An Uncommon Look at Investments, Real Estate and Community on the San Francisco Peninsula

By Anton Blewett, Cell: (650) 996-2028

In 1941, architectural critic Lewis Mumford wrote the following piece in his seminal book, The South in Architecture:

“Let us be clear about this, the forms that people used in other civilizations or in other periods of our own country’s history were intimately part of the whole structure of their life. There is no method of mechanically reproducing these forms or bringing them back to life; it is a piece of rank materialism to attempt to duplicate some earlier form, because if its delight for the eye, without realizing how empty a form is without the life that once supported it. There is no such thing as a modern colonial house any more any more than thee is such a thing as a modern Tudor house.”

“If one seeks to reproduce such a building in our own day, every mark on it will betray the fact that it is a fake, and the harder the architect works to conceal that fact, the more patent the fact will be … The great lesson of history—and this applies to all the arts—is that the past cannot be recaptured except in spirit. We cannot live another person’s life; we cannot, except in the spirit of a costume ball… Our task is not to imitate the past, but to understand it, so that we may face the opportunity of our own day and deal with them in an equally creative spirit.”

His poignant words remain true today as 65 years ago. Architecture must celebrate its time and place. Instead of recreating Craftsman homes, Mediterranean mansions and Spanish villas, we must define a new language of creation born out of today, sensitive to the past and with an eye towards the future.

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By Anton Blewett, Cell: (650) 996-2028

Step 1: Select Desirable Location Characteristics
Do you want to live on a quite street, away from traffic? Are you willing to commute a long distance to get the amenities you desire? Or is a shorter commute—say, no more than half an hour—a quality-of-life issue for you? Do you have a large enough family that four bedrooms is a necessity, or can you live with three? There are many specifics about an area that are important in making a location decision, including type of households residing in that area, job opportunities, affordability, safety, climate, education, transportation, hospital and medical services, sports, parks, recreation, entertainment, downtown, shopping, view, culture / ethnicity, religious organizations, hills, water, and so on.

Step 2: Prioritize Your Needs and Wants
Rank, sort and prioritize your list according to the different characteristics. For example, the top priorities for a young household without children are likely affordability, commute, entertainment and recreation. On the other hand, education, safety, parks and low-to-medium household age are top priorities for a household with children.

Step 3: Identify Local Areas with the Characteristics You are Looking For
Prioritizing characteristics narrows the available pool of local areas. For example, if ocean is a top priority, then the list of available areas shrinks to coastal cities. Since I study the neighborhoods daily and work with clients that have all kinds of needs, you should let me help you identify areas that fit your needs.

Step 4: Visit Your Top Local Areas
Next, plan a driving trip and visit your top neighborhoods. If education and recreation is important, drive by the schools and parks. If entertainment is a priority, walk the downtown. Previous clients asked me to prepare tours for them. Just let me know and I will prepare driving / walking tours for you.

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Although figuring out what you can spend is straightforward (simply talk with a great lender), figuring out what you can afford requires a close examination of your personal needs and finances. For example, while you may be approved for a monthly payment of $6000 given your income, you may be comfortable only paying $4000 given your lifestyle needs, stress tolerance and investing style. So look at your income and expenses, then ask yourself what monthly payment you are comfortable paying. Some additional questions:

• Do I have assistance for the down payment? (e.g., government aid, family assistance or equity sharing)
• How much down payment can I make?
• What is my budget for purchasing and maintaining a home?

Ultimately you must talk with a great lender to figure most of these variables out. If you need a recommendation, just let me know.

Basic Terms
Before you call, familiarize yourself with the following:

• Debt/income ratio: The sum of monthly debt obligations (including the prospective mortgage) to monthly gross income. Most lenders look for a debt-to-income ration of 36% or less.
• Housing expense/income ratio: The sum of monthly housing expenses to monthly gross income. Most lenders look for a house expense/income ratio of 28% or less.
• Credit Score: The most common credit score system, called FICO, assigns scores that range from 300 to 950. The higher your credit score, the lower the assumed risk that you will fail to repay the loan.

Some friendly advice
Most people are unaware of their actual credit score. Moreover it is my experience from working with past clients that the perceived credit score is much greater than the actual credit score. One client told me his score was easily over 750; it turned out it was 670. So find out your credit score and get it cleaned today!

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The beginning step in buying your first home is asking yourself the hard questions. Simply put, you must ask yourself if you are ready for the lifestyle changes that buying a home entails. When you buy a home, you take on a major financial responsibility. Housing expenses, which include mortgage payment, property taxes, hazard insurance and homeowner’s dues, range anywhere from $3,500 to $10,000 a month (or more).

Internal changes
With these additional constraints comes stress: the pressure to continue earning and the late night what-ifs. A client of mine recently spent close to $10,000 replacing her sewer lateral; when it failed, all plumbing in the house stopped. Moreover the expenses require consistent payment and planning. The mortgage payment is paid monthly, whereas the property taxes are paid bi-annually. I divide my annual property taxes by 12 and set aside that amount each month. So ask yourself, are you ready to handle the stress and disciplined enough to see the process through?

External changes
Owning a home limits your freedom (see renting discussion). There is less money to do the things you enjoy. Today I travel less because it’s unaffordable to travel. As I work more, there is less time to relax.

Ask the hard questions
Ask yourself the hard questions because the answers will tell you if you are ready. Owning a home is a big responsibility. If you are ready, go for it; otherwise wait. Before you determine if you are ready or not, I suggest you ask the following: am I ready to grow for it? The challenges of home ownership don’t change. Delaying a home purchase simply delays the sacrifice. In most if not all circumstances, the sacrifice gets more difficult with time. Find out why in next week’s article.

Growing for it
Owning a home changes your lifestyle. Will you adapt? Let me share with you the personal growth that I experienced over the last year since I bought my first home:

• I am more disciplined with my finances (trial by fire)
• I am more disciplined with my personal time
• I entertain friends at home regularly (one of my new passions)
• I hike and enjoy the outdoors more often
• I am building a community in Palo Alto

Finally, consider the intangible benefit of owning your home. For me, I absolutely love waking up in my house. It is one of my greatest joys.

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One of my best college friends father wrote a book about the elimination of the third space. We divide our time between three spaces, he said: work, home and the third space. In the past, the town square played the role of the third space. It provides a place to see neighbors, connect to friends in a random fashion, catch up on local happenings, and just relax. He argued that the third space is not only vital to a city center, but that it has virtually disappeared with the advent of sprawl and recent development.

I argue that today, for some of us at least, the café is our third space. While frequenting my favorite cafes, I’ve met many strangers, enjoyed all kinds of conversations, and made strong friends. In fact, I randomly run into a particular friend on a bi-monthly basis. Is it a surprise, that when we do, it seems to be perfectly timed? Cafés enable synchronicity and connectedness (two vital components to a city center).

Not all cafés qualify as a third space. Many are de-facto virtual offices. Take Starbuck’s for instance. After observing the scene for only minutes, it’s apparent that the patrons fall into two primary categories: people doing work on laptops and people conducting meetings. Don’t get me wrong: people do socialize in Starbuck’s. Only I feel the majority is there to do work. Therefore many cafés are simply an extension of the workspace.

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Writing is definitely a passion of mine, although I write mainly to capture my own thoughts and therefore keep some semblance of sanity. I write only in cafés because the noise, distractions and people keep the back of my mind occupied. Spending nearly 20 hours in different cafés throughout the week, I’d say that I am a fairly good judge of café culture and atmosphere. Here’s a list of some of my favorites:

Café Borrone - Menlo Park, CA
Located on the corner of and El Camino and Santa Cruz Ave, Café Borrone celebrates good architecture. There is a nice balance between the indoor and outdoor space. The two spaces are connected by walls of glass, which allow the eyes to wander into the other. On warmer days, when the walls are open, tables literally spill into the patio. The outdoor space is protected from the street by three key elements: two large stone arches, a fountain and approximately 40 feet of walkway. Because the tables are spaced irregularly and close together, you are forced to engage strangers either with a polite smile or “Excuse me” as you navigate to your place. You feel connected to those around you. Perhaps my favorite quality is the lack of wireless. People come here to write, read or enjoy company. Café Borrone enjoys many of the elements of an old world café.

Coupa Café – Palo Alto, CA
Coupa is my favorite all-around café in Palo Alto and second favorite overall (next to Borrone’s). Located on Ramona in the heart of downtown Palo Alto, Coupa enjoys a steady crowd of students, residents and business types. Coupa has a great front patio and backroom with skylights and fireplace. The coffee is good, second best to Café del Doge. Although the wireless network is free, it makes finding tables difficult and dulls the hum of the café during afternoon hours. I’ve fallen into more great conversations in Coupa than any other café in the world. Conversation topics included Paris fashion, sustainable development, tango dancing, graceful aging, and advanced neurobiology. There is a high degree of synchronicity in Coupa. For example, I am the debate coach at Palo Alto High School because I met the director of the program at Coupa back in March. The coaches and I meet at Coupa regularly to discuss team strategy.

Café del Doge – Palo Alto, CA
Although Café del Doge serves the best coffee, I don’t enjoy the indoor space. Something about the lighting and narrowness of the space bother me, however the four outdoor tables are nice. (You may have noticed a pattern: I love sitting outside and watching people, so my favorite cafés all include an outdoor space). What I enjoy most about the café are the regulars. Especially on weekends (around 9:30 AM), families relax with their children, mountain bikers gather before a ride, and friends join to talk. I must admit that this café is particularly fun for eavesdropping, as conversations range from business to politics to all sorts of opinion-charged subjects.

Other Good Coffee Houses
Canyon Coffee Roastery in Redwood City and the San Carlos Starbuck’s across from Washington Mutual (I like the old couches, baristas and regular customers; it has a sense of community) .

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A few months back, a client asked me to focus on any upcoming, available homes on Eden Bower Ln, Silver Hill Rd and Lonesome Pine Rd. I’d seen homes here before, but I’d never focused on the area with particular attention. Surprising this time around a feeling of joy struck me. After driving up Eden Bower, stopping in front of a few houses, and driving back, I thought, “Wow, I’d love to own a home here.” Just last week, I drove the street again and felt the same feeling: therefore Eden Bower is one of my favorite streets.

In the neighborhood of Farm Hill Estates, Eden Bower is situated on a ridge just south of Farm Hill Boulevard. The street is particularly quiet since it ends after three blocks in a cul-de-sac (about 40 homes total). The eastern side of the street enjoys sweeping views of the bay. The view focuses on the Peninsula but includes San Jose and San Francisco on the periphery. The houses are mainly ranchers, which I’m particularly fond of because the typical rancher floor plan flows very well. The lots are particularly large, ranging from 10,450 sq ft on the low end and 31,000 sq ft on the high end. Finally, the associated public is Roy Cloud (K-8). Strong parent support and teaching make it one of the top ranked public schools on the Peninsula.

In summary, the east side of Eden Bower is a great street for the following reasons: well-built homes that suit a variety of lifestyles, large lots, sweeping bay views, a quiet street and good public schools. Say location-location-location with me. So what’s the downside? These homes are rarely available. Since 1998, only 10 homes on the south side have sold.

What to expect:

• Bedrooms: 3-5
• Bathrooms: 2-3.5
• Interior: 2000 to 2500 sq ft
• Exterior: 10,500 to 20,000 sq ft
• Purchase Price: $1,3 to $1,55M

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As a Realtor, it’s expected that whenever I’m asked if it’s the right time to buy, my immediate answer will be, “Of course, forget <insert good reason why not to buy>, now is the perfect time.” Unfortunately my father taught me that it’s best to understand a client’s needs and suggest appropriate actions that meet those needs. For example, let’s assume my client is a doctor who carries large student loans and plans to leave in the next two years for her fellowship. I’d suggest renting in this instance because it offers a short term commitment with fixed costs. In other words, it gives her the ability to pay down her loans and the freedom to move at anytime.

Assuming you are in a financial position to own a home, when does renting make more sense? Renting provides lack of responsibility and increased freedom. Some examples: the burden of maintenance is largely assumed by the landlord and moving is always an option (although prematurely breaking a lease agreement forfeits your security deposit). Therefore the most compelling reasons for renting, in my opinion, are the freedoms it provides from the burdens of owning a home.

In many instances, the rent payment is one-third to one-fourth the cost of the gross monthly payment for a home (loan payment, property taxes, and maintenance costs). Consequently the savings incurred (versus owning) make sense when other financial objectives are more important, such as saving for a home, paying off student loans, or supporting family members. What happens when life throws you a major curve ball? Consider the following life changes: divorce, new job, death of a spouse, and transition to a new city. Renting may provide the optimal platform for dealing with these situations.

Finally, buying a home requires years to build equity and sell at a profit. The time requirement is often between 4 to 7 years, the commitment needed to build enough equity to cover selling fees (which total around 8%) and make a return on investment.

Conclusion

Renting makes more sense when

1. You are not staying for long ( 2 years or less) or
2. Other priorities are superior to the responsibilities of home ownership

Basically you pay for predictability. The downside is that your payments build someone else’s equity (as opposed to your own).

Additional advantages of renting:

1. Amenities that are unaffordable as a buyer are accessible as a renter. Many of today’s high end apartment complexes offer pools, spas, fitness centers and recreation areas.
2. Large complexes provide a sense of community. (Unfortunately I must disagree. My memories of UCLA apartments are of filth, dilapidated buildings and sleepless nights).
3. A long lease agreement (1-2 years) provides short term stability. Despite the fluctuation of housing and oil prices, rental costs remain fixed.
4. The price of entry is small. Just 2 months rent give the right to occupy a space.
5. The option to move is always available. Whereas breaking a lease agreement prematurely may cost $5,000 (the price of the security deposit), selling at the wrong time may cost $50,000 or more (if the home is sold less than the purchase price).

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Many of us are uneducated about the benefits of homeownership. We hear on the news and from others that real estate is a good investment, yet we do not understand the basic math. Without the principles and an idea how the numbers work, its easy to postpone the decision to buy. Thankfully the math is quite simple. When you consider the financial power of owning a home, you intuitively realize that its a path you must begin sooner than later.

The Power of Appreciation
First, its important to understand the power of appreciation. Between 1972 and 2002, the US Department of Housing annd Urban Development data show that median home prices appreciated at an annual rate of 6.1% Why?

1. First, general inflation drives up the replacement cost of housing (construction material and labor) and therefore the value of real estate.
2. Second, as the population increases, so does the demand for housing.
3. The power of supply and demand is further compounded when you consider the uniqueness of our area – the Bay is highly desirable, and there is no new space to build.

Now consider the law of compounding. If a property appreciates at an annual rate of only 3% (low appreciation) for five years, then it appreciates 16% overall.

The Power of Leverage on Rate of Return
6.1 percent appreciation may not seem like a lot, but that figure is deceiving when you consider rate of return on investment verus rate of return on price. Consider the following example:

With a financing today, a mortgage gives buyers the benefit of appreciation on the full value of the home while only investing a small portion of that value. Consequently the rates of return on initial money invested are as follows:

• 30.5% with 20% down and 6.1% appreciation in one year
• 61.0% with 10% down and 6.1% appreciation in one year
• 172.3% with 20% down and 16% appreciation over five years

The Power of Deduction on Taxable Income
Tax law allows various deductions for the expenses of owning property, such as interest paid towards a mortgage and property taxes. The ramifications are significant for someone with a sizable income. Consider the impact of owning a $500,000 home on a $100,000 income:

In our example, owning a $500,000 home provides $14,525 in annual tax savings. Put the money into a high-interest savings account and use it to reduce your monthly payment by $1210 a month.

Additionally, there are many unquantifiable reasons why owning a home is a good thing. For example, it feels amazing coming home to and awaking in a home that is yours. Moreover building that sense of home is an enjoyable and satisfying experience. It takes years to imprint your personal touch through painting, remodeling, landscaping and furniture placement.

Next week we continue the series with a look at reasons why renting makes more sense.

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