Investing in the Right Bay Area School District

Picture of School Sign

Buy low, sell high.  A lot of people ignore this truism and they believe they have good reason for doing so.  Sometimes several good reasons.  After all, it's not the same as the stock market: most people don't love their money.  Sure, they want the best for it, but mostly because of the things more of it buys.  What does it buy?  It depends on the person.  Maybe freedom, or time, or an easier life, or the future, often in a college education of their children.

No, stocks don't come with locations, or school districts, or uses, except for those jokes about dot-com stocks and toilet paper back at the turn of the century.  But whether my clients are investing in real estate for love or money, I consider providing a solid understanding of the strategies behind choosing a school district an essential part of their property search.

When buying a home in Silicon Valley, you're secondarily investing in the school district where you buy your real estate.  Plus, you can tell a lot about the property you're looking at by how easy the listing agent makes it to find the schools for that location.  But how you choose a school district --- or said more generally, how you choose the right location for your home search --- depends on your answer.  Are you buying a home for love or money? 

Strategies for Choosing the Right Bay Area School District

The trick is that it's not an either-or proposition.  It's a matter of what resources you have, how much you're willing to spend and how you prioritize your home search.  As I do with my clients, we'll examine several options from least to most expensive.

1)  Opting-Out 

It wasn't the first time I'd heard this, but it was the most succinct.  "Alex," he said, "I love my kid to death.  This move is already very stressful on him and I want him to be in an environment where he can focus more on making friends than competing for grades." 

I wanted to bring this up as a possibility because some parents believe that an good education is important but isn't necessarily worth the pressure on their children.

2)  Buying Low, Selling High

A home in an ascending school district often has more upside potential than a home in a prestigious school district where the quality of the schools is already built into the price of the home.  That isn't to say a home in the less expensive neighborhood will appreciate more, in real terms or as a percentage. 

It's that you may not want to pay for something you don't need and you can put that money into more land or home improvements, which will increase your value for money.  Also, if you choose a school district that is continually improving, you'll benefit even more because you'll be receiving value for something you didn't pay upfront for.

Let's look at two neighboring cities: Cupertino and Sunnyvale.  Cupertino's reputation for schools precedes it and it occupies a very specific market niche.  Sure, the shopping mall at Cupertino Square is undergoing a revitalization effort and its wine country, hidden away towards the mountains, has a breathtaking view of all Silicon Valley.  But Cupertino is all about the schools, and it's right to be quite proud of that.  For many of my clients, that's all they need to know and we skip to #4.

Despite their geographic locations, there are two major differences between Cupertino and Sunnyvale.  The first is in relative pricing in both single-family homes plus townhomes and condominiums.  Cupertino is represented using red hues and Sunnyvale using blue hues below.  The difference in medians between single-family home prices in the two cities was $325,000 in April 2007.

Chart of Cupertino and Sunnyvale Comparison

The second major difference is in school districts.  Here is a comparison of the API scores of the two primary school districts.  Cupertino is in the elite category with scores over 900 for the past three years.  Sunnyvale is approaching 800, which is the benchmark for the State of California.  

Chart of Cupertino and Sunnyvale API Comparison

With a difference of $325,000 in the two real estate prices, one style of value investor would consider the bottom-line cost savings, the number of improvements that can be made to the house for that cost saving, and potential appreciation of an improving school district. 

That type of investor may or may not have kids to send to that school district and the upside of improving API scores or a local school working towards a California Distinguished School award may be appealing.  For families with children, the cost savings between median houses in those two areas could pay for not only private schools but college. 

Some schools, like Bullis Charter School (which has an off-the-charts API score of 973 and a 10 out of 10 ranking both statewide and for similar demographics --- and a similarly impressive wait list) take residents from anywhere in California.  There is technically no tuition but a donation ($3,500 at Bullis) is expected.

3)  Unearthing a Hidden Gem

Palo Alto, Saratoga, Los Altos, Cupertino, Pleasanton.  The names alone read like a Who's Who list of elite school districts, not only in Silicon Valley and the Bay Area, but across California and even nationwide. 

Some of the best Bay Area school districts like Palo Alto are even opting out of the ranking game, choosing to focus on students and what's best for them, rather than on making sure students hit all the checkboxes needed for those districts to get high rankings. 

And voters in cities like Cupertino protect their schools by restricting growth, and the additional load on their prestigious school district, even though there may be enough land physically to support more developments.  You pay the premium in those areas.

But there are quality schools in cities that don't have the same elite reputation.  For example, Moreland Elementary School District in San Jose between Cupertino, Campbell, and Saratoga has 5 elementary schools with API scores over 850, with Country Lane Elementary at 915.  Sunnyvale's Cherry Chase Elementary hit 941 in 2006, with a 10 out of 10 statewide ranking; and Cumberland comes in at a more-than-respectable 865 with a 9 out of 10.  Roy Cloud Elementary in Redwood City is a 9 out of 10 with an 883 API, and Redwood City's North Star magnet school rates at a 985 API and 10 out of 10.

Also, because cities overlap unified school districts, it's possible that a home in one city will be covered by a school in another city.  This is particularly noticeable in Sunnyvale and Cupertino where they share the Stocklmeir Elementary and Cupertino Middle among others.

I combed through the spreadsheet I built with over 400 schools so there are too many gems to list.  The reason why I put it together is to highlight schools that have increased their API scores in three years successively, so my clients know where there might be good values.  The point I highlight for them is that it's the choice between buying the name of the city and buying the school.  When you choose to buy the school, you may not have to pay for the name.

But there is nothing wrong with buying the name: you get similar benefits and pricing to the way people buy and resell name-brands.   

4)  Buying the City

It's the commitment.  The priorities.  Some cities have theirs in a different place.  Foster City has been putting off building their own high school because they want to focus on commercial and industrial uses of land.  Cupertino virtually requires developers to help fund their school system.  The median price of homes is about the same in both cities.

There are the other benefits to buying the brand name.  The brand recognition.  The prestige.  The neighborhood.   Will it be easier to sell your home at a higher price in Palo Alto or Redwood City?  

The right school (combined with a strategically priced property and the right time of year) can attract multiple offers and higher prices.  It works the other way round too.  After all, some people will summarily dismiss a property based on the school district.  (And even in the best school districts, there are certain schools that aren't as good as others.)

Plus, not everyone has the time or inclination to do such in-depth research, so they rely on the name.   Choosing where to spend your time is just as important as choosing where to spend your money --- and ultimately that decision is up to you.  In order, the top five districts are Los Altos, Saratoga Unified, Cupertino Union, Palo Alto Unified, and Los Gatos Union.  You can find the most up-to-date API rankings here.