Spring Real Estate 2005

Publication Date: Wednesday, July 20, 2005

Buy or rent?
In the long term, buying can pay off

by Jamie Schuman

Before buying a condominium, Elaine Rossignol, who works in the City of Palo Alto's utilities department, had been renting in Mountain View for 13 years. She had been encouraging her children to buy property when she realized she was not following her own advice.

First-time homebuyer Elaine Rossignol found a two-bedroom condo in Mountain View last summer.

"It just became time for me to do it," said Rossignol, who bought a two-bedroom condominium in Mountain View last July.

Through her research, Rossignol found there are various types of loans and down payments, and there are many tax benefits of owning property. Soon she found buying a condominium very feasible.

The local real estate market may seem daunting for first-time homebuyers such as Rossignol, as the asking price for many of the least expensive Palo Alto homes can be upwards of $1 million. But, because of flexibility in payment options, high appreciation rates and costs that vary by location, home-buying here can be a realistic option for area renters.

"Almost no one ever regrets having bought a house and almost everybody thinks it's the best thing they ever did," said Steve Greenbaum, a Realtor at Intero Real Estate Services in Los Altos.

Steve Greenbaum, an Intero Real Estate Services agent, encourages people to enter the local real-estate market, despite high prices.

While many agree that owning -- and then selling -- property in the area can have significant long-term financial benefits, why are so many renters reluctant to enter the real-estate market for the first time?

Greenbaum cites ignorance about the process and costs and fear that prices will go down as the main reasons.

First-time homebuyers can get free advice and demystify the buying process by visiting a local real estate agent.

And in recent years, prices in the Bay Area have been going nowhere but up. Stanford Mortgage Corporation President Carla Rayacich said she does not see the economic factors that could cause a decrease in area home values in the next two years.

While the appreciation rate -- or the percent rise in home value -- varies by location and property type, local property values have increased an average of 15 to 20 percent each year for the past two years, she said.

Lisa Garono bought her Mountain View condominium in October of last year.

The significance of this rise in property value is two-fold for prospective buyers. Owners who sell property likely will cash in. And renters who either try to save money before buying property or wait in hopes that prices will decrease likely will see asking prices continue to increase.

"If you wait until the hot period is over, it's just going to get more expensive in the meantime," Greenbaum said.

Rayacich advises against saving up to make a large down-payment, and, instead, encourages clients to explore getting a zero down-payment loan. She says people with good credit and a steady income but few assets often qualify for a zero down-payment loan. Therefore, they can avoid waiting to save up funds.

She tells prospective buyers to first visit a lender to learn about the myriad loan options that make buying property more feasible. She recommends seeking loans from mortgage brokerage firms, as they have a wider selection of available loans than banks and credit unions. She also cautions people against online lenders, as they often do not have the accountability required to meet the many deadlines of the purchasing process.

Rayacich teaches a course, "Home Buying for Women," in which she helps prospective buyers realize that purchasing a home or a condominium can be affordable and a good investment.

A main benefit of buying a house or a condominium is that owners, unlike renters, save on taxes. Mortgage interest and property taxes both are tax-deductible.

Whereas homebuyers are saving money on taxes and are investing in a property that likely will appreciate, renters do not get such benefits.

"If you rent, it's like an infinite loan," Greenbaum said. "You never pay off your rent for the rest of your life."

Low-end condominiums in the area normally start at about $400,000, whereas the asking price for the least expensive houses can be closer to $1 million.

But these numbers can be deceiving.

Rayacich advises her students to look not at the asking price, but at an after-tax analysis of how much the property costs. That analysis often illustrates the large amount of tax money buyers are saving in comparison to renters.

Rayacich said low-end condominiums normally cost about $1,400 per month -- which is similar to rent for many people.

Condominiums often are a more affordable way than houses for people to enter the real-estate market. But, in addition to the mortgage, condominium owners pay a homeowners association fee, which covers maintenance and amenities, such as a gym or a doorman.

Whereas Palo Alto has a limited selection of condominiums, Mountain View and Redwood City both have more offerings. Mountain View and Redwood City often are quoted as good options for first-time buyers who want to live in the area, as property prices there normally are a little less expensive than prices in Menlo Park and Palo Alto.

"It's more of a step-up market in these two towns," Rayacich said.

Lisa Garono, a lawyer who works in Palo Alto, said she bought a house in Mountain View because she could not afford to live in Palo Alto, but wanted to be within easy commuting distance of her work.

She said she is confident her four-bedroom house in Mountain View has more room to appreciate than houses in some other towns because the prices in her new neighborhood still are relatively low.

"I think it's still a deal, relatively speaking," said Garono, who took Rayacich's course.

Rayacich added that while some prospective buyers think condominiums do not appreciate as fast as houses, she has found that area condominiums have been rising in value very quickly.

While some renters avoid home-buying because they are uncertain about the costs, Rayacich says she tells her students that everyone goes into the market with little knowledge. She also said that real estate agents can be a fantastic source of free advice for first-time homebuyers.

Rossignol said once she started researching the process she found the flexibility of payment types made buying property an easier procedure than she had previously thought.

"I hadn't bought before because I hadn't thought it was possible," Rossignol said.