Security Deposits and Last Month's Rent

Most landlords require that tenants put up some money before moving in.  Security deposits and last month’s rent payments can add up to a significant amount of money.  From the landlord’s perspective, it is advantageous to collect as much as possible up front to protect themselves against uncollected rent and/or costs of repairs.  The tenant, however, is usually hoping to pay as little as possible out of pocket to move into a new rental home.  Most often a tenant not only has to pay rent where they are currently living, but must also come up with the expenses for the new rental:  first month’s rent, a security deposit, and sometimes last month’s rent.

It can be a very expensive proposition for a tenant to make a move.  If the tenant has a security deposit from the old residence due to him, it is imperative that the tenant do what is necessary to get the deposit refunded.  This can help offset some of the costs for the transition from one place to the next.

The landlord has up to three weeks (21 days) to do one of the following two things: 1) return the security deposit to the tenant in full, or 2) give the tenant, personally or by first class mail, an “itemized statement” in writing saying why he is retaining part or all of the deposit.  To avoid any misunderstandings, it is always a good idea to do a “walk through” with the landlord prior to occupying a new rental.  This way it is clear as to the overall condition of the premises.  Tenants should have a written checklist when they move in and when it is time to move out.  After the tenant has moved out cleaned up the property, he can ask to meet again with the landlord to review the checklist and compare the overall condition.

Let’s say a two bedroom rental in today’s market is $2,000+ dollars per month.  The property owner may want a similar amount of $2,000 or more for a security deposit.  The tenant may feel this is high and excessive, but in reality it is not.  You have to consider that the property owner has monthly expenses that include mortgage payments, property taxes, insurance, utilities and maintenance costs.  The owners have a huge financial commitment.  The cost of replacing carpets, refinishing hard wood floors, or other repairs that require a professional tradesperson can easily be higher than the security deposit amount.  Most landlords that we know are not interested in withholding any of the tenant’s security deposit; they just hope to have their property returned to them in good condition.

A landlord must return the deposit if the rental property is in the same condition as when it was first rented.  The landlord cannot withhold money for items that are considered “normal wear and tear”.  However, a landlord can withhold part or all of the security deposit to make repairs for damage caused by the tenant.  A landlord may also withhold the security deposit to remedy defaults in the payment of rent.  A security deposit is not the last month’s rent and cannot be used in lieu of the last month’s rent by the tenant.

It is always best when both tenant and landlord have everything in writing and are clear on their respective rights and obligations to each other.  Mutual respect is the best policy.

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.

Homeowner Tax Exclusions

Homeowners receive a capital gains tax exclusion when they sell their home.  Up to $250,000.00 in gain is exempt for a single owner.  If a married couple files jointly, the exclusion is $250,000.00 per person or a total of $500,000.00 is exempt from tax on any gain.

The homeowner must have lived in the house two out of the last five years, prior to the sale, to qualify.

You should also be aware of the possibility of qualifying for a “stepped up basis”.  You may qualify for a “stepped up basis” upon 1) a spouse’s death or  2) by inheriting a property after the owner dies.

If you are married and own a property together, and the title is held as community property, when one spouse dies the surviving spouse automatically receives the decedent’s half interest in the property and a new “stepped up basis” at 100% of the value of the property at the time of death.   Both halves of their community property are “stepped up”.  The same would be true for any other assets that have appreciated in value.  With rental property the surviving spouse is able to depreciate the building based up on its new stepped up value.  If a property is inherited, 100% of the property’s value at the time of death is the new basis for both depreciation and capital gains calculations.

A very simple example is if a person originally purchased a home for $100,000.00 and sells it years later for $900,000.00 they would have an $800,000.00 profit or gain.  If they lived in the house for at least two out of the last five years they would have either a $250,000.00 exclusion for a single person or a $500,000.00 exclusion for a married couple.   If the profit on the sale of the house was $800,000.00 and you have a $500,000.00 combined exclusion, you would  have a $300,000.00 gain above the exclusion.  You would be responsible for paying tax on that $300,000.00 balance received.

However, if you receive a “stepped up basis” due to a spouse dying, or inheritance, the value of the property is established at the exact time of death.  On a home that was originally purchased for $100,000.00 and at the time of a spouse’s death the home’s value is $650,000.00, the basis for tax purposes becomes $650,000.00. If you sell the home now for $900,000.00 you only have a gain of $250,000.00 ($900,000.00 less the $650,000.00 basis). The $250,000 individual exemption would exclude this gain from any taxes. The stepped up basis can save you a lot of money at tax time.

The IRS rules concerning the sale of inherited property are quite involved and can be complicated.  We are not tax experts and are not qualified to give tax advice. It is important that you always get professional tax advice from your accountant or tax attorney.

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.

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 60 years.  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 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 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.

Broker's Trust Funds

A Brokerage Account is an arrangement between an investor and a licensed brokerage firm that allows the investor to deposit funds with the firm and place investment orders through the brokerage, which then carries out the transaction on the investor’s behalf.

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

A real estate broker must manage bookkeeping records for each trust account maintained at any bank or other financial institution.  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 are separate sub-accounts for each transaction and for each owner of the funds; in other words, small accounts within a larger general account.

The real estate broker must also keep a record of any funds they receive from a client that do not get deposited into the broker’s trust account, but are given 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.

The real estate broker must make monthly reconciliation of any deposit, withdrawal or pass through, both in their general and separate sub-account ledger of 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 evidence of negligence and incompetence in performing the broker’s duties and can result in suspension or revocation of the broker’s license.

The client can ask for a statement or reconciliation of any funds they hand 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.  However, proper accounting practices hold brokers to a high standard of professionalism.  The diligence of maintaining proper accounting grants the broker the ability to prove that deposits and disbursements are proper and not misappropriated.

The Broker of Real Estate has very strict guidelines for all Real Estate Brokers and salespeople to follow regarding trust accounts.  Realtors are subject to Bureau of Real Estate audits on a regular basis.

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.

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.

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.