Neighborhood Life Cycles

Most new products that are brought to market experience what is commonly referred to as a
“life cycle”.  Similarly, neighborhoods also experience a life cycle.

These cycles include four basic phases:  growth, stability, decline and renewal.  Occasionally these four stages can happen over a relatively brief period of time, but it usually takes decades.  

During the growth period the area experiences high demand and public acceptance.  The growth period is when rents rise, property values increase, job growth is strong and an area reflects prosperity.

The stability phase is a period of time when a neighborhood stays constant or is in equilibrium.  This is when the market is most balanced with an equal amount of buyers and sellers.  These neighborhoods usually have a high rate of owner occupancy and pride of ownership.  

The period of decline comes about when deferred maintenance is obvious, there are fewer owner occupied properties, crime increases, and both demand and prices decrease.  Commonly these areas have lots of deferred maintenance, or even blight. As a neighborhood goes through decline it is considered undesirable by most potential buyers.  The demand for property in a declining neighborhood is usually very low.

Renewal takes place as properties are improved, more become owner occupied, and both demand and prices increase.  During the renewal phase gentrification takes place.  There are major increases in remodeling and home improvements by new residents who want to improve their neighborhood and increase property values. 

With soaring prices of Bay Area real estate, buyers are becoming resourceful and considering some neighborhoods  that were once undesirable.  There are several areas where this is happening on the Peninsula.

One great example of this is the Fair Oaks area in Redwood City.  For the last three years the 94063 zip code in Redwood City has had one of the highest percentage increases in prices in the nation.  Obviously people who purchased just prior to the renewal phase will see dramatic returns on their investment; and it appears that this area will continue to see rapid appreciation.

When purchasing a property, it obviously is important to consider how well the neighborhood is doing and what phase it is in.  Be aware of neighborhood trends when you consider buying.  Every neighborhood fits somewhere in, or between, one of these four stages. 

 

This article was published in the San Francisco Examiner.

Articles are written by Eric Ruxton and Larry Aikins, owners of Terrace Realty, Inc. and Terrace Associates, Inc. in Redwood City. Terrace has been in business more than 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

How to Make Your Money Work for You

CRITICAL MASS

 

The term “Critical Mass” is derived from nuclear physics.  However, the term is often used in other fields to describe the point at which the size, number, or amount is large enough to produce a particular result.  When the term is used in the world of real estate, it usually refers to the point that an investment becomes self-sustaining.

You can analyze a business and establish what critical mass is for that business.  Every business has a point at which it really begins to make money. Critical mass in this regard is that revenue point in every company after which every dollar earned flows virtually straight to the bottom line. 

When an individual decides to become a real estate investor, in essence they are starting a business of accumulating rental property that will generate a monthly income stream and begin building equity.  With real estate investments most costs remain stable and rental increases are mostly increased cash flow.

As you are building your real estate portfolio, during your working years, you take a certain amount of risk.  You have to use leverage when acquiring and building your investments.  Once you have reached your goal, you will want to reduce your risks and lower your exposure to financial mistakes. 

So what happens when your real estate holdings reach critical mass?  

Your investments take on a life of their own: your income will multiply and continue to grow as your investments create their own momentum.

We have many clients that own six or more duplexes, or the equivalent.   If their property is worth $6 million and it appreciates at 5% per year, that is a $300,000 increase in equity per year.  That is the same as saving $25,000 per month!  In addition, when the rents on twelve units are raised by $100 per month each, that adds $1200 per month, or $14,400 per year in increased cash flow.

Critical mass means different things to different people.  Critical mass for Donald Trump is probably different than what it is for you.

 Critical mass for most individuals is the point at which your assets reach a “tipping point” and become self-sustaining entities.  For most people obtaining financial independence is the goal; not having to rely on a job to maintain the lifestyle you desire.

Critical mass and growth equal increased income.  

Let’s put it this way… You know that you have reached “Critical Mass” when you go to sleep at night and you know that you’re still making money while you sleep.  

Critical mass is not earned income. Critical mass is strictly a function of assets you hold creating your personal financial happiness, peace of mind, and serenity. 

 

This article was published in the San Francisco Examiner.

Articles are written by Eric Ruxton and Larry Aikins, owners of Terrace Realty, Inc. and Terrace Associates, Inc. in Redwood City. Terrace has been in business more than 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

Buying a Property with a Friend or Family Member

PARTNERSHIPS

 

People often involve themselves in partnership agreements as part of the process of real estate acquisition.  There are as many types of partnerships as there are ideas that can be reduced to writing.  Of course any agreement should be in writing to help prevent any misunderstandings between all of the parties involved.  It is crucial to create a written agreement acknowledging that all parties are aware of, and agree to, the requirements necessary to uphold the intentions of the partnership.

Customarily there are two types of partnerships: general and limited.  In a general partnership, all parties participate to some extent in the operation and management of the business or real estate holdings.  Each person is held personally responsible and liable for profit, losses, and obligations.

A limited partnership includes a general partner(s) as well as limited, or silent partners.  The responsibilities are handled by the general partner or partners.  The limited partners do not participate in daily management, and each can be held liable for the business losses only to the extent of his or her investment.  The limited partnership is a popular method of organizing investors in a real estate project.  These projects tend to be large and consist of many investors.

In most cases you are better off if you are able to acquire a particular piece of property on your own.  Bringing partners into an acquisition is often done because you are unable or unwilling to have 100% involvement yourself.  If you feel that you can’t handle the investment alone, then bringing in partners can be a great opportunity.  Finding others with similar needs and desires is the first challenge. 

Family members, acquaintances, or coworkers can all be a sources for partners.  When you are married and purchase a home together you are in a partnership.  As we know, marriage partnerships can be wonderful and add strength to your overall relationship. But, at times they can be difficult.  Partnerships with others, such as friends or business associates, can also have many benefits.  An association of two or more people to carry on business as co-owners, and share in the profits or losses, is a partnership.  In all cases, one needs to give a lot of thought prior to establishing a partnership to try to avoid possible future pitfalls.   Probably the single most important issue is that all parties involved understand and agree upon their responsibilities and obligations in the partnership. 

Once the partners are determined, a partnership agreement needs to be developed.  A partnership agreement is a general guideline for the intentions and goals of the investment group.  For example, often people want to get started in the acquisition of rental or income property.  Two, three, or more people can pool their resources to start building a portfolio of rental properties.  You need the guidance of a Realtor that has experience in putting small investment groups together.

 Do you want to hold the property for five years and then sell or trade up?  What if one investor wants out before the rest of the group is ready to sell the property.  There should be a provision for buying out a partner whose plans change.  There should definitely be a penalty for early withdrawal to avoid  undo strain on the other group members. An experienced Realtor can advise you on the possible scenarios such as these and can help you to prepare a partnership agreement specific to your needs.

There can be many benefits to investment groups and the leverage that is created.  Real estate investments should be held for the long haul and be just a part of your overall personal financial portfolio.  Expertise in the field is critical; choose your Realtor carefully.

 

This article was published in the San Francisco Examiner.

Articles are written by Eric Ruxton and Larry Aikins, owners of Terrace Realty, Inc. and Terrace Associates, Inc. in Redwood City. Terrace has been in business more than 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

 

 

Selecting an Investment Property

When a person is trying to make a real estate investment there are hundreds of questions he or she can ask, all of which tend to make investment selection difficult and confusing.  Most confusion arises from choices – choice between a wide variety of properties in a wide variety of areas.  We have always felt that you should invest in an area that you know well and within an easy drive from where you live.  This is especially true for us living the Bay Area because where we live has traditionally been one of the best areas in the country for investing. 

We are very fortunate to live in the Bay Area.

First, one ought to discount the idea of finding a bargain that does not exist.  In a strong real estate market like ours, any worthwhile property will sell at its market value.  Trying to find a property at less than the market value should be of secondary importance.  Any worthwhile property will appreciate over time. Time, not timing, is the important factor.  The length of time that the process of capital appreciation will  work for you depends on your age. So, getting started as soon as possible is very important.

It is true that some properties are in less demand than others at different times. 

However, for the average investor we feel that the most important thing to do is to simply find a worthwhile property that you are able to purchase now.

In the last year, we have seen a 20 plus percentage increase in real estate prices.  Most forecasters are predicting 5-6 percent appreciation for 2016-2017 on the Peninsula.   The rental market is also very tight.  There are more people looking for rentals than there are places available.  Rent prices have increased 20-30% or more in some locations.  As rents rise more investors are looking for rental property to purchase.

Over the years we have heard every excuse in the world for why a person has not invested in real estate: “The prices are too high.”, “Interest rates are too high.”, or “The property is really old and needs a lot of repairs.” Often, the best properties to purchase are the ones that need improvements made on them.  

The excuse that really surprises us is “ Realtors get all the good ones.”  This could not be further from the truth.  Most Realtors do not own a significant amount of real estate.  Only a very small percentage of Realtors own investment property themselves, and those that do cannot buy all of it.  The general public has great opportunities in the Bay Area.

Probably one of the most difficult and important challenges a investor has is to find a good Realtor that truly understands real estate investing firsthand to help them make the right decisions.  Most Realtors list and sell homes.  Fewer Realtors specialize in residential income or rental property.  If you are considering investing in income property you should be working with someone who truly understands rental property.

The most important decision a person has to make is that they are going to go ahead with a purchase; the sooner the better. 

Interest rates are extremely low now and putting off a real estate acquisition is your biggest mistake, in our opinion.  Getting the exact “right” property, if it exists, is not as important as just getting a property.  Get started today. 

 

 

This article was published in the San Francisco Examiner.

Articles are written by Eric Ruxton and Larry Aikins, owners of Terrace Realty, Inc. and Terrace Associates, Inc. in Redwood City. Terrace has been in business more than 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

 

Rental property has proven to be a consistent and reliable source of income

Appreciating Assets

An asset should generate a cash flow.  If an asset does not generate income, then we think of it as more of a liability.  For instance, a car may be a necessity and useful in everyday life, but it’s not an asset that generates income or gains in value.  Most things you own are depreciating on a daily basis.  Stocks, bonds, real estate, and precious metals are examples of appreciating assets.

 Rental property that streams income month to month and year to year has been shown for centuries to be among the most consistent, reliable and predictable sources ofincome and appreciation. Real estate differs from most other appreciating assets in one major way:  the use of leverage.  Leverage allows us to control 100% of the asset while investing just a small down payment.  However, over leveraging can be fatal.  Over estimating income and underestimating expenses is one of the most common mistakes that new investors make.

More and more people are realizing that investing in income property will bring excellent long term capital gains.  However, proper management in your real estate investing is truly crucial.  It can make all the difference between a good investment and a poor experience.  Most people don’t realize just how important investment property management is.

 

Keeping your investment property in good condition is vital if you wish to see a good return on your investment and wish to retain good tenants.  On- going maintenance and upgrading should always be a top priorities.

Our current low interest rate environment tempts some tenants to become homeowners and prompts more developers to build competing properties for the market place.

This is what is taking place right now on the Peninsula.  A few thousand residential rental properties are becoming available.  Remember, the investment real estate market is cyclical like most markets.

 The rental market is still tight, but not as bad as it was 6 to 12 months ago.  The new units have offered some relief.  Residential real estate has seen unprecedented appreciation over the last couple of years.  Rent prices have followed with an average two bedroom one bath unit renting for between $2,500 and $3,500.  An average one bedroom apartment is renting for $1,950 to $2,500, and in some cases even more.  

Most of us are busy just trying to figure out a way to increase our income.  This, of course, is a good idea.  But perhaps you should also spend some time working on increasing your appreciating assets.   Remember, income is taxed.  Appreciating assets are only taxed when they are sold. 

 

This article was published in the San Francisco Examiner.

Articles are written by Eric Ruxton and Larry Aikins, owners of Terrace Realty, Inc. and Terrace Associates, Inc. in Redwood City. Terrace has been in business more than 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

Is This a Good Time to Buy?

If you have been sitting on the sidelines waiting to buy real estate because of the extremely competitive market, now might be a great time to make your purchase.  With the exceptions of a few prime locations, Peninsula real estate is becoming more attainable.  Prices are still very high compared to a couple of years ago, but we think that market conditions are becoming a little more balanced. Sellers are slowly realizing that they need to correctly price their property to attract  buyers.  There are fewer and fewer multiple bidding situations. 

So is now a good time to buy? That depends.  We know that “that depends”  isn’t really a satisfactory answer, but there are some questions you first must answer before you can decide if buying real estate is something you should consider at this time.  Probably the first thing you have to ask yourself is how long do you plan to be living in the area? 

What is your employment forecast like?  Acquiring real estate is directly related to employment.  Not only do you need to consider job security, you need to consider what the employment forecast in your field looks like in general, and also the chances of a transfer or other out of area opportunities.  Employment on the Peninsula is very strong.  Over the long term, due to population growth and a strong job market, most people feel we will continue to have steadily appreciating market values.  However, if you are forced to sell over the near term you might lose a significant portion of your equity due to short term market fluctuations.

For a quick real estate analysis of any property, we always look for three primary things:  price, terms, and appeal.  If you can get two of these three things in your purchase, you should probably go ahead and make an offer.  The price is not always the most important thing to consider, but always a major consideration. Terms relate to any special financing available or perhaps owner financing, lease options, or attractive loans that can be assumed. Long term interest rates are still at historic lows, and that alone creates positive “terms”.   Terms and interest rate are often the most important factors.   Appeal not only relates to the home, it’s appearance and condition, it also relates to the neighborhood.   Do the schools have high test scores?  Are the homes in the area well kept?   

The great weather we have in the Bay Area adds to the desirability and quality of life.  Home prices are very high here compared to most other areas in California, but the desirability of the peninsula is also very high. 

When you analyze rental prices, the difference between buying verses renting is often the down payment. It is impossible to try to time the market.  Over the long term the fluctuations in the real estate market take on less and less value or importance.  It is far more important to make a reasonable purchase if you are able; and the sooner the better. 


You always need a place to live and, believe us, five years from now you will be happy you purchased when you did. 

 

This article was published in the San Francisco Examiner.

Articles are written by Eric Ruxton and Larry Aikins, owners of Terrace Realty, Inc. and Terrace Associates, Inc. in Redwood City. Terrace has been in business more than 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

Investment Real Estate

Investment real estate is real estate that produces income.  Your residence is usually not considered investment real estate, but as it appreciates in value and your loans decrease you develop equity build up, which is a pretty good investment for the homeowner.

The investment property owner usually owns multiple pieces of real estate to generate rental income and profits through appreciation. Owning rental property is like running a business.

If you are considering real estate investments, you likely want to earn wealth on real estate based on the risk you are taking.  You want to minimize the time you need to spend on the property.  Organizing your investment plan and making smart choices can be critical.

You need to know your specific market conditions to make smart decisions.  This is one of the areas where your Realtors’ local knowledge is an invaluable resource.  All investment opportunities are not the same.  A good investment in one market may not be a good investment in another location. 

The tax implications for investments real estate play an important role in the overall investment strategy.  Investment real estate is usually either residential rental units or commercial units used for business purposes, office spaces, retail property or warehouse and industrial. 

The overall concept is to achieve capital gains as the property values increase overtime.  

Real estate investing is not easy and is not for everyone.  There are many challenges the investor must overcome.  There are many misconceptions about real estate investing that you need to acknowledge.  Often people think real estate investing is an easy way to “get rich quick”.  Successful investors study their business, learn as much as they can, and have an investment plan.

Discipline is a key attribute and understanding leverage compounding and the importance of capital preservation.  

Like any endeavor, there is a right and a wrong way to go about investing.  Sure, luck sometimes plays a part, but careful planning, education and dedication are the keys to success. 

Over the last 50 years of doing business, we have developed relationships with some of the top most successful real estate investors on the Peninsula; Terrace has helped many achieve their goals.

This article was published in the San Francisco Examiner.

Articles are written by Eric Ruxton and Larry Aikins, owners of Terrace Realty, Inc. and Terrace Associates, Inc. in Redwood City. Terrace has been in business more than 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

Estimates of Fair Market Value Versus Cap Rates and Gross Multipliers

Often you may hear the terms estimate of fair market values, cap rates or capitalization rate and gross multipliers in relationship to real estate.  What exactly do these terms relate to or mean? 

Estimates of fair market value or comparable market analysis are primarily used for residential properties and sometimes up to four unit buildings. Cap rates and gross multipliers are usually used on residential income properties and commercial property. 

There are formal and informal appraisals and estimates of value.  Formal appraising consists of estimating value by the collection and analysis of data.  A formal appraisal analyzes factual material and reduces it to written report form so that a disinterested third party can easily review the appraisal and understand how the conclusion was reached.  Usually, only licensed professional appraisers compile formal appraisals for the lenders, courts, estates, etc.

The informal appraisal is where the conclusion is reached by using intuition, past experience and general knowledge.  Often Realtors look at many properties for business purposes, for one reason or another on any given day.  A Realtor estimates the value of residential homes in the neighborhood they work in on a daily basis.  By visually inspecting a property and doing a comparable analysis an “estimate of fair market value” can be arrived at.  A good Realtor is so used to doing this that they can roughly figure out value using these methods in their heads without using pencil and paper.  If a Realtor needs to put the information in writing for a client, they can return to their office, and prepare an informal appraisal or estimate of market value. This is why it is important to work with a local expert.

There has to be a practical way to quickly look at a property or several properties and be able to do a prompt calculation in your head.  Realtors often need an expeditious way to evaluate a piece of property in their day to day business.  

Realtors rely on capitalization rates and gross multipliers as a steady constant to arrive at value for residential income property and commercial property. The gross multiplier is arrived at by taking the monthly, or usually yearly, income a property produces and dividing the price by the rental income.  This gives an economic characteristic of the property from its income.  The cap rate is the process of converting the net income of a property into its equivalent capital value.  The capitalization rate is defined as a rate of return, or percent, used to convert income into its value equivalent, a return on your dollar invested.  Both of these methods are primarily used to establish value of income or rental property and commercial properties.  

Sometimes the meaning or “weight given” to evaluations and estimations of property can vary depending on what the intended use is.  Lenders can look at property from one perspective, courts another and we all know that buyers and sellers see the same property differently.  With investment or rental properties using “cap rates” and “gross multipliers” can help make the evaluation process more uniformed, less subjective.    

These rates and figures are not set in stone.  As market conditions change, gross multipliers and cap rates change in their significance. 

Always remember, the condition of the property and the location of the property play a huge impact on any evaluation.  Local knowledge and experience of market conditions is critical.

This article was published in the San Francisco Examiner.

Articles are written by Eric Ruxton and Larry Aikins, owners of Terrace Realty, Inc. and Terrace Associates, Inc. in Redwood City. Terrace has been in business more than 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

Which Realtor Is Right For Me?

We are often asked “Does it make any difference which real estate company  we use?”  Our response is “not really”.  What does make a difference is the individual real estate professional you decide to work with. As in any field, there are some real estate agents who rise to the top of their profession, while the majority do not. 

Successful real estate professionals not only have have education and  experience, they have a genuine love for their business.  They are known and respected by their peers.  The real estate profession is not just a job for them, it is their passion.  

Some agents will lead you to believe that there are advantages to working with a large franchise real estate brokerage company, when today  there is nothing further from the truth.  Real estate salespeople who work for some of the larger companies are often very restricted in what they are able to do for you.  These companies are often referred to as having a cookie cutter approach to the real estate business. 

Sophisticated Realtors that have years of experience and knowledge of the business are often able to fulfill special needs for their clients.  For example,  they can  locate or provide short term financing to help facilitate a transaction, they have intimate knowledge of exchange regulations and  possibilities, or they can creatively structure transactions to meet special tax or estate planning situations.   

Today you do not need a company that touts their size.  All that this means is that they may have a lot of offices and a lot of agents.  Some of their agents are good, hardworking professionals, but many are not.  With the internet all salespeople are able to expose your property on the “world wide web’.  It doesn’t matter how large or small the real estate office is.  

Any good agent with access to the internet can expose your property to the world. This will result in more people knowing about your property and its availability. The  best chance you have of obtaining top dollar for your property will be as a result of working with an experienced professional who is skilled in marketing and negotiating on your behalf. 

There are various measures of success in the real estate business.  Finding the right agent to work with is imperative.  You need an agent that your feel comfortable with and be able to really talk and share your feelings without reservation.

How long has your agent been in the real estate business?  How long has your Realtor been working in your area? Is your Realtor proactive?  Does your Realtor return your phone calls and emails quickly?  Does your Realtor keep in constant contact with you?  A good agent gives constant valuable advice and guidance based on experience, knowledge, and a proven track record. 

This article was published in the San Francisco Examiner.

Articles are written by Eric Ruxton and Larry Aikins, owners of Terrace Realty, Inc. and Terrace Associates, Inc. in Redwood City. Terrace has been in business more than 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

 

 

 

Fear and Real Estate Investing

Fear can be a great motivator.  Fear of having little control over your financial future can drive you to succeed. Over all the years of being in the real estate business we have guided many people through the fears of real estate investing. Fear can show up in many different areas of an investor’s thinking and, if you allow it to become pervasive, it can become paralyzing.

Fear of virtually anything in life usually arises from feeling a lack control.  One reason for never investing in real estate is a lack of understanding of the concepts involved in real estate investing.

Many fears are reasonable and often justified.  Successful investors must attempt to understand and identify the source of their fears. What if the value of real estate goes down or rent prices dip?  What if the water heater goes out or the tenants ruin the carpets?  What if I cannot rent the property and I have to make the payment?  The list of possible fears is almost endless.

We all worry at times, but once the source of our fears is recognized we must make decisive and constructive plans to overcome them. Those who never take action will never acquire the almost unlimited wealth and financial freedom that real estate investing has to offer.

What truly successful real estate investors understand is that no matter how much knowledge you have or how carefully you have researched an investment property, problems or mistakes can and do occur;  however,  not nearly as often as you might think. Terrace has been in the business of owning and renting properties for over 50years.  We’ve experienced almost everything that can go wrong and share that experience with our clients. The key is to minimize, not avoid, your mistakes by learning from the mistakes and successes of others.

Surround yourself with motivated, informed, and successful people. With knowledge comes confidence, and with confidence comes successful investing. Understanding that real estate has cycles, and though you cannot always accurately time the market you can prepare for it. Work out your strategies and work toward your goal of property ownership one step at a time.

Always plan a “back door” or exit strategy if you encounter obstacles. Be willing to make mistakes. Successful investors always have a plan for things not going perfectly.

Gaining confidence, knowledge, and motivation to move forward is the key to successful real estate investing.  

 

This article was published in the San Francisco Examiner.

Articles are written by Eric Ruxton and Larry Aikins, owners of Terrace Realty, Inc. and Terrace Associates, Inc. in Redwood City. Terrace has been in business more than 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

 

 

Which Loan is the Best for You?

Many potential home buyers are priced out of the housing market, either because they lack the required down payment or because they cannot afford the monthly payments.  When a home buyer goes to a lender to get qualified for a new home loan one of the critical factors the lender looks at is today’s income. The amount of the monthly payments a family can afford depends on the income, or dual income, earned per month. Usually borrowers will occupy the home well into the future, when their income is likely to be much higher, but it is just today’s income that is considered.

Lenders set their mortgage interest rates based on their cost of the funds plus a margin for their profit.  This margin reflects the lender’s estimate of the future rate of inflation.  Traditionally lenders have offered fixed rate mortgages to borrowers that provide for a monthly payment that is constant for the life of the loan (typically thirty years). 

In the 1970’s more and more families were being priced out of the market so lenders sought a way to make it easier for more families to qualify for loans.  Lenders were not being humanitarians; they stay in business by making loans.  When the price of a product or service is too expensive for potential customers to buy, you either have to make the product more affordable or suffer financially; perhaps even go out of business. In the late 1970’s lenders came up with the idea of the variable interest rate loan and the adjustable interest rate loan.

These loans are basically the same in theory, but have minor variations.  The initial interest rate is ordinarily below the going rate of a traditional fixed rate mortgage.  The biggest benefit to the adjustable rate mortgage is that because the initial rate is lower, the monthly payments are lower.  When a lender is qualifying a buyer for a loan the ratio of the monthly income to the monthly payment is improved.  This was good for the banks because they could make more loans.  It was also good for buyers because they were able to purchase a home that they may not have been able to afford with a fixed rate loan.

Due to the financial and mortgage melt down in 2008, many new regulations have made borrowing much more difficult. Today lenders are much more stringent in the qualifying process.

With either a fixed rate or adjustable loan the best rates available will require a minimum of 20% down payment.

If a buyer fully intends to stay in their home for a long time the best choice is always to get a fixed rate loan and enjoy the comfort of knowing that your payment will remain constant.  On the other hand, if it is known that the home will be an interim residence the low payment advantage of an adjustable rate loan should be considered.

Usually acquiring the home now is the single most important issue. If a buyer doesn’t like the loan, or would prefer another loan, they can refinance later when their income is higher and, in all probability, the home will be worth more. The loan that allows a buyer to obtain their dreamhome now should be considered the best loan.

 

This article was published in the San Francisco Examiner.

Articles are written by Eric Ruxton and Larry Aikins, owners of Terrace Realty, Inc. and Terrace Associates, Inc. in Redwood City. Terrace has been in business more than 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

 

Broker's Trust Funds

A Real Estate Broker’s Trust Account provides an arrangement between an investor and a licensed brokerage firm that enables an investor to securely deposit funds with the firm.

A typical trust fund transaction in real estate involves a Broker or salesperson receiving trust funds from a principal in connection with the purchase or lease of real property.

Real Estate trust funds may never be co-mingled with any other accounts.  Trust accounts are strictly regulated by the Bureau of Real Estate to protect the consumer.

A real estate broker must manage the accounting records for all trust accounts maintained at banks or other financial institutions.  The amount, date of receipt and source of all funds received from clients has to be recorded.  It is required that each entry in the trust account ledger be in chronological order.  The real estate broker must preserve a separate, sub-account ledger for each owner of the funds and each transaction.   Within the general trust account there can be separate sub-accounts for each transaction and for each owner of the funds; in other words, small accounts within a larger general account.

A real estate broker must also keep a record of any funds received from a client that do not get deposited into the broker’s trust account, but are given directly to another party such as a title company.  If the funds pass through a broker to another entity, the location and date the funds were forwarded must be recorded.

A real estate broker must do a monthly reconciliation of all deposits, withdrawals, and disbursements in their trust account, as well as the separate sub-account ledgers for each person and each transaction.  These records must be kept for at least three years.  Most brokers keep them for a longer period of time.  Lack of proper accounting records is considered evidence of negligence or incompetence in performing the broker’s duties and can result in suspension or revocation of the broker’s license.

A client can ask for a statement or reconciliation of any funds they have with their real estate broker at any time.  The broker should be able to provide the client with a documented statement showing exactly the disposition of the client’s funds at any time.

It is very rare that you hear of a broker misusing any trust account funds. The Bureau of Real Estate requires accounting practices that hold brokers to a high standard of professionalism.  Brokers are subject to Bureau of Real Estate audits on a routine basis to insure that proper accounting practices are being employed and that there are no co-mingled or misappropriated funds.

 

This article was published in the San Francisco Examiner.

Articles are written by Eric Ruxton and Larry Aikins, owners of Terrace Realty, Inc. and Terrace Associates, Inc. in Redwood City. Terrace has been in business more than 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

 

Quick Profit or Investment

There are two basic approaches to investing in real estate.  One is to acquire properties for short term gain; the other is to acquire properties for long term appreciation and eventual cash flow.

The first approach can yield significant profits that are taxable as ordinary spendable income.  The second defers income in favor of long term wealth formation.

In highly aggressive sellers markets, like we have today, some people hope to get in and out quickly with significant profits.  Buying, remodeling or improving, and then selling for a quick profit is a very legitimate pursuit.  This approach often falls into the category of real estate speculation.  Remember, with short term investing you always have federal and state income taxes to consider.

If your cash reserves are limited, short term investing may be attractive.  This approach can help accumulate capital for later long term investing.

When discussing real estate investments with our clients we always try to communicate our real estate investing philosophy.  We strongly advocate acquiring property as long term investments.  As an example, if someone acquires a $1 million property they might make an after tax profit of $100,000 on a short term sale.  That would then become spendable income.

If that same property is held and appreciates at 5% per year, in two years they would gain the same $100,000.  And, the property would continue to appreciate by the same amount every two years.  Over time the increase in equity can be borrowed (or leveraged ) to acquire another property that will then become another appreciating asset for the owner.  That appreciating asset is not taxed until it is sold.  Over time the owner will have two properties that can be leveraged to acquire additional properties.  And as time goes on, these properties will also be producing spendable cash flow.

Over a period of many years the growth in equities and cash flow can be huge.  We have many clients that we have helped with this approach over the years.  Most of them have equities of multiple million dollars.  On the other hand, the $100,000 after tax profit from a short term sale will normally be long gone.

 We firmly believe that long term investing is truly the best way to become financially independent, create wealth, and generate passive income.

 

 

This article was published in the San Francisco Examiner.

Articles are written by Eric Ruxton and Larry Aikins, owners of Terrace Realty, Inc. and Terrace Associates, Inc. in Redwood City. Terrace has been in business more than 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

 

 

The Unusual Peninsula Market

The real estate market that we have had on The Peninsula since the first of the year has definitely benefited sellers.  There has been a very low inventory of available properties for sale, and that has been coupled with a very high demand caused by our strong jobs market. Sellers routinely are getting much more than their asking price. Compared to most other parts of the state and country, our local market is very unusual.

The current real estate market has been very difficult for buyers and for the Realtors that represent them.  Realtors have difficulty locating properties for their clients.  When a Realtor finds a property suited for their buyer, they go through all the steps required to make an offer to purchase for their clients, and routinely do not get the property.  It can be extremely frustrating for the potential buyer and the salesperson.  Often two, three, four, or more offers are written on various properties over an extended period of time. The process is a lot of hard work for the client and the Realtor, and often yields no results. 

Our competitive, or hot, market has been responsible for conditions that normally do not exist in a more balanced market.  In anticipation of multiple offers and overbids it has become routine for sellers to set a date for accepting offers.  On this date all of the offers are reviewed and normally the highest or strongest offer is accepted.  In addition, most sellers are looking for a strictly “as is” sale.  This has lead to buyers making offers that contain no property condition or inspection contingencies.

Routinely offers are made at prices significantly above the asking price with absolutely no contingencies: no financing contingency, no appraisal contingency, no inspection contingency, no property condition contingency, etc.  In a highly competitive market with multiple buyers competing for the same property, buyers are doing this to make their offers more attractive.

Sellers, and their agents, have expected multiple offers, high overbids, no contingencies, etc. to be the normal and routine situation.  Consequently the majority of listings have specified an offer date, required that all disclosures be approved in advance, and required that sales be “as is”.

We think that most people would agree that a more balanced market would be more desirable.  A balanced market, one where there is a somewhat proportionate number of properties for sale and buyers for those properties, is a lot less stressful.   Real estate markets are cyclical and regularly change over time.  These changes normally come about gradually, but on occasion can happen quickly.

Just recently the inventory of available homes for sale has increased significantly.  At the same time fewer listings are setting offer dates.  This is a trend worth watching and could well be the start of a cycle toward a more balanced market. There will always be people who need to sell, and there will always people hoping to buy. 

 

This article was published in the San Francisco Examiner.

Articles are written by Eric Ruxton and Larry Aikins, owners of Terrace Realty, Inc. and Terrace Associates, Inc. in Redwood City. Terrace has been in business more than 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

 

Bundle of Rights

In the past we have written articles on the importance of becoming “business fit”. 

The more you understand about the terms and conditions associated with real estate, the more likely it is that you will be successful in real estate investing.

 

Often real estate instructors teach the concept of the “bundle of rights” to help explain the complexities of property ownership.  Understanding the “bundle of rights” can help you grasp and visualize how real estate ownership is defined and understood.  Property rights originated, and have their roots, in English common law.

 

Property rights have been compared to a bundle of sticks where each stick represents a specific right, privilege, or benefit. 

Real estate ownership carries with it a complex set of rights.  The bundle of rights expands as sticks, or rights, are added. Equally, it gets smaller as sticks are taken away.

 

The owner of real estate has rights which can include the right of possession, the right of control, the right of exclusion, the right of enjoyment, and the right of disposition.  

A right is something due a person by claim, or legal share, or privilege.  Understanding the concept of the “bundle of rights” is fundamental to a good comprehension of real estate.

 

The bundle of rights normally varies from property to property.

  A particular property will often have restrictions on use, easements granted to others, mineral or water rights granted to others, etc. 

Concessions like these reduce the rights, or bundle of rights associated with the property.

 

The community where the property is located also has a “bundle of rights”.  The public view of e rights would include the right to tax, take for public use, control of the property with zoning restrictions, etc.

 Routinely the private and public rights will be in conflict.

Property owners take their private property rights very seriously. The individual’s concept of their rights may not be in agreement with the public or governmental perspective.

 

Remember that property rights are not absolute; they are a function of what society is willing to acknowledge, defend and enforce.

 

  

This article was published in the San Francisco Examiner.

Articles are written by Eric Ruxton and Larry Aikins, owners of Terrace Realty, Inc. and Terrace Associates, Inc. in Redwood City. Terrace has been in business more than 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

 

 

The Deposit Receipt

 

 

When your Realtor prepares an offer to purchase a home for you it is done on a form called the deposit receipt. 

If the offer is accepted the deposit receipt becomes the contract the spells out all of the terms and conditions for the purchase transaction.

 

The deposit receipt is in fact a receipt for your deposit, often called the earnest money deposit.  The deposit is not given to the seller, but instead is held by a third party (usually the Realtor) until your offer is accepted.  It is then deposited into your escrow account.

 

Over the years the real estate deposit receipt has continued to evolve.  Years ago a deposit receipt was a purchase contract that consisted of one page.  It outlined the purchase price, initial deposit, balance of down payment, and loan amount that was to be obtained to pay the balance of the funds required to close the escrow.

 

Today, there are two or three publishers of deposit receipts that are most commonly used in the State of California.  These deposit receipt contracts have as many as ten or twelve pages and are very detailed. 

They are designed to spell out the complete understanding of both the buyers and sellers respective responsibilities throughout the escrow period, until the close of escrow.  It becomes the road-map for navigating your way through the escrow process.

 

Today’s deposit receipts, or purchase agreements, also include the terms of the financing, the time periods for obtaining financing and removing financing as a contract contingency. It also details the disclosures that the sellers are to provide and the amount of time allowed to approve or disapprove them.  In addition, it provides for a multitude of inspections and the time frames for approving or disapproving the property condition.  All of the buyers and sellers responsibilities are clearly defined. 

 

When all parties to a transaction follow the terms set forth in the deposit receipt, the odds of a smooth transaction increase.  Problems begin when the contract is not strictly followed.  Transactions can get out of control very quickly when there is deviation from the contract. 

The Realtor’s job is to help their client understand and follow the provisions set forth in the deposit receipt.

 


This article was published in the San Francisco Examiner.

Articles are written by Eric Ruxton and Larry Aikins, owners of Terrace Realty, Inc. and Terrace Associates, Inc. in Redwood City. Terrace has been in business more than 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

 

 

 

 

Local Rental Markets

Rental prices, fueled by the healthy jobs market, continue to rise in the Bay Area. 

This past year we have seen rental increases ranging from 10% to 25% on the peninsula.  A number of other metropolitan areas across the country are experiencing a similar tight rental market.   There is a lot of pent up demand causing pressure on the rental market, and it is very expensive to live here; the affordability index is getting worse.  

Rent prices have been steadily rising since 2000 and now a steadily growing portion of monthly income is needed to support the rising cost of rent.  Tenants are often paying as much as 50% of their take home income towards the cost of rental housing in the cities with high demand.

The inventory of houses and income properties for sale continues to be very low and consequently purchase prices are up significantly.  This in turn puts pressure on the already tight rental market. 

San Francisco has had about a 15% rise in rents over the past year.  20 of the country’s larger markets have experienced rent increases that far outpace growth in income.

Our local rents are high, but so are rents in Seattle, Portland, Denver, Orange County and San Diego.  Areas across the nation that are experiencing strong job growth are seeing rental demand exceed available supply and the consequent large increases in rental prices.

Redwood City is adding approximately 3,000 new apartment units. 

Some are already completed and many more are nearing completion soon.  This will help ease the pressure that results from low inventory.  Redwood City has also built about 500,000 sq. ft. of new Class A office space to meet the growing demand due to job growth in the area.

Our job market is strong and techies are coming here from all over the nation and world.

Typical one bedrooms are renting for $1,700.00 to $2,200.00,  two bedrooms $2,400.00 to $2,700.00, and three bedroom $3,000.00+.   If you are looking at one of the newly built units, you can add $600.00 to $1000.00 to these prices.

One thing that is always certain is that real estate markets are constantly in transition.  We feel we are somewhere in the middle of our local rising market, and perhaps may be working our way toward the end of this cycle.  The market should stabilize in the near future and become a little less volatile.

 

 

This article was published in the San Francisco Examiner.

Articles are written by Eric Ruxton and Larry Aikins, owners of Terrace Realty, Inc. and Terrace Associates, Inc. in Redwood City. Terrace has been in business more than 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

 

What Creates Value?

Some factors that tend to create value and demand in the real estate market include scarcity, population, employment, wages and vacancy levels.  On the San Francisco peninsula we have very limited space for new construction.  Most of the real estate sold in our area is pre-existing real estate.  There is very little new development, except where a tear-down has occurred.  

There is only so much “dirt”. This, combined with other factors, creates a type of scarcity that only exists in a few other areas in the country.

Population trends have a basic influence on the sale of real estate.  Since shelter is a basic human need, it is obvious that the general need for housing will grow as the population grows.  This need for housing, whether in the form of owned or rented property, is very evident in the Bay Area.

The employment and wage levels have an added impact on local real estate values.  With the unemployment level being one of the lowest in the country, employment opportunities are great in the Bay Area.  Wage levels are generally higher here because of the various types and diversity of businesses.  Many businesses are experiencing a major expansion cycle.  The long term trend appears to be generally smooth and continuous, with only minor adjustments.

Tech jobs are booming in San Francisco and on the Peninsula.  We have record levels of employment.  The Bay Area has one of the strongest job markets in the country.  Last year the Bay Area added about 125,000 jobs. All of these factors have played a big part in strengthening our real estate market. The median price for a home in San Francisco is $945,000.00; 32% higher than a year ago. Asking rent increased about 20% to $2,152.00 per month or more.  

The Bay area economy is strong and has staying power with tech, tourism, and foreign trade leading the market. 

The real estate market in most other areas is slow in adjusting to variations in supply and demand.  The real estate cycle is based on building activity.  The lag time between the demand for units and the completion of those units usually causes the real estate cycle to peak after the rest of the economy does and to take longer to recover from depressed periods than other economic sectors.  However, because of the unique combination of scarcity of land, diversified employment, a relatively high wage scale, low levels of unemployment, and an extremely strong economy in general, the demand for housing here is probably stronger than almost anywhere else in the entire nation and, perhaps, the world.

Your opportunities for great real estate investments are tremendous on the peninsula.

 Your Realtor can help guide you through the process.  The best time to invest is now.  You will be sorry tomorrow if you do not buy real estate today. 

 

This article was published in the San Francisco Examiner.

Articles are written by Eric Ruxton and Larry Aikins, owners of Terrace Realty, Inc. and Terrace Associates, Inc. in Redwood City. Terrace has been in business more than 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

The Best Investment Of All

There is probably no better place to start building financial security than with the purchase of a home.

 Few, if any, countries in the world have as high a percentage of home ownership as we enjoy.  The personal residence is usually the biggest investment that most people make. 

People usually do not have any fears about taking on a mortgage to buy a home.  After all, a home is the cornerstone of every family’s security.  Today lenders have a large variety of home loan programs available to home buyers and rates are still at historical lows.  Obviously the higher your income the better, but with a good job and good credit you generally have an excellent chance of securing a home loan.  The best approach is to shop for the best loan and rate, then become pre-qualified, before shopping for your home.

Over time you not only can enjoy living in your home, but you also build equity.  

The equity you have in your home not only gives you security, but it also can create great opportunities.  

We realize that people enjoy the comfort and security that comes with substantial equity in their homes, but this equity could be put to better use. 
Unlocking your equity and using it to make additional real estate investments is something worth considering. 


Nobody should put their home at risk, but sound real estate investments can help you build financial independence.

 The equity in your home can help you purchase an investment property that can significantly increase your rate of equity growth.  

You will  have two real estate investments working for you, instead of one.  Your equity is still there, it is just in two properties instead of one. This is an example of having your money work for you, instead of you working for your money. 


When considering making a real estate investment, whether it is your home or income producing property, it is always be a good idea to shop for a real estate professional before shopping for the investment.

 

 

This article was published in the San Francisco Examiner.

Articles are written by Eric Ruxton and Larry Aikins, owners of Terrace Realty, Inc. and Terrace Associates, Inc. in Redwood City. Terrace has been in business more than 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.