I am on a mission. He and his family don't know it yet but I am going to find them that house. Not necessarily the palatial one they left behind, but one that --- with a little elbow grease from their very capable patriarch --- gives them that sense of pride and stability that he's been lamenting the loss of since his move to Silicon Valley.
"I hate paying someone else's mortgage," he says revealing the tip of the iceberg. The chord I struck continues through the screen door and the oven, both of which he'd gladly fix himself if this were his castle. But what sticks in his craw the most is that he doesn't feel like he's given his family the ability to set roots between the uncertainty of rents or whether the landlord will move back into the house.
He doesn't think he can afford a house of the size he wants in the Bay Area. Exotic loans are out of the question: while the law may not hold me responsible, my conscience does. Plus, I believe he's too savvy to be led into one by an unscrupulous mortgage officer.
And we both know that Silicon Valley real estate is expensive. He did the reverse move from a place where a lot of folks go to lower their cost of living, and since the market there isn't strong, he's biding his time on his previous house. He's gutting out the pain so that he'll be able to make good long-term personal and financial decisions.
That's why I'm on a mission. It involves one extra question at an open house, that one extra phone call, another drive into the neighborhood to uncover the right opportunity. The cumulation of single drops of water that form the falls --- perhaps not at Niagra --- but somewhere he can call home.
He needs to stop renting --- not like people need food, or clothing, or other people. He needs to stop renting because he believes it's integral to helping his family lead better lives. People have different reasons; the question becomes how to make it happen.
The Powder Keg
Jet black and brand new. You could see this car from all the way on the other end of the garage. It was never well-lighted in this Silicon Valley complex but you could still see the Cadillac's moonlit reflection, like a soft white halo. There was talk about added security, getting the lock on the gate fixed, getting those broken fluorescents fixed, maybe even putting in a camera system. But talk was talk and the management company of this apartment complex knew how to walk the line between meaningless gestures and expensive corrective measures.
That is, until the morning. The neighbors only found out when she knocked on their doors with a petition in hand and a copy of the police report. Her pride and joy had been stolen that very night. The petition? It was what had been asked for all along, and it came with a 10% rent increase plus an 50% increase in parking fees.
My clients tell me stories like this all the time and they give me many good reasons why they'd rather buy a house than continue to rent.
What Not Renting Buys You
1) Financial Control
They hated the anticipation. One year and the increase, not to mention being at their mercy on a month-to-month basis. How much was it going to be? It's rare the person who negotiates the rent down in Silicon Valley and they weren't getting anywhere since vacancies were filling up. Management companies know that moving is an enormous hassle and given the choice, people would usually rather eat a rent increase than uproot themselves.
Their payments were higher now after they'd bought their home, but they knew what the payments were going to be for the next 30 years. It's true, they were part of an HOA and those rates can go up. But I mentioned my HOA, which, because it was well-managed and properly-funded, actually had a rate decrease one year. That isn't common so planning for increases is prudent. But if they do increase, it's a much smaller hit than a rent increase usually is.
2) Ability to Make Improvements
The porcelain this sink was made of had seen better days, to the point where even most modest amounts of leftover food created something far short of modern art in its scratches. Maybe the wallpaper was tolerable, the refrigerator was inefficient but usable, and there was enough but not a lot of hot water --- it was death by a thousand tolerable things, all of which could have been solved with not more than ten thousand dollars, and gilded with twenty.
For a homeowner, those improvements are a small price to pay and a tiny percentage of the overall value of their Silicon Valley property. And people simply feel better the more they like where they live. For a management company, the metrics are different and involve keeping you happy enough to stay there for another month.
3) Neighborhood Ownership
It was always someone else's problem. Someone put a cardboard box in the trash chute and the second floor became the lobby for all things refuse in the building. That spill in the elevator didn't clean itself up in time and got tracked through the hallways. And don't bother using the third dryer from the right: it's all show. "Does anyone here care?" he asked himself.
In my article, Determining Your Must-Haves When Buying a Home, I mentioned a story about how renters treat the neighborhood differently from owners, where sometimes the answer is, "not really."
Good planning. The 30-year fixed-rates for real estate weren't all the much more expensive than adjustable rates and there was no difference in interest payments between the principal and interest loan versus the interest-only loan. He planned to pay both but for the next 15 years it was his decision whether to do that or invest that money to greater advantage elsewhere.
If he keeps up his payments, they'll never change and he'll never have to move until the time is right for him and his family. While everyone's plan is different, what I'll strive for with you is the same result: that you will never have to move from your home until it's right for you.
As I mentioned in my article, "What Are Interest Rates Going to Do?" I would rather see your money go back into your own pocket than into a lender's --- or a landlord's, for that matter. Yes, in this market, you'll probably pay more monthly for your own home than renting. But my clients have outlined several reasons, which I've shared with you, about what not renting buys them.
During most market cycles, even in Bay Area real estate, equity is not a lottery ticket. The past couple years have made that notion seem quaint. Equity is just the difference between what you owe and how much your home is worth. And measured over several years, it usually increases steadily based on your home's increasing value and any principal you pay on your mortgage.
I share many reasons why people are afraid to buy homes in my article, Emotions in Real Estate: From Fear to Elation. Many people are afraid of getting priced out of the market too. One of the most effective ways of not getting priced out of the real estate market is to choose a strong property for the price point you're looking at and build equity in it.
Beginning Your Next Phase
It wasn't analysis paralysis that was stopping him. There was always something at work that came up, whether it was that presentation to the executive staff or visiting the field in far-flung places like Poland. It was good to feel needed, even if it was for work, and there's a certain comfort to hitting the snooze button on the rest of your life.
The outcome of change is, after all, uncertain. And some folks take to uncertainty better than others. But his is not the only story. For many, the hardest part of leaving the rental world for Silicon Valley real estate is understanding how to take the first step.
Getting Started Stopping Renting
1) Know Why
In Silicon Valley real estate, you spend a lot of money any way you slice it. Some people pay cash and buy something below their means. Others put up a straight 20% and buy conservatively. Still others put down less on their real estate with the confidence they can put their money to greater advantage elsewhere. But in each and every case, I treat your investment as a lot of money when we talk --- because it is.
And because your investment is important to me, it's also important to for both you and I to understand why you're making it. Everyone has their own reasons and the key is to be truthful to yourself about them. Some reasons are harder to say out loud than others and I outline some of them, as well as a system for prioritization, in my article Determining Your Must-Haves When Buying a Home.
2) Look Ahead
None of us has a crystal ball. We do our best to see which way the winds are blowing based on what we know today, but you and I know we can't predict the future. But that doesn't mean we aren't in control. With careful planning, you can avoid being trapped in a bad situation and ride out unforeseen events.
I want people to be deliriously happy after buying a home --- not stressed because something unforeseen can force them to sell it on terms they don't like --- so I feel it's important to let people know about situations when they should wait before buying a house. You won't need a crystal ball to see any of these situations, but if you need a guide as to what to look for, I'll be there for you with upfront answers.
Numbers. Some people see numbers and what they mean the same way people see colors or feel the texture of a piece of paper. Fortunately, you don't have to have that gift in order to buy a house. What you need is an understanding of yourself: how much you're willing to spend per month on housing, what lenders are looking for from you, and how you can empower yourself using your credit rating.
In general, a lender won't be your conscience: they'll let you get into as much debt as you're willing to sign papers for, so it's up to you to determine how much debt you're willing to take on. Once you've decided, you can get a pre-approval letter from your lender which will give you the power and confidence to make strong offers (remember, there are other ways besides money to make a strong offer) quickly. In the Silicon Valley real estate market, being able to move quickly is essential to getting the best properties. I can point you to several mortgage brokers whom I'd trust with my own loan.
4) Understand Your Target Silicon Valley Market
The Silicon Valley real estate market is broken up into a number of micro-climates, each of which has its own nuances. That's why I not only publish analyses of the aggregate Santa Clara County and San Mateo County markets, but I also breakdown the markets in various cities like Cupertino, Sunnyvale, Campbell, San Mateo, and Foster City, among others --- the ones you see in the navigation bar to the right.
I do this analysis not only from an economic level but also using my experience continually visiting available properties and speaking to other real estate agents in Silicon Valley. This high- and street-level approach takes more time, but I feel it's essential when it comes to representing my clients, particularly when it's time to price out a property.
I share this analysis freely because I want my clients, and potential clients, to be well-informed. But I also have clients who don't have time to dig into the details, and for them, I publish this information so that they can refer what I've said to them in person. Once you've had a look at what the various Silicon Valley real estate markets are doing, have a look at Bay Area homes in your price range.