Locally Owned Small Business

It is said that small businesses are the backbone of the American economy.  However, there are fewer and fewer that are able to survive in today’s world.  Terrace Realty and Associates is a privately owned, independent, full service real estate company that was established in 1958.

The two owners and brokers of the company both started out by working under the two founders of the business.  Larry Aikins and Eric Ruxton have spent most of their adult lives building and running the company.

Local, privately owned, independent businesses are becoming fewer and fewer.  Locally owned businesses are essential to a vital local economy and community character.

For more than 60 years, Terrace has been listing, selling, exchanging, renting and leasing real estate.  Terrace sells a lot of residential properties, but also sells a large amount of investment or income properties. 

We have been approached many times in the past to affiliate ourselves with national franchising, but we don’t want to give up the independence we have by staying private and locally owned. Franchise owners don’t have the freedom to operate their business independently. 

We have a strong reputation for income investment property sales.  We make transactions that most other companies don’t.

Terrace owns and manages large amounts of real estate.  Our independence allows us to structure transactions that other brokers simply are not able to do.

We have the freedom from outside control.  We have sole proprietary ownership.

 

This article was originally written for and appears in the San Francisco Examiner. Eric Ruxton and Larry Aikins are the owners of Terrace Realty Inc. and Terrace Associates Inc., in Redwood City. Terrace has been in business for 60 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

Which Property Is Best?

Some people spend years looking for a property.  Others seem to locate the right property and have the confidence to purchase it in no time.  Many buyers think they are looking for one type of property, and much to their surprise, end up purchasing something totally different.  Unless you are very clear about what you think you want, it is best to keep an open mind when looking at property. Looking at different properties in various locations and neighborhoods helps you learn and build your knowledge of the real estate market.  You will start to understand values and your decision process will become easier. 

Taking inventory of what amenities are important to you is critical.  Ranking amenities by level of importance can be a great  help.  For some, the kitchen is of top priority; others might look at the garage or yard first.

Keep an open mind.  If you fall in love with a particular neighborhood, but the home is not quite what you were looking for, ask yourself if you could make due until you can afford to remodel.   Does the home lend itself to remodeling?  Is the lot large enough?  You usually can change the structure on the lot, but you cannot change the lot or the location.

Always think of what your current needs are and what they most likely will be in the foreseeable future. It is always best to purchase in the best neighborhood you can.  We always suggest that you stretch a little to get the most you can afford.  Remember, once you find the right property and you purchase it, you will be locking in the present day price.  Over the years, as inflation runs its course, the value of your home will increase, but the price you paid stays the same.  You will look back and think you were a genius to buy when you did.  It is better to purchase almost anything rather than not buying anything at all.

Think about it.  Pick a neighborhood you are familiar with, any block, it doesn’t make any difference.   Some homes on the block are far nicer than others: larger, remodeled, on a better lot, etc.  Some of the homes are definitely less desirable.  Of course if you had purchased one of those homes on that block 10-20 years ago, it would be preferable if you had purchased one of the better homes, but if you bought any one of them you would be happy today.   So what are you waiting for? Purchase the home you want today.

 

This article was originally written for and appears in the San Francisco Examiner. Eric Ruxton and Larry Aikins are the owners of Terrace Realty Inc. and Terrace Associates Inc., in Redwood City. Terrace has been in business for  60 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

Successful Investors

We are often asked “How do successful real estate investors get started?

The starting point and degree of success varies from individual to individual. However, many of the same characteristics show up time and time again in the successful investors that we come across.

 

  • Knowledge.  Successful investors immerse themselves in learning everything they can about the area of real estate investing they are interested in. Gaining all of the knowledge you can is crucial to your success.
  • Passion. All successful real estate investors have a real love, or passion, for what they are doing. They are always looking for the next good deal.
  • Discipline. They have the ability to set goals and let nothing stand in the way of achieving what they set out to do. This usually involves denying themselves other things until their goals are met.
  • Self-belief.  They have the confidence in themselves that they can and will succeed.
  • Commitment. They have the ability to keep going and have their lives organized well enough that other things don’t interfere with their financial plans.
  • Imagination.  This involves the ability to visualize their goals as already being accomplished.  This is a very over looked ability.  It is difficult to envision the financial forces that come into play to create critical mass, leverage, appreciation, loan pay down, inflation, budgeting.  The combination of these factors is very powerful and normally much more can be accomplished than people are able to envision.
  • Daring. Successful investors must be willing to go out on a limb and stretch to accumulate properties. An analogy for this aspect might be: if you have 5 shares of stock and the stock triples, that’s great.  However, if you had dared to buy 500 shares you would make 100 times the profit.
  • Patience.  Time can be your best ally or worst enemy.  It is one thing you cannot change.  You need time for your investments to mature.  Usually you cannot influence the time needed for an investment to come into its own.  Obtaining critical mass takes time, but when you get there the results can be astounding.

 

Remember a journey of 1,000 miles starts with a single step.  You need to get started today.

 

This article was originally written for and appears in the San Francisco Examiner. Eric Ruxton and Larry Aikins are the owners of Terrace Realty Inc. and Terrace Associates Inc., in Redwood City. Terrace has been in business for  60 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

Hardest Part of the Job

We recently had a client ask what we thought was the toughest part of our jobs as Realtors.  Both of us paused for a moment, and almost simultaneously said “Having to ask a person to move, or evicting a tenant.”

At Terrace, we own and manage over 400 residential rental properties on the Mid-Peninsula.  We feel property management is possibly one of the most misunderstood and difficult aspects to a career in real estate.  This is because it involves both specific business skills and interacting with people on a personal level.

Most of the time, most tenants are wonderful, hardworking people.  We all have ups and downs in our daily personal lives.  Sometimes these challenges can spill over and interfere with day to day living activities.  Occasionally, maintenance issues can lead to conflicts between the property manager and the tenant.  This is why it is so important that both parties try to do their best to cooperate with one another and get along. 

When we first meet with a perspective tenant and are getting acquainted and drawing the paperwork involved in the renting process, they often say “I hope everything works out.”  A simple response we tell people is that there are basically three things that stand out as being most important.  When renting; first, pay your rent on time.  Secondly, get along with your neighbors. And finally, be neat and clean.  If you do those three things, most likely everything will work out fine for everyone. When we are forced to give someone a 60 day notice to vacate, it is usually due to a violation of one of these items.    

Understandably, emotions can run high in these problem situations.  Often tenants become very angry and sometimes disgruntled.  Situations get personal when they shouldn’t be.  Everybody needs to understand that owning real estate and renting it out is a business, and the owners have large sums of money invested in the property.  At the same time the “place you call home” is very personal and important to the tenant. 

Asking people to move, and making monthly rent cost adjustments, are certainly a couple of the toughest parts of the rental and leasing aspect to our real estate business.  Believe us, when we say we really do not look forward to having to evict anyone.  Fortunately, most of our property management duties are reasonable and stress free, and there are many enjoyable and satisfying facets to the real estate profession.

 

This article was originally written for and appears in the San Francisco Examiner. Eric Ruxton and Larry Aikins are the owners of Terrace Realty Inc. and Terrace Associates Inc., in Redwood City. Terrace has been in business for  60 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

How to Negotiate

Most people don’t know how to negotiate.  Even in the most obvious situations where compromise is expected, most people feel too awkward or embarrassed to negotiate.  In the real estate business negotiating is a daily activity.  Successful realtors become skilled at handling the myriad of situations that require careful negotiations.

 

Early in our careers we were told that everything is negotiable.  Most of us feel uncomfortable at the thought of being put into a situation where negotiations are necessary or might be prudent.  In some cultures negotiating is more acceptable and expected than in others.  In those cultures people are very comfortable with the whole process and take pride in their negotiating skills.

 

Top level business people, world leaders, and diplomats are all  involved in negotiations on a daily basis.  Very specific training and skills are required to be successful at negotiations.  Some of us feel that trying to haggle over the price of something is rude.  It doesn’t have to be rude, embarrassing or difficult;  it is  how you approach the subject that makes the difference.  It’s not so much what you say that is  important, it is more in the way that you say it.  If you become comfortable at negotiating on a daily basis you will become more confident in the process.  You would be surprised at how many things you can purchase at a more reasonable price if you know the right things to say.  And, if it doesn’t work you have lost nothing.

 

Whether it is in business, politics, or shopping, negotiating should result of a win-win proposition for all parties involved.  Naturally learning to negotiate comes easier to some people than to others.  Most of us need to learn the basic skills and then practice them.

 

In the last couple of years, the Bay Area real estate market has been heavily weighted as a “Seller’s” market.  Inventory has been historically low and many buyers are competing for the same property.   You may not be able to negotiate on price. Quite the contrary, prices are often driven up with substantial over bids.  But, even in this market sellers often have other needs that are important to them and these needs can provide the basis for negotiations.  

 

Realtors become comfortable with the process of negotiation due to the daily situations we are exposed to.  Over time it becomes more natural, and non-offensive, and it actually becomes fun.  The better you become at it the easier it becomes to be effective.  If you’re really good, most of the time the other party doesn’t even realize the process they have just gone through with you.

 

This article was originally written for and appears in the San Francisco Examiner. Eric Ruxton and Larry Aikins are the owners of Terrace Realty Inc. and Terrace Associates Inc., in Redwood City. Terrace has been in business for  60 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

Get it in Writing

For any agreement to be enforceable it is always best for it to be in writing.  Whether you are buying, selling, exchanging or leasing real estate, the agreements should absolutely be in written form.

The phrase “get it in writing” is not only good advice but it is also a warning when it comes to any Real Estate transaction.  There should be no ambiguity or room for disputes as the transaction moves forward. 

The real estate business makes use of many different types of contracts including listing agreements, leases, sales contracts and exchange agreements,  just to name a few.  Realtors understand the various contracts inside and out.  In the course of their business, a Realtor’s expertise in the use of contracts is critical to effectively carry out their responsibilities to sellers or buyers.

General business skills and the successful art of negotiation are tied closely to the use of contracts.  The proficient Realtor knows how to write a contract to ultimately attain their client’s needs and goals.  The way a contract is written originally may just be a starting point for negotiations.  Normally you do not initially ask for what you really want.  The use of contracts coupled with artful negotiation can help you to accomplish the end result that you want.  A written agreement is an important point of reference for both parties.  When you have a written agreement it will spell out the terms and conditions in advance and define the scope of the agreement.  Having a written understanding can prevent potential confusion.  Having everything in writing is critical so that after the initial offer, and potential counter-offers you have a clear understanding of what has been agreed upon.

 If you were to try to negotiate verbally the words could be interpreted differently by each party.  You also run the risk of selective memory or temporary amnesia.  Generally the less negotiated verbally, the better.  You can undermine your strategy by talking too much.  Involving yourself in lengthy discussions is usually detrimental to your ultimate goal.

Get it in writing.  Make sure your Realtor is knowledgeable about contracts and experienced in the arts of presentation and negotiations.

 

This article was originally written for and appears in the San Francisco Examiner. Eric Ruxton and Larry Aikins are the owners of Terrace Realty Inc. and Terrace Associates Inc., in Redwood City. Terrace has been in business for  60 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

Common Ways of Holding Title

We are often asked “How should we hold title?”  It seems like it should be an easy question to answer, but it definitely is not.  Since real estate is usually the most valuable of our assets, the way people take ownership of their property can be very important. We are not attorneys and we are not intending to give legal advice, but thought that a broad brush explanation of the more common forms of California residential ownership might be of interest.

The way you hold title can have an impact on income taxes, inheritance taxes, gift taxes, transferability of title, and exposure to creditors.  How you hold title can also have probate implications.  The best form of ownership depends on your individual circumstances.

Joint tenancy exists when two or more people are equal owners with undivided interest in a property.  The main characteristic of joint tenancy is the right of survivorship.  When a joint tenant dies, their interest in the property goes to the surviving partner(s) in the property.

Tenancy in common involves two or more individuals sharing interests in a property. The interests do not have to be equal. There is no right of survivorship.  The other partners do not necessarily have any claim to a decedent’s share.  If one partner dies they can leave their interest in the property to anyone they choose.

Community property is a very popular form of holding title in California.  Holding title as community property is for married couples or domestic partners.  When one partner dies, the other partner automatically inherits the decedent’s interest.  Some married couples do have separate property that is not part of their community property.  These are usually properties that were owned or inherited prior to the marriage.

Community property with right of survivorship is also a form of vesting title by spouses or domestic partners.  It has the same advantages of community property ownership, but adds the benefit of the right of survivorship.

Revocable Living Trusts have gained popularity in recent years.  This is mainly because a living trust does not have to go through probate after an individual passes away.  Probate court can be costly and take a long time to be settled.  With a trust assets can be passed on to the beneficiaries without being held up in probate court.  There are costs associated with setting up a trust that other forms of ownership do not have

Other ways of vesting title that are regularly used are Family Limited Partnerships (FLP) and Limited Liability Companies (LLC).  There are several other forms of vesting title, but these are the most common forms of ownership.  All property owners should discuss how they hold title very carefully with their attorney or tax professional.

 

This article was originally written for and appears in the San Francisco Examiner. Eric Ruxton and Larry Aikins are the owners of Terrace Realty Inc. and Terrace Associates Inc., in Redwood City. Terrace has been in business for  60 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

Becoming Financially Literate

A basic understanding of money is rarely acquired through today’s educational system.  If one does not take business related classes, the subject of money is usually overlooked.

 

In order to become a prudent consumer or an investor, either in the stock market or in real estate, your financial skills need to be sharpened.  Most of the financial problems we face are avoidable if we understand how money really works.  The knowledge of accounting skills can be invaluable.  Understanding percentages and interest rates is a must.  Do you really understand the difference between and asset and a liability, or the power of compounding interest?

 

Credit can be your best friend when investing.  Using “other people’s money” will provide you with capital that is necessary to make money.  But, using credit for non-investment activities or consumer items can be devastating to your financial well being.  For example, credit card debt can kill you if you carry a balance.

 

We have all known people who make approximately the same amount as others from their daily work activities, but some are able to manage the money better and have investments.

 

We also know that you can never, or rarely, become wealthy from our jobs or from working for income.  Earning daily and monthly income from your job is the first step.  We need to support ourselves; however, you must put money aside for investment purposes along the way.  So that eventually your money is working for you.

 

Your ultimate goal is to build assets, which produce income and grow over time.  Most of us work the first four months of the year for the government to pay taxes.  Then pay taxes again when we purchase something.  Then what ever is left over is needed to support ourselves.  You must pay yourself first and save that portion until it becomes enough to invest in something that will grow, work for you, and ideally have some tax shelter.  One of the most common problems customers have is how to get the initial down payment.  Consistent, dedicated, saving initially is the answer.

 

Real Estate can be ideal for accumulating wealth.  While you’re saving be sure to educate yourself as much as possible.  The wealthy understand money and how it works, that’s how they have become wealthy. 

 

The majority of wealthy people have made their money through real estate.  Some may make money through some other vehicle, but investing in real estate is usually the end result and where the wealth is held.

 

Education and knowledge is power.

 

This article was originally written for and appears in the San Francisco Examiner. Eric Ruxton and Larry Aikins are the owners of Terrace Realty Inc. and Terrace Associates Inc., in Redwood City. Terrace has been in business for  60 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

Interest Rates and Compounding Interest

Understanding interest rates and their effect on the new personal residence you want to purchase is part of the process of becoming “business fit”.  If you are considering purchasing income property, understanding how mortgages work and the importance of interest rates is critical to successful real estate investing. 

Albert Einstein evidently thought that the effect of compounding interest was so dramatic, that he referred to it as the “8th Wonder of the World”.  He said, “He who understands it, earns it… he who doesn’t… pays it”.

Compound interest is interest computed on the accumulated unpaid interest as well as on the original principal.  Compounding interest involves adding interest to the sum of the principal and any previous interest in order to calculate interest in the next period, or interest calculated on both the principal and the accrued interest.

Understanding basic mathematics is crucial when investing.  I know most of us think we understand the concept of interest, but when it is applied to different investment possibilities the impact and results vary dramatically.

Leverage and compounding interest are probably the two best keys to real estate investing. If you are saving money compounding interest will greatly benefit you. If you are borrowing money it can be terrible.

Using leverage, or borrowed money, when purchasing real estate allows you to make a larger investment than you would normally be able to.  Leverage produces much greater returns on the dollars you invest, but involves paying interest.

Educating yourself on the various types of real estate mortgages can be of great value to the success of your investing.  Do you really know the impact of interest only mortgages verses (30) year or (15) year fully amortized mortgages?  Take the time to ‘pencil out’ an example of the mortgage you presently have on your home and look at the balance of principle owed after 5, 10,15, and 20 years.  You may be shocked.  Obviously, you pay your loan off in half the time with a 15 year mortgage verses a 30 year mortgage.  See what the balance owing on a 15 year loan is after 8 years verses 8 years on a 30 year loan.  Just think, if someone told you that you didn’t need to make a mortgage payment on your home for the next 15 years, wouldn’t that put a smile on your face?

Understanding various forms of interest and their effects can be very helpful.  When you combine the power of leverage with compound interest, we know from both experience and basic math that you can make phenomenal returns.  Real estate investors who understand the true importance of “interest” on their investments benefit the greatest.

 

This article was originally written for and appears in the San Francisco Examiner. Eric Ruxton and Larry Aikins are the owners of Terrace Realty Inc. and Terrace Associates Inc., in Redwood City. Terrace has been in business for  60 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

Real Estate Millionaires

Real Estate Millionaires

Becoming a millionaire has always been part of the American dream, or at least achieving a certain level of financial success.  One of the surest paths to financial prosperity is through the acquisition of real estate.  Those of us living in the Bay Area have certainly seen, first hand, the benefits of real estate ownership.  Usually, there is nothing quick about getting rich with real estate. A lot of real estate seminar promoter’s promise fast, easy, get rich quick, approaches to real estate.

Some speculate in real estate, buying a tired or run down property and fixing it up and turning or flipping it, trying to make a profit. This type of speculation can be profitable, but most people do not have the building or construction background to accomplish this effectively. If you have to hire the various trades’ people it can get real expensive fast and erode potential profits. If you are borrowing the cash to purchase the property and then borrowing additional funds for the project the holding costs can eat up profits in a hurry. If there is some profit, then remember about your silent partner in the project, the State and Federal government wants their fair share, it is considered a short term capital gain.

Most people who do well with real estate are long term investors not speculators. The secret is to become a high net asset individual, not necessarily a high income person. It is true that it does take a significant capitol to be a successful investor, or at least it is a lot easier if you have access to capital. But, over time it becomes financially easier as your investments grow.

A lot of us would like to achieve millionaire status. However, due to inflation the status of millionaire isn’t as exclusive as it once was. Maybe having financial independence is a better way of achieving your financial goal.

Starting with a business plan, being well organized and keeping your monthly expenses or overhead cost low is the first step.

In 2017, it was reported that there were roughly 13.6 million people with $1 million dollars or more in the United States. It is estimated that by 2021 there will be 18 million millionaires. Another commonly use term is multi-millionaire; this is having two million dollars, or more, in net assets. Having two million or more dollars puts you in a little more exclusive club. Only a small minority of millionaire households are indeed multi- millionaires.

When you’re investing, it is helpful to have goals along the way to gauge your progress. Achieving becoming a millionaire is a good goal.

51% of people with a net worth over $50 million dollars live in North America. There are more millionaires in the United States than any other Country in the world. Real Estate investing has made more people millionaires than any other field of endeavor.

 

This article was originally written for and appears in the San Francisco Examiner. Eric Ruxton and Larry Aikins are the owners of Terrace Realty Inc. and Terrace Associates Inc., in Redwood City. Terrace has been in business for  60 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

The Changing Dollar

We were cleaning out our desks and found a newspaper article dated November 18, 1974. 

The heading was “Today’s $40,000.00 house will be worth $125,000.00 in 1984” – Wow!  What a prediction.

When it comes to making investment decisions we believe that you should view present opportunities as if you were looking back from the future.  Try to do now what you will wish you had done as you look back from a future date. 

Continued inflation should always be kept in the back of your mind.  As the purchasing power of the dollar has decreased in the past, the market value of real property has continued to increase in terms of current dollars.

Real property has always been one of the best hedges against continued inflation. 

Holding too much cash in the bank, or in fixed obligations payable in cash, is a certain way to lose purchasing power.  As prices go up, the value of your money will go down.  Investments in real estate, on the other hand, protects you from the declining value of the dollar.  It is a great idea to invest in real estate at a young age.  Time can be your greatest ally or your worst enemy.

You should not be afraid of borrowing money to buy real estate; it is the only “good” debt.  

Future inflation will make your home worth more in terms of dollars and add to your equity without affecting the mortgage.

As hard as it is to believe, today’s real estate prices will seem like bargains in the years to come.  Don’t you wish you had purchased a piece of property 20 years ago, 10 years ago, 5 years ago? 

 

Oh, that article dated November 18th, 1974 was inaccurate in its predictions.  The $40,000.00 house wasn’t worth $125,000.00 in 1984; it was worth between $175,000.00 and $200,000.00.  AND TODAY IT IS WORTH OVER $1,400,000.00!

 

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

 

Outlook for 2018

As the overall economy has improved, California real estate sales had a solid gain in 2017. Prices and sales on the peninsula have far outpaced the rest of the state.

 The Bay Area’s median sales price is approximately $850,000 which is over 50% higher than the statewide median of approximately $550,000.

Prices on the peninsula exceed overall Bay Area prices significantly.

The Bay Area has experienced extremely strong job growth and this is expected to continue in 2018. High paying technology related jobs are attracting talent from around the nation, and the world. These people contribute to the strong demand for peninsula properties.  This demand is additionally fueled by continuing historically low interest rates.

 

This strong demand has been coupled with a very limited supply of available properties.  The number of active listings on the market has remained at near historically low levels.  Unlike many areas in the state, we do not have available land to use for increasing  the housing supply.

Historically homeowners who either want to upgrade or downsize have been a constant source for homes on the market.  Limited inventories have made selling current homes risky due to a lack of buying opportunities available if their current homes sell.  Thus, remodeling has become a very popular alternative and remodeling construction business is at an all time high. Many baby-boomers are retiring but not putting their homes on the market like retirees have in the past. Rather than pay excessive capital gains taxes they remain in their homes that have relatively low monthly costs.

Most experts feel that peninsula real estate prices will grow at a rate of 4% to 6% in 2018 and sales volume will remain approximately the same as 2017.  Both strong demand and limited supply will likely mirror 2017.  Purchasing a home locally will continue to be less and less affordable.

If you own a home today you should be very pleased.  If you can afford to purchase today you should.

You will always be very happy that you did.


 

 

This article was originally written for and appears in the San Francisco Examiner. Eric Ruxton and Larry Aikins are the owners of Terrace Realty Inc. and Terrace Associates Inc., in Redwood City. Terrace has been in business for over 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

 

The Duplex Advantage

We feel that more people should consider purchasing a duplex instead of a home.  Whether you are in the market to purchase a home or investment property, the duplex fits both needs with a multitude of advantages.

 Buying a duplex can often be more affordable than a single family home and still offer the comfort and privacy.

The first time home buyer, especially, should consider the purchase of a duplex.  If you found a newly constructed duplex the asking price would be on the high end, due to the cost of land and the high cost for labor and materials. However, there are many opportunities to purchase an existing duplex property in the $1,200,000 to $1,500,000 price range in our area.

Buying a duplex is like buying a home with cash flow. 

You can live in one side and have your monthly costs relatively constant. The other side can be rented out to greatly help with the overall cost of the purchase, your property taxes, insurance, and maintenance costs.  You receive the interest write off on the residence portion that you live in and you get even more tax advantages on the rental side as investment or rental property.  A single family home is not nearly as affordable and does not give you as many options.  The vacancy factor in the Bay Area is practically non- existent.  You will have no problem renting out the side that you do not live in.

A duplex home will give you faster equity build up. 

As time goes by, the rental income will increase.  You always have the option to continue residing at the property, or you can borrow against it and with other savings purchase a single family home or another duplex. 

A duplex home gives you a great rental property for the future. 

If you move to a new residence, you then rent out the unit you were living in, converting the property to entirely income producing real estate and realize even more income, and additional tax shelter.

There are many exciting advantages to owning a duplex. 

You should always consult your certified accountant before you invest in any real estate.

 

Eric Ruxton and Larry Aikins are the owners of Terrace Realty Inc. and Terrace Associates Inc., in Redwood City. Terrace has been in business for over 50 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

 

Understanding the Golden Rule of Renting...Mutual Respect

You are getting ready to look for an apartment, duplex, or a house to rent.  You drive your favorite neighborhoods looking for “For Rent” signs, searching for just the right place to call home for an extended period of time.  You have looked on the internet and scanned the news papers for rentals on a daily basis.  You feel you are prepared to sign a rent or lease agreement; but wait, have you really taken the time to review the landlord/tenant laws and maybe a rental or lease agreement beforehand?  It would be advantageous for you to understand your rights and obligations under the agreement you are about to enter into.  Preparing yourself in advance can help prevent some stress associated with finding a new place to live.

The best advice for both tenant and landlord is to enter into the contract with mutual respect of each other and the property.  Each should be considerate of the other’s situation and interact accordingly; basically do unto others as you would have done unto you.

I have heard of outrageous landlord conduct, including: discrimination, invasion of privacy, refusing to fix dangerous conditions or failing to return security deposits when a vacated unit has been left clean and undamaged.

Conversely, rental property owners all have at least one nightmarish story of tenants with bad behavior, ranging from late payments and property damage to breaking the law and police involvements.

As a tenant, you should understand that the property owner has a large investment in the property and that he is providing the tenant a roof over their heads.  Being a tenant, you should have a right to your privacy.  You should be able to depend on the owner to fix and repair those things that can occasionally go wrong and the landlord should call and make an appointment before entering your home.  When ready to vacate, in common decency and fairness, you should return the property to the owner in good condition.

In the long run, the renter is best served if they try and establish a positive relationship with the property owner from the beginning.  If the property owner has delivered a well maintained property, and makes all necessary repairs, the owner has the right to expect that the tenant will: pay the rent on time, get along with neighbors, and keep the rental property well maintained inside and out.

I have found over the years that the vast majority of problems can be solved if both parties are honest with each other from the beginning.  I don’t mean to oversimplify the problems that can develop, but if each party takes responsibility for their own actions, the chances are that good landlord/tenant relationships can develop and be of advantage to both.

 

Eric Ruxton and Larry Aikins are the owners of Terrace Realty Inc. and Terrace Associates Inc., in Redwood City. Terrace has been in business for over 50 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

Waiting for a Good Deal

Everybody wants to get the best price they possibly can.  Price is important, but how important is it compared to other factors?

 

Some feel that buying property in the winter months, when the skies are gray is the best time to get a good deal.  In reality, one should be as well prepared at all times and start actively looking no matter what month of the year it is.  You just never know when the right property will come up.

 Make sure that you are pre-qualified for your loan in advance.  Your offer will be taken more seriously if you show proof of a loan from a bank.  Don’t make any large purchases such as cars, boats, or RVs; these will dramatically impact your ability to borrow.  If your credit score is less than perfect, work on improving it to get the best loan rate.  

Do your homework and know what comparable prices are for similar homes in specific locations.  You will begin to see that larger homes with certain amenities have higher selling prices than smaller properties with fewer amenities.   Drive through neighborhoods to see what areas appeal to you.

Become aware of what’s presently on the market.  Check to see if any properties have been on the market for over 30-60 days.  See if there are properties that have been taken off the market that didn’t sell. 

If you are shopping for a home, you have to realize that you most likely will not get the perfect home at the very best price.  You need to be flexible and look at value.  Take into consideration that the home will appreciate over time.  Remember, the perfect home doesn’t exist.  You will need to make compromises.    

Locking in today’s price is probably one of the most important things to consider.  Also, look at today’s interest rates.  These 3.5% to 4.5% rates will not be around forever.  Today’s high prices may look like a bargain one or two years from now. 

Don’t obsess with trying to time the market and figure out when is the best time to buy.  Trying to anticipate the housing market is impossible. 

The best time to buy is when you find the property you like and can afford. 

The single most important factor is jumping in and making the purchase you are able to make.  It may not be perfect, but you are invested in real estate.  

The sooner you start enjoying the security of owning a home the better and enjoying the tax benefits of home ownership.  You don’t have to worry about your house being sold out from under you.  You can start to improve your property, increasing its value.  Purchasing real estate is one of the safest long term investments a person can make.

 

Real estate is cyclical; it goes up and it goes down and then back up again. 

The longer you hold your real estate, the less important the purchase price becomes.  You will only be sorry tomorrow if your wait and don’t buy real estate today.   Yes, price is important, but the cost of waiting to purchase can be much more expensive.

 

Eric Ruxton and Larry Aikins are the owners of Terrace Realty Inc. and Terrace Associates Inc., in Redwood City. Terrace has been in business for over 50 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

 

Evaluation of Income Properties

Income and expense figures are used to establish values for income properties. These figures should reflect the current market conditions in a given geographical market area, given normal or typical management of the property.  Specific, actual figures should be used whenever possible.  If this information is not available, then typical figures for the specific market should be used.  Neighborhood data can be collected to estimate typical rents, vacancy, and expense ratios.

Gross income is the total rental income for a property, less any vacancies, plus any other miscellaneous income.  The property’s net operating income is the gross income less typical operating expenses.

Obviously, it is best if you are able to locate similar properties in similar neighborhoods to do your comparisons.  If you can locate properties that have sold, using their multipliers and overall capitalization rates can help you arrive at a value for another property.  Cap rates are widely used in real estate because they provide a simple and consistent method to determine a percentage return on investment.  Realtors and investors determine pricing for an investment given an expected rate of return. 

Typically investors add or subtract from the financial calculations to adjust for varying amenities.  Location, age, condition, recent capital improvements, curb appeal, all play an additional role in the evaluation process.  When a Realtor evaluates a building the process is often as much an art as a science.

Like anything else, once you become familiar with the terminology and practice, the calculations for the value of income properties become easier.  Realtors often develop short cuts to quickly analyze a property “by the seat of their pants.” The most common is the Gross Rent Multiplier (GRM).  This is normally used to determine if a property deserves a closer evaluation and consideration.

 

Eric Ruxton and Larry Aikins are the owners of Terrace Realty Inc. and Terrace Associates Inc., in Redwood City. Terrace has been in business for over 50 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

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.

 

Eric Ruxton and Larry Aikins are the owners of Terrace Realty Inc. and Terrace Associates Inc., in Redwood City. Terrace has been in business for over 50 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

 

Close of Escrow

A real estate buyer should never give the purchase money directly to the seller.  In turn, the seller should never deliver a signed deed directly to the buyer.  For the protection of both parties, the use of an escrow holder is absolutely essential.  In real estate transactions escrow is a process that assures that both parties have fulfilled their contractual obligations before the transaction is finalized.  The escrow will also provide a detailed written accounting of every aspect of the transaction.  The escrow holder, usually a title company, is a disinterested third party with no biases. 

Escrow holders have the responsibility of holding any funds and preparing legal contractual obligations; the escrow holder delivers the funds to the seller and records a properly executed deed in favor of the buyer.  The actual date of recordation is referred to as the “close of escrow”.  The period of time prior to the actual close of escrow, when the escrow holder is collecting instructions from both the buyer and the seller and preparing the settlement statement, is the escrow period.

Understanding the time line of the escrow process is very helpful.  A number of tasks need to be completed by independent parties and then processed by the escrow holder.  An appraisal needs to be completed, all the buyers’ financial documents need to be reviewed, the lender needs to process the loan application and supporting documents to approve the loan.  The loan “docs” including the note, deed of trust, all disclosures and addendums, have to come together.  The buyers sign the loan documents and the lender funds the loan to the escrow company.  Recording of the grant deed is scheduled after the funds are received.    The close of escrow occurs when the grant deed is recorded with the County Recorder’s office.  

The settlement statement that the escrow holder prepares during the escrow period specifically outlines in detail the closing costs that a buyer and seller are obligated to pay.  There are non-recurring closing costs and recurring closing costs.  Non-recurring closing costs are one time charges and fees incurred in transferring ownership; processing loan papers and searching and insuring title, for example.  Recurring closing costs, or pre-paid items, are costs which will re-occur regularly, such as real estate taxes and property insurance premiums.  These are examples of just a few of the many non-recurring and recurring closing costs.

Your Realtor can prepare an example of a buyer’s or seller’s estimated closing statement for you prior to purchasing or selling your home.   The estimate will help you understand the process and outline the costs you will likely incur.  Understanding this process will greatly reduce any anxieties a buyer or seller may have and will help make the buying or selling of real estate an easier and more enjoyable process.

 

Eric Ruxton and Larry Aikins are the owners of Terrace Realty Inc. and Terrace Associates Inc., in Redwood City. Terrace has been in business for over 50 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.

 

Bay Area Housing Costs

Multiple forces are fueling the Bay Area and specifically the Peninsula area’s real estate market. 

Low interest rates, robust population and employment growth, limited housing supply, and the impact of the expansion of the high tech industries are among the reasons real estate in the Bay Area is so expensive.

Some attribute the high increases in property values to foreign investors. It is a little unclear how much influence foreign investors may be having on prices.  Early data suggest that the number of foreign buyers in the Bay Area housing market has dropped this year compared to last year. 

Many home buyers are viewing housing as more of an investment tool rather than just a home, and realizing that purchasing real estate and holding the property has many advantages.   This is a philosophy that we have preached for the 50+ years we have been in business. We own, manage, sell and exchange quite a bit of residential income property.

Many buyers are holding onto property and taking advantage of the high rental rates.  There has been a new resurgence in investing in local real estate for the long term, and receiving all the benefits that rental income property has to offer.

There are certainly many contributing factors that come into play.  The lack of available buildable dirt plays a major role in the value of real estate on the Peninsula.  There is no single reason for our high values, it is a combination of factors that are not found in other locations. 

There is no doubt that the impact of the high tech industries on local real estate is the single most significant factor in our strong market.  San Francisco and the Peninsula are the strongest high tech markets in the country.  The software services industry has created most of the new jobs and growth.   The high tech industry’s expansion dwarfs growth in other sectors of the economy.

Basically all areas of real estate are impacted by the tech industries; office rents, office prices, as well as housing costs have risen sharply over the last several years.  The Bay Area is still considered to be in the expansive phase of the tech industry.

We feel that the housing market will remain strong on the Peninsula for the foreseeable future.

 

Eric Ruxton and Larry Aikins are the owners of Terrace Realty Inc. and Terrace Associates Inc., in Redwood City. Terrace has been in business for over 50 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.