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July 20, 2007

Hills over Saratoga, CaliforniaWhen I was growing up in nearby Saratoga, California, my mother was a Realtor and she sold a lot of high-end homes. And we lived in a very nice one on an acre lot (actually a few – she liked to buy and sell and we moved quite a lot). Because my parents were doing it, I figured it was doable. I envisioned myself in a good-sized home on an acre lot in Saratoga, Monte Sereno, or Los Gatos. I loved the hills and wanted to be close to them.  

That type of home that I pictured back in the mid-1970’s would be worth about $3 – $5 million dollars today, depending on things like school district, how level the land is, etc. It’s more than a little out of budget. But I did know that I wanted to be near the coastal foothills – and we have been able to do that. It wasn’t fast, but it was and is doable for most folks.  Here’s how we did it, and below our story are some other ideas for you to work your long term goals into reality.

It wasn’t until I was married (22 years ago today!) and then began saving and househunting in the late 1980s that I realized how diffiult it would be to purchase any sort of house. Jim and I initially attempted to buy a place over by the coast (Santa Cruz, Aptos, Rio del Mar). But it was an overheated market and our 5% down offers were just not competitive. My parents offered to lend us some of the downpayment but I (we) staunchly refused, wanting to do this on our own – for a couple of years, while prices skyrocketed much faster than our ability to save a bigger downpayment. During that time, we decided that the coast was too foggy (nice place to visit, but…) and for a lot of reasons, decided to shift our home-buying focus to the Santa Clara Valley. (Lesson learned: time wasted made our ultimate puchase MUCH more expensive.)

We conceded that my parents were right (I was in my late 20s and still learning), borrowed some money from them (repaid within 8 years at 8% interest) and were finally successful at buying our first home in San Jose. I will say, it helped that we had a great Realtor, and it helped that we listened that time around.

As much as we wanted to live in Los Gatos, it was a little out of budget for our first home (mostly because I insisted on a single family home as our first son had just arrived and I thought a yard was crucial).  We bought a potentially-cute little ranch home in Cambrian Park of San Jose, on the Los Gatos border for $225,000 in late 1989 (just as prices were beginning to come down a little, at the beginning of a 3 year price decline).

For 10 years we improved our cosmetic fixer, redoing the kitchen and bathrooms, roof, driveway, fences and lots more. In 1999 we sold it for $375,000 and bought another “cosmetic fixer”. But this time, the house was in Los Gatos, 1.5 miles away in “Belwood of Los Gatos”. The home we bought then needed a lot of changes – it was the darkest brown house I had ever seen on the inside – and by then I’d been a Realtor for 6 years and had seen a LOT of homes (chocolate brown carpet, chocolate brown vinyl in the kitchen – you get the idea).

Kitchen in our Belwood home after we remodeled itThis house needed “de-browning” and lightening up in a big way. We immediately added suntunnels, got rid of the yellow glass in the entry hall (I’m Catholic and kept feeling like I was in confession each time I walked past the front door), swapped the carpet for something light, got rid of the dark brown interior doors and replaced them with white 6 panel doors, removed the flocked wallpaper, textured and painted the walls, and after a couple of years, redid the kitchen. The bathrooms we’ve updated, but they could stand a real re-do. So we’re not done, but we are in Los Gatos in a neighborhood we love and slowly but surely, we’re improving and personalizing and updating our Los Gatos home. The hills are close (but not close enough to create water problems for us), so is beautiful Belgatos Park and our area even has a cabana.

So one way you can do this, in crazy Silicon Valley, is to buy “solid but ugly” homes on good streets, put in the sweat equity and work your way up. You may not be able to make your first home in Los Gatos, but it is doable to eventually live in town if you set a course and keep at it.

Another way to eventually own a home in Los Gatos is to be more flexible than I first was and begin by purchasing a condo. What do condos cost in Los Gatos? They’re not all inexpensive – but you probably guessed as much. A high-end townhouse or condominium in Los Gatos could run over $1,000,000 but most are considerably less. Since the focus of this blog entry is on affordability, let’s look at the other extreme. A small condo in Los Gatos could be found in the low $300,000 range. One studio on Lora Drive (used to be a seniors complex but is now all ages) is sale pending at this time and was listed for $295,000. Don’t bank on that – it’s a studio besides with 600 sf and you’re usually better off getting at least 1 or 2 bedrooms.

What’s hard for first time home buyers, in addition to the stress and scariness of it all, is that they can rent a much nicer place than they can buy at first. It’s a step down to buy – in the short run. I have occassionally had buyer clients who never bought because this was just too hard for them to make the sacrifice. It’s short sighted because in the long run, California homes have a great track record of appreciating (I believe the number I saw was an overall 9% appreciation per year over the last 30 years, “corrections” included). It’s not a short term investment, it’s a home – but it can also make you money by the time you retire if you make your payments and pay it off.

And finally, a word of caution to keep what you’ve bought:

The danger? About once every year or two, I have clients who get themselves into trouble because they view their home’s equity as money in the bank which they can simply draw from. It doesn’t really work that way, because if you take the money “out” of your equity, you have to pay it back. You don’t really “get” the equity until you sell and leave your home. For some reason, this confuses some folks. They take a little bit out each year or two. Suddenly the repayment on the equity lines is unbearably high and they have to sell their home just to get the debt off their backs.

It’s not supposed to work that way. Leveraging can be good (talk to your financial planner), but the old fashioned idea of a 30 year loan that you just pay off – and where you actually own your home outright when you retire – is really a very good option for many people. So my word of caution with homeownership: be careful about that equity. Don’t just draw and draw from it. You can live beyond your means and get in trouble too easily. It is apparently very tempting.

Mary Pope-Handy, Realtor, CRS, ABR, e-PRO, SRES, ASP, RECS, CNHS
Helping Nice Folks to Buy & Sell Homes Since 1993
Co-Author: “Get The Best Deal When Selling Your Home In Silicon Valley”
Intero Real Estate Services, Los Gatos, CA (Silicon Valley)
408 357-5760 (Direct); 408 204-7673 (Cell); 408 715-0201 (eFax)  
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