NestEgg Home Buying: Bay Area Real Estate

Assessing What's Available and How Much House You Can Afford

One of the most time consuming (and some times deflating) part of the home buying process is getting a sense for what's available, and what to expect for your money.  I'll add more in depth notes shortly, but a good place to start (for Bay Area properties) is either link below.  I think it's important to do your own leg work first before engaging a real estate broker.  A real estate broker can give you a rough sense of different neighborhoods and where to focus, but I think you should spend a couple of weekends out on your own visiting open houses.  Many people go to open houses with a broker which is certainly easier.  However, intentionally or not, the houses brokers will choose for you to view can greatly skew your expections on availability, price, and desireability.  I think it's best for you to start on your own and form an unbiased base of facts first.

What's it Going to Cost Me?:  Here are some good links to websites that will help you assess the average prices of communities you are looking at:

1) City by City Real Estate Report: I don't vouch for the services of this broker, but she put together a pretty interesting report on houses that recently sold by community: Palo Alto, Los Altos, Los Altos Hills, Menlo Park, Mountain View, Cupertino, Sunnyvale

2) Link to a Database of Home Sales:  You can search by town, street, and year for sale prices.  This is particularly interesting because it will give you real closing prices versus asking prices (which may be significantly higher or lower than the eventual sale pric

3) Link to Multiple Listing Service:  You can search for currently available houses by many different parameters

4) Craigslist Mapping Software (Link):   This will show you Craigslist for sale listings plotted against Google Maps--Very handy to understand neighborhood layouts and to plan your open house tour on Saturday

What to Look for in a House (Link)

Defining What You Need (Link)

Other Factors: In familiarizing yourself with what's available, it's also important to take in some other important factors:

1) Earthquake Risk (link): I break it down in the linked posting

2) Asbestos Risk (link)

Buying a House in a Good School District

Finding the right house, starts with finding the right town and neighborhood. You might know that you want to be within a general area, but not know what specific town or neighborhood is best for you.  Even if you don't have kids, one thing you should consider is the relevant school district.  Particularly in the Bay Area, the value of homes under $2M is highly driven by the quality of the school district.  Here's a great way to check and to get a sense for the quality of the school system. 

Note:  After you enter your address, then pick the specific school district, at the bottom of the page is a link to the "school report."  If you click on that link, you can get detailed run downs of school systems.  Just don't fill out the contact information, otherwise you will be hounded.

School Districts Link

Defining Your Wants and Needs

Buying a house is a long term investment.  Make sure that the house you buy fits your goals and lifestyle.  For example, my wife and I love to entertain.  Only after moving in, did we discover how incredibly frustrating to us that we have no formal dining room.  As a result, I think you should really take the time to figure out what you need and want in a house.  I've put together a workstream below that should help you define what you're looking for

Town/ Neighborhood Factors   

• School system                                  

• Prestige                                 

• Strength of community                                 

• Proximity to current or future employment

• Resale value                         

• Building/ zoning restrictions

• Access to highways/ thorough fairs, shopping and services, public transportation

• Public amenities (parks, pools, libraries)

• Local taxes   

Lifestyle Factors

• What are your functional need (e.g. family plans, storage needs--# cars, etc.)

• What do you enjoy doing? (e.g hobbies, entertaining, gardening, running etc.   

• What are must haves in your new home?                                              

What are the Specific House Requirements?

Location

Openness and flexibility of floor plan

No. of bedrooms                                           

No. of bathrooms                                         

Living room                                        

Dining room                                      

Family room                                      

Updated kitchen                               

Finished basement                                      

Air conditioning                                

Updated heating                                           

Updated wiring                                  

Updated plumbing                                        

Fireplace                               

Storage space                                  

Garage                                  

Big yard                                  

Mature landscaping                                     

Deck/patio                                        

Swimming pool                                

Disability access                                           

Move-in condition                                         

Room to add on                               

Quality schools                                  

View                                      

Asbestos and Other Risks

Last thing you want to do when buying a house is to expose your family and loved ones to asbestos.  Exposure to Asbestos can cause lung and other various forms of cancer.  The bad news is that it rarely curable.  The good news is that mesothelioma abestos injury is 100% preventable.

Below is a blog that outlines who is most at risk, how to evaluate a house for asbestos, and what to do if asbestos was used as a building material in your house.

How to Evaluate Your House for Asbestos (link)

Tenants In Common Option

There's adage in real estate investing:  You make money by buying big, dividing, and selling small.  As per this real estate adage, you get a lot more for your money if you buy big.  Tenants in Common is a good way of doing this.

If you're looking to buy an apartment San Francisco, one of the ways to get the most for your money is to buy a large apartment building with other friends and investors in a structure called a Tenants in Common. 

I have a group of four friends who bought a small apartment building in Portrero hill that had three 2 bed, 2 bath apartments and a basement studio for $650,000 in 2003.  Even if you don't count the basement studio which they could rent out, there's no way you could buy a 2bd/2ba apartment in Portero for $225,000.  In addition, they got to control who their neighbors were and were able to afford an apartment with a good yard out back. 

Overview of Types of Real Estate Ownership Link

Risks: LInk to Good Article on Risks of TIC

The Earthquake Risk

The big risk that you can't hedge against in the Bay Area is the earthquake risk.  In San Francisco, earthquake insurance is unavailable or prohibitively expensive.  In the pennisula, some townhouses/ house association associations can provide earthquake insurance, but most don't. 

Here's some good information from the Dept. of Geological Engineering & Sciences, Michigan Technological University about earthquakes:

1) Where to buy to minmize earthquake dangers: Earthquake hazard map link

2) How to assess the sturdiness of a house:  Earthquake house link

3) Earthquake insurance: Earthquake insurance link

4) How to make your house safer:  Earthquake safety link

Great New Home Buying Tool

The old cliche: "location, location, location" is key to home buying or any real estate investing.  Values change by neighborhood, street, even within 100 yards of proximity to a major road, park, etc. So, when you see houses on MLS and are trying to understand the going rate, it's really important to quickly understand each listings' location.  My wife did this in 2003 by manually typing a listing address into Yahoo Maps.  I just found a better tool that I think will save you a lot of time (at least for Craigslist listings).  Hopefully they'll be able to integrate into MLS:

Link to Home Listing Mapping Tool

What to Look for In a House

Home buying is a personal decision and people have different tastes, needs, etc.   However, from a purely financial perspective, here are some things you want to think about:

*Location, Location, Location:  Stupid cliche, but true.  So start with the town and work down to identifying neighborhoods that suit you.  If you're conservative stick with the "branded neighborhoods" (eg. in Palo Alto or Menlo Park:  Professorville, Baron Park, Allied Arts, etc).  Snobby folks generally have money and will always pay a premium. 

*Townhouse/ condo vs house:  This is a little different in the city, but generally in the suburbs, houses always appreciate faster and are worth more per square foot.  As an entry level buyer a lot of times you're face with buying a sweet new townhouse vs. an 50 year house.  The townhouse may be more fun, but the house will always out appreciate the townhouse.  The big difference--ownership and ability to build on the land.  Which leads to...

*Land: Always go for the big plot size.  We got our house assessed after we bought--70% of the value of house was in the land.  Buying a small house on a big plot in a good neighborhood is the way to go.  The math is as follows.  It's about a $150-200 per square foot to build a new house.  Houses in the Bay Area are priced in part by the potential to build a big fat new house on top of the plot of land. 

*Zoning:  Likewise, find out about the zoning restrictions (which are gnarly in many Bay Area suburbs).  This will affect how big a house you can build on the lot and other important issues.  Also, things like an R2 zoning always add intrinsic value, because you can subdivide and build two units on your lot.   

*School districts: Good schools are in short supply in CA, so towns with good schools hold their value.  Be careful in determining exactly what school district a given house is in.  Districts vary by town and sometimes by neighborhood.  Further, there are un-incorporated districts that don't have guaranteed spots at the local schools.  For more on this, check out:  School link

*Inter-neighborhood dynamics:  Although it's  blow to the ego, always be the smallest, oldest house in the neighborhood.  Your house value is partly driven by your neighborhood. You can renovate your own house, but you can't force your neighborhoods to do the same.

*Special bonds or taxes:  Some neighborhoods have raised special bonds or taxes that vary by neighborhood.  Don't get surprised by your first property tax bill.  Find out from town hall about these bonds.

*Noise & Nuisance: After getting outbid on 10 houses, it's real easy to start ignoring things like road noise, traffic patterns, etc. Don't.  You can't change these things and they will affect your enjoyment and ultimately your resale value.

*Parks, downtown areas within walkable distances

*Freeway access