by only 20%. Expect both demand and the inventory to rise from now through the Spring Market. The current expected market time for all homes priced above $1.25 million increased from 223 days to 243.

For homes priced between $1.25 million and $1.5 million, the expected market time increased from 123 to 157 days. For homes priced between $1.5 million and $2 million, the expected market time decreased from 196 to 188 days. For homes priced between $2 million and $4 million, the expected market time increased from 266 days to 285 days. In addition, for homes priced above $4 million, the expected market time increased from 667 to 695 days. At 695 days, a seller would be looking at placing their home into escrow around December 2019.

Orange County Housing Market Summary:

The active listing inventory increased by 310 homes since the start of the New Year and now totals 3,707. Expect the inventory to increase from now through mid-Summer. Last year, there were 4,376 homes on the market, 669 more than today.

There are 31% fewer homes on the market below $500,000 today compared to last year at this time and demand is down by 28%. Fewer and fewer homes and condominiums are now priced below $500,000. This price range is slowly disappearing.

Demand, the number of pending sales over the prior month, plunged by 158 in the past couple of weeks, down 10%, and now totals 1,447, most likely its lowest point of the year. The average pending price is $839,613.

The average list price for all of Orange County decreased to $1.8 million after reaching a record $1.9 million two weeks ago. This number is high due to the mix of homes in the luxury ranges that sit on the market and do not move as quickly as the lower end.

For homes priced below $750,000, the market is HOT with an expected market time of just 46 days. This range represents 38% of the active inventory and 62% of demand.

For homes priced between $750,000 and $1 million, the expected market time is 67 days, a slight seller’s market (between 60 and 90 days). This range represents 17% of the active inventory and 19% of demand.

For homes priced between $1 million to $1.25 million, the expected market time is 101 days, a balanced market that does not favor a buyer or seller.

For luxury homes priced between $1.25 million and $1.5 million, the expected market time increased from 123 days to 157. For homes priced between $1.5 million and $2 million, the expected market time decreased from 196 to 188 days. For luxury homes priced between $2 million and $4 million, the expected market time increased from 266 days to 285 days. For luxury homes priced above $4 million, the expected market time increased from 667 to 695 days. The luxury end, all homes above $1.25 million, accounts for 36% of the inventory and only 12% of demand.

The expected market time for all homes in Orange County increased from 67 days to 77 in the past two weeks, a tepid seller’s market (60 to 90 days). From here, we can expect the market time drop dramatically by the end of this month.

Distressed homes, both short sales and foreclosures combined, make up only 1.3% of all listings and 2.7% of demand. There are only 17 foreclosures and 33 short sales available to purchase today in all of Orange County, that’s 50 total distressed homes on the active market, dropping by 11 in the past two weeks and reaching its lowest level since the very beginning of the Great Recession. Last year there were 112 total distressed sales, 124% more than today.

There were 2,269 closed residential resales in December, down by 9% from December 2016’s 2,484 closed sales. December marked a 6.5% drop from November 2017. The sales to list price ratio was 97.3% for all of Orange County. Foreclosures accounted for just 0.8% of all closed sales and short sales accounted for 0.9%. That means that 98.3% of all sales were good ol’ fashioned sellers with equity.

Cheers

Why Chose Us?

Why Chose Us?

If you are tired of the hassles associated with managing your own rental property and want to get out of the landlord business, consider Hermitage Property Management.

Some of the benefits of hiring a Property Management Company include:

It saves you time, work, and stress:

  • You don’t have to hire someone to clean, paint, or make repairs.
  • You don’t have to advertise, take leasing inquiries or show the property.
  • You don’t have to screen applicants or be apprehensive about whom to pick.
  • You don’t have to draft a rental agreement.
  • You don’t have to draft the lease addendum.
  • You don’t have to conduct & photograph the move-in inspection report.
  • You don’t have to worry about legally handling the tenants deposit money.
  • You don’t have tenants calling at all hours of the day and night.
  • You don’t have to confront tenants on tough issues like collecting rent, HOA violations or taking better care of the property.
  • You don’t have to collect NSF checks.
  • You don’t have to serve legal notices or start an eviction.
  • You don’t have to schedule and complete the move-out inspection report.
  • You don’t have to mail the tenant’s Security Deposit accounting statement and refund check.
  • You don’t have to start the process all over again.
  • One last benefit – your leasing and management fees are usually a tax deduction.

Isn’t that enough?

Here are more reasons to consider:

  • Do you or your current landlord know the current landlord/tenant laws?
  • Do they know current market rents, vacancy factors, and time on the market in your area?
  • Do they have a solid rental application and consistent screening policies that meet all legal obligations and can ensure you have a tight lease agreement?
  • Do they take the time to do a thorough move-in/move-out inspection with a written report?
  • Do they personally know reputable painters, electricians, roofers, carpenters, furnace or appliance repairmen who are licensed, affordable, and reliable?
  • Do they effectively confront and negotiate with the tenant and enforce the terms of your rental agreement?
  • Do they have the ability to recover NSF checks, evict tenants, and collect bad debts?

Contact Us

Our Contact Info

Phone: (949) 300-2634
Email Us at: info@hermitagepm.com

Our Mailing Address

4000 Barranca Parkway
Suite 250
Irvine, CA 92604

FAQs (Frequently Asked Questions)

FAQs (Frequently Asked Questions)

Here are answers to some of the more frequently asked questions FAQs we hear about our services. If we missed something, please call or email us:


How much do you charge to lease my property?

Many property managers and real estate brokerages charge a leasing fee of between 5 and 6% of the annualized monthly lease. For example, $2000/mo lease x 12 months = $24,000 per year x 6% = $1,200, which will be split 50/50 between brokers; half for the listing broker/agent and half for the leasing (showing) broker/agent.

Other brokers charge additional fees for everything from listing, to preparing the lease agreement,  to taking the lease listing photos. Our fees are far less. We charge a flat 2.5%  of the first year’s rent as a leasing commission which is paid to the selling broker. This is one half of the leasing fee and goes to the broker/agent who obtains the qualified tenant. (No renewals) We also charge 10% of one month’s rent to list your property for lease on the multiple listing service, MLS along with posting your listing nearly 100 different websites. We will also screen your applicants and draft a complete California Association of Realtors Lease Agreement including all disclosures.

By the way, Our lease listing fee of 10% of one month’s rent pays to screen your tenants. this includes complete credit, background, criminal and eviction check;  verification employment, employment income and other stated sources of income; review rental history with your applicant’s current landlord, and previous landlord to confirm the applicant’s tenancy. We will review all the applicant’s information with you and mutually decide to accept or decline any prospective tenants.

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How much will you charge to re-lease my property to an existing tenant?

We charge $100 to negotiate a new monthly rent and draft a lease extension. Why? Tenant’s don’t like rent increases and tend to avoid the subject, therefore we spend a great deal of time bringing the negotiations to a successful conclusion. (Back to top)

What type of rental properties do you manage?

Our mission is to provide the family and/or individual investor who owns one or more single family homes, condos or town houses a low-cost, professional solution to their property management challenges. We will take over the daily worries that arise in property management including; leasing, screening tenants, managing, maintaining and refurbishing single homes, condos and small, multi-family units. (Back to top)

What areas of Southern California do you cover?

We are currently managing properties in Irvine and the surrounding communities. It doesn’t make sense to go outside of this geographic area.

We’ve lived here in Orange County for more than fifty years so we know the communities and understand the demographics. We know which areas get prime rental rates and which are challenges and understand how to navigate each. Local knowledge is a time and money saver when leasing and managing rental property, so this provides us with an advantage when marketing your property. (Back to top)

How quickly will you lease my rental property?

Wow, good question! We can never say for certain, because there are so many factors that affect your timelime. Bottom line is it depends on you, your property and the marketplace. I’m sorry to report that what you need to earn in rental income to cover cash flow should not determine the rental price. Price and amenities are top of mind for most tenants.

Price, is the most important factor in deteriming how quickly a rental property will get rented

Our mission is to get your property rented as quickly as possible to the best possible applicant by pricing the property to compete at the current market rates for that specific area.

Additionally there many other variables that affect the amount of time on the market including location, quality of the home, season its listed, the amount of “active” listings in your marketplace, applicant quality and being in the right place at the right time.

This is a numbers game and to win, you have to have as many potential tenants looking at your home as possible. Prospective tenants can’t look at it if they don’t know it’s there, and advertising on the internet is the only way to let them know about your property. Rest assured that no other property management company is more effective advertising and promoting your rental home than Hermitage Property Management. Although vacancies are unsettling, we follow our proven processes until we find the right tenant for your real estate investment. (Back to top)

How much will my rental property rent for?

Often real estate investors will set rents based on how much they need to earn to cover their mortgage and HOA expense, or how much they want to net, or based on what they heard another rental home is renting for. These methods almost always create problems. Arriving at the appropriate market price isn’t rocket science but can be tricky. First and foremost basic economic forces are the most important factor. For example, what are similar priced homes renting for? Additionally, location (good or bad), upgrades, paint and flooring and cleanliness all play a role in what home will rent for. This is one of many areas where our experience can help make a difference.(Back to top)

What’s the rental market like currently?

The current real estate market is hot these days with investors scooping up properties as quickly as they come on the market. Investors and people looking to upgrade or buy a home or trying to take advantage of the historically low interest rates and property values. Additionally, rent rates have been going up 2-3% per year for a few years now, making the rental market very attractive.

Bottom line, Orange County’s economy is booming and record numbers of people are looking to rent because home ownership is too expensive or may not make sense with housing prices so high. There is a lot of competition out there for rental properties.  That’s why Hermitage Property Management is the logical choice.
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What steps do you take to lease my rental home property?

After many years in property management, we know what works and what doesn’t and have developed a comprehensive marketing system that utilizes various methods of marketing your property through various websites and our extensive network of real estate agents.

Our advertising does not stop there. We are also very active and aggressive in our Internet marketing. In today’s competitive market, we find many of our renters are more comfortable with computers than newspapers and we actively cater to that segment. Hermitage Property Management networks with several different web sources and that helps keep us at the top of the search engines. Internet marketing cost is a part of the service from Hermitage Property Management.

Naturally, we also market to local government housing programs, corporations, and relocation departments. If tenants don’t see your property, they won’t know that it is available- so we make sure that they do!
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When you find residents for my rental home, how do you qualify them?

We strive to provide you with the very best quality residents possible. Here is what we do to screen your prospective tenants:

  • A complete credit application on each adult resident 18 yrs and older.
  • A complete credit report on each adult principal resident or cosigner.
  • A verification of each principal residents social security number.
  • A court search to see if the applicants have ever been evicted in the past 7 years.
  • A criminal check to see if there are any convictions.
  • A search of the 3 major credit bureaus to see if applicants have any outstanding collection accounts.
  • Verification from their former landlords.
  • Verification of their employment.
  • Verification of their income

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How often and how are property inspections conducted?

When your property is vacant, we generally inspect it each week. The next inspection is done prior to the residents moving in. This is known as the “move in” inspection, where we detail the condition of your property on our move-in inspection form. We also photograph the move in inspection.

We inspect the exterior of our properties on a periodic basis and we also conduct other inspections when requested, or if we determine that an inspection of the property is warranted.

Within 90 days after the residents move in, we contact the residents to re-inspect and to ensure that all is well with your property and your residents. Between the 10th & 11th month of the residents lease, we discuss with the residents their intent to renew their lease for another year. If they are not renewing, then we advise our leasing staff to ensure that we are able to get the home re-rented quickly with little or no vacancy.

When the residents move out of your property we do another detailed inspection known as the “move out” inspection. The move out inspection is done to ensure that the residents returned the rental home back to us in the same condition as when they first rented it. If damage is found, then we impose a claim on the Tenant’s security deposit as required by California Tenant/Landlord Laws, if no damage is found, then we promptly return the security deposit to the former residents. (Back to top)

What are the terms of your property management agreement?

We are a performance-based company and if your not happy, we’re not happy. Thus we have an easy cancellation policy. During the first 60 days either party may cancel with a telephone call, thereafter if we do not perform to your satisfaction, you may cancel with a 30 day written notice. (Back to top)

What are your property management fees?

Our standard monthly management fee for a single-family rental home is 6% of one month’s rent.  We do not charge any set up fees either.  We do suggest listing your property on the MLS so other, cooperating broker/agents can also show your property. we suggest you offer a 2.5% commission to selling agents to get more “eyeballs” to see your property. Please see our leasing fees above for more info. (Back to top)

When will I receive my rental funds?

We pride ourselves on quick turnaround of your rent income.  We offer “Electronic Direct Deposit” or ACH deposits in to your bank account. Rent proceeds are deposited into your bank account after they have cleared our bank and all outstanding bills are paid. You are paid a Net Rent check no later than the 12th of each month unless your tenant is late with their rent.

Our goal is to get our tenants to pay their rent electronically by the first of the month although tenants are given a 5-day as a grace period.  On the 10th of the month, we will also send you a monthly statement detailing your account activity, with any original receipts, work orders etc. We can also email monthly statements if you prefer.  (Back to top)

What if a tenant damages my property?

With our screening program, the chances of this happening are slim. As we market quality rental properties, we attract quality stable tenants. With that kind of tenant, malicious damage is rarely a problem. In the event a tenant does damage to the property, we get the house back in rent ready condition as quickly as possible and re-leased. Once we are clear about the cost of the damage we assist you with obtaining judgments, filing complaints if appropriate, and even collecting on the judgment.

Our office has an excellent system of tracking damage and cleaning costs with our move-in and move-out inspections. We will charge residents for any damage or cleaning related directly to them; however we are very fair and will not charge a resident without merit. (Back to top)

What if a tenant needs to be evicted?

Although a rare occurrence, we will handle the process for you through our legal resources. California statutes provide the framework that must be used to go through an eviction in the shortest time possible. This is one of the most common areas where real estate investors get in trouble by trying to “save money”. Great property management doesn’t cost money, it pays, and in this case, not understanding the tenant’s rights can cost a small fortune. We keep the tenant if possible, evict if we can’t keep them current and get the house vacant and rent ready as fast as the law allows. (Back to top)

Do you get my approval before doing any maintenance work?

Your Property Management Agreement will outline the parameters for maintenance approvals, based on a mutual agreement. Whenever possible, we will contact you for your approval for repairs over the stated limit on your property management agreement. However, if the repair is an emergency,  we may feel it necessary to authorize the repair and then contact you to inform you of what has happened.  We have a stable of quality service contractors who respond to our requests as quickly as possible to take care of any emergency. This ensures that your property is given the best care possible. (Back to top)

Do you guarantee the residents that you place in my rental home?

YES, we provide our property management customers with the following guarantee: Should any tenants that we place into your rental home move out and break their lease (for any reason), we will waive our normal leasing fee and re-rent your home to new tenants FOR FREE! (Advertising cost excluded) (Back to top)

Are you the cheapest company in town?

Nope. It seems there is a new property management company or Real Estate Agent starting out every day, trying to beat everyone else’s prices. Our fees are very competitive and we certainly are not the most expensive. On the other hand, we charge a fair fee for a tremendous service. (Back to top)

Who handles problems late at night?

We are always “ON CALL” to handle late night calls from our residents. Our phone is always on 24/7-to take the residents emergency calls and/or contact the appropriate service. 
Many times we solve problems right over the phone avoiding what might have been an additional maintenance expense. (Back to top)

Why should I choose Hermitage Property Management?

In a word, “Experience”. Our customers know that, “Our people make the difference”. We believe that the key to our success is in the personal relationships that we have developed with our Owners, Tenants & Vendors over the past 27 years. We are here to serve you and your residents. (Back to top)

Miscellaneous Questions and concerns

LOCKS: We strongly recommend that all property door locks be changed after each new tenant to insure that all keys are accounted for. This will give the tenants peace of mind and minimize your liability.

LANDSCAPING MAINTENANCE: For units of two or more, exterior maintenance in all common areas is your responsibility. For single-family homes, yard maintenance is your option. As a suggestion, you may wish to pay for yard service and water if the landscaping is an important issue. Even though our lease reads that the resident is to care for the yard, we cannot guarantee compliance (or the residents’ gardening expertise). If during our monthly drive-by inspections it appears that attention is needed, we will remind the resident of their responsibilities. If the problem persists, Hermitage Property Management will correct it to the best of our capabilities and charge the resident for those services.

APPLIANCES: We suggest you do furnish the stove and refrigerator. Moving large appliances in and out can be hard on doorjambs, carpet, tile and vinyl floors. If the laundry room is not in the garage or near an outside door we suggest you also install a washer and dryer. This is especially so, if the property may be desirable to first time renters, college students, newlyweds, corporate transfers, etc. Any damage to the appliances that was done by the resident will be charged to the resident.

UTILITIES: We recommend that residents pay for natural gas and electricity. Water, trash and sewer are optional, however if you have nice landscaping you may consider offering the home with the water paid as residents may not be willing to pay a high water bill for watering your rose bushes or lawn.

WINDOW TREATMENTS: A unit supplied without window treatments is an invitation to your resident to drill holes in the walls and leave holes behind at move-out. It also encourages makeshift window coverings, such as sheets, blankets or worse. For these reasons, we do require that your property have adequate window coverings before a resident takes occupancy.

FINAL THOUGHTS: As difficult as this may seem, we recommend keeping your emotions about the property to a minimum. Think of the mortgage that is being paid by renting it out! Normal wear and tear is to be expected. Any damage that may occur can be repaired and anything can be replaced.

All of the above also applies to investment properties. “Return” on your investment is the key; not torn drapes or stained carpet. These can be replaced with resident’s Security Deposit. The important issue is keeping them rented. While it is wonderful to find the perfect, non-smoking, no pet and wishing a one-year lease type of resident; they are few and far between. Allowing pets, smoking and open lease lengths are a sure way of providing an open market and continued income. There are many considerations to make regarding an income producing property. If you have additional questions, please feel free to contact our office here. (Back to top)

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