The Moving Chronicles, Chapter 3: The hunt for rent: October
Due to confluence of circumstances, we needed to move in September, instead of the preferred summer months. While we were
looking for a place to go, three home sales closed within two block in the last two months.
The real estate agent for a 1940's-era, 1,524 square-foot house across the street breathlessly explained at a late-September
Sunday open house there was a lull in business around Labor Day but buyers were again out in force. She expected to sell her
$899,000 listing in an auction (they call it "accepting bids" for a "bid party") on the following Thursday. Sure enough, this
house sported a "sold" sign within about 10 days.
What we came to call "the shack" was a smaller, very basic 1940's-era, 1,250-square foot house around the corner from us.
It turns out "the shack" took maybe three weeks to sell for $729,000 ($699,000 list) and closed maybe four or five weeks ago.
Judging by the immaculately-coifed lady I saw pulling a humongous Mercedes sedan out of the driveway a couple weeks after
it sold, this is going to be a rental property. ( I am assuming a buyer who was going to live there probably wouldn't have
spent $80K+ on a car, but maybe that's just me.) Judging by the condition and location, "the shack" might get $2000, maybe
as much as $2300, per month in today's market. If someone can explain how $24K -$27K is a good return on a $729K+ "investment,"
which requires improvements and maintenance on top of ~$40K interest and ~$9K+ in real estate taxes, please drop me a line.
We overheard a real estate agent explain a 1940's-era 1,250-square-foot house literally situated between the two I just
described had $50,000 in improvements performed by the sellers. The home closed at $824,500 ($780,000 list) within a couple
weeks. The new owners moved in and quickly hired contractors to re-do the front and side lawns (ripping out some of the seller's
improvements) and to tear out and re-build the presumably 1940's-era chimney, further enhancing their "investment."
Regardless of the merits of these houses, the one consistent feature is price per square foot declined on each sale. The
most-recent $590 per square foot list price is not what anyone would call a "bargain" but it stings slightly less than $659
or $607 on the earlier sales. (County statistics support the idea that this is now the trend with a $590K median in August,
which was flat from July and down from $599K in June, with each month with declining volume.)
Since we have no interest in such "charming" (read: old and small) homes, almost regardless of the price, we are committed
to renting for another year, probably two. Over the last three months, we looked at easily 100 rental houses on-line. Many,
many were dogs and of no interest but a few seemed workable for our situation. Probably 80% of the workable rentals we visited
were already vacant. Over 50% of those were vacated by tenants who were buying a home but the landlord was unwilling to sell.
In 100% of the cases, the new rent was lower than 2000. (No surprise there.) In nearly 100% of the cases, the 2004 rent was
lower than in 2003. (Hmm…)
Every landlord we spoke to complained that rents were down but was confident rents would come back up as soon as interest
rates increased. They were 100% confident buyers squeezed out of the purchase market would then be willing, and able, to pony
up for higher rents. None of them rose to the bait when I asked them why higher interest rates wouldn't also squeeze more
companies, and/or employees, out of Silicon Valley. Or push more home inventory onto the market which might cause lower sale
prices.
There were a few homes where we still interested, even after seeing them. (Think about that for a minute.) In several cases,
the owners were happy to hear we wanted a 12-month lease rather than something shorter. Based on our accumulated "expertise,"
we were very comfortable offering rents below asking prices. One or two landlords dismissed our offer outright but some were
willing to negotiate.
Since we were already in Palo Alto (the devil you know), we looked at other Palo Alto houses. The one which stands was
on a busy street but was two stories (implying newer construction), seemed to have enough space and was reasonably priced.
It turned out the square footage was over-stated and the owners still kept some of their own stuff in the garage (and needed
periodic access, which was true of several properties we studied). One of the owner's grown children was living in a walled-off
separate room with a side entrance to the house. (So now we can't park in the one-car garage nor in the driveway.) We walked
through and politely left. Back in the car, my seven-year old exclaimed, unprompted, "That was awful!" and, indeed, it was
the last house we considered in Palo Alto.
In another case, a landlord told us another tenant was willing to pay more than her asking price but she would allow us
to match it since the "liked" us. (Based on 10 -15 minutes' discussion.) We had just discovered this beautiful, owner-occupied
pool home (i.e., it had never been rented before) was in Mountain View even though it was advertised as Los Altos. Since the
school districts, and prices, are quite different, our interest level immediately dropped off. (The owner was a real estate
agent and obviously understood the deception extremely well.) When we also discovered the tenant offering more money was on
a company relocation (i.e., he wasn't spending his own money) we dropped out completely. We weren't willing to go into an
auction to buy, so getting into one just to rent was out of the question. Particularly, when our competition is spending someone
else's money. It turned out her deal fell through when the new tenant's company was unwilling to commit to a 12-month lease.
(Is there some "news" embedded in this tidbit?) She came back to us to tell us we could have it, but at a higher rent. We
walked…
On a Los Altos house which turned out to actually be in Los Altos, the landlord had refused to sell to the previous tenants
who then bought elsewhere. Even though the house was vacant, he laughed at our offer. We were approaching a deadline to get
out of our current place and were ready to sign a lease once he made a token concession. Even though we had to buy a refrigerator,
washer and dryer. Then we discovered the school advertised as within walking distance was "full" and we would have send our
child across town (again). Again, we walked away. Afterwards, we saw this house sit empty for over a month and the owner lowered
his asking price to below what we had offered. (Maybe he figured out 10% off the rent was nearly the same hit as letting it
sit empty for a month? Or maybe the school issue became well known?)
We made an offer on another owner-occupied home in Los Altos. The owners smiled and said they would consider it and call
us back, but never did. When we followed up a few weeks later, they claimed to be close to a deal with another tenant. We
then learned they were planning to take their refrigerator, washer & dryer with them to the new house they were building,
even though these were originally to be part of the lease. (We found such bait-and-switch deals were not uncommon.) Their
deal fell through, the list price has also dropped below our last offer and the house is still on the market(*).
We really liked a home in Sunnyvale, which the owner said had experienced only two tenants in 10+ years. Behind the home's
backyard was a noise wall running along Highway 85 which, amazingly, wasn't letting much noise into the house with the windows
closed. However, with no air conditioning, we would need to open the windows during the summer and fall. In addition, there
is a commute issue from this location since it's near the north end of Highway 85 where it backs up getting through the (forever)
on-going US101 interchange construction. Despite the noise and commute we made a low-ball offer, to see what would happen.
The owner seemed to consider it and called us back a few times but was finally unwilling to come down. This house is still
available and the price had been lowered slightly(**).
At the beginning of October, we finally moved from Palo Alto to another municipality. No more garage-less life for our
poor cars which spent the last 14 months sitting under a magnolia tree with blossom cores, branches and birds dropping on
them on regularly. No more barking dogs on both sides or backyard neighbors who sneak in and cut down sapling trees on our
property because they drop leaves in theirs. No more proximity to US101 or the Palo Alto airport's 7:00am to 10:00pm flight
path. No more driving our child to a non-neighborhood school and no more solicitations for $475 on top of $325 on top of a
parcel tax to "preserve" our non-neighborhood, "local" school curriculum and staff.
Our new rental is 25%+ bigger on a larger lot, 40 years newer, cleaner, has a two-car garage, A/C and is quieter. The school
system gets better API scores and lets us attend our neighborhood school. On top of this, my daily commute is a little shorter.
Our rent went up ~3.5% which merits at least a 30%+ hedonic price decrease. (Maybe I can moonlight for the BLS?) , In response
to "So how's business?", the rental agent for this house says rents are off 30% in the valley this year. (No "optimist" here.)
If there is a message in all of my kvetching, it is that houses are still selling, although prices are no longer ratcheting
up every month. Houses are still renting but prices are softening and some units are spending time vacant between tenants.
You can find a "deal" if you have the leadtime and bandwidth to really research and visit and haggle.
It used to be that Silicon Valley wages were enough that you traded money for time. It used to be that you could always
make more money but you couldn't make more time. Fewer and fewer people are in this situation here today...
