I'm sure most of you are all familiar with Aesop's tale of The Tortoise and the Hare - but just in case you don't remember it, here is a quick recap . . . The tortoise challenges the hare to a foot race to teach the bragging rabbit a lesson. The cocky hare is so certain of his ability and the foregone conclusion that he decides to nap along the route while the tortoise methodically plods along and eventually passes the sleeping bunny. By the time the hare wakes up, the tortoise has already crossed the finish line and handily won the foot race. (Oh yes, now I remember it.)
The real estate market often reminds me of that timeless fable. Never more so than last week, when I helped a smart young couple (let's call them Mr. & Mrs. Slow & Steady) secure a promising home here in Piedmont. Like the tortoise, they had patiently waited for a home they could afford and took their time finding it (a fixer with great potential).
While patiently waiting for prices to soften in Piedmont, Mr. and Mrs. S continued to pay down the mortgage on the home in El Cerrito that they had purchased more than a decade ago. Although they have clearly upgraded their El Cerrito home, they never borrowed against it, nor used its growing equity like an ATM machine. As a result, Mr. and Mrs. S were in a position to buy first and sell second! (Doesn't that make life easier?)
Once the El Cerrito home is sold, Mr. and Mrs. S will use the net proceeds to refinance and update their new Piedmont residence. With a plan to move slowly and renovate on a budget, they hope to stay put for the next decade. This is "old school" or Real Estate 101 at its best. It's the way our parents and their parents before them, bought homes - often staying in them until the mortgage was paid in full.
Meanwhile the ambitious hares, hopped from house to house, often increasing their debt and their risk along the way. With tax advantages that rewarded Sellers every two years, aggressive bunnies joined the race and were often well-rewarded (who could blame them for using the market to their advantage?) Many thrill-seeking rabbits even leveraged the appreciation on their burrows to buy vacation homes or investment properties and are now struggling to keep their homes. With little to NO equity to speak of and a market experiencing a significant correction, these overreaching hares are struggling to figure out how and when the race was lost. (Hare today, gone tomorrow).
In the interest of full disclosure, I will share that I have been both a tortoise and a hare over the past 18 years. Often referring to myself as a "serial renovator," my husband and I bought and renovated four homes in 12 quick years, growing our seed money (and our family simultaneously) but also expanding our debt with each successive upgrade (our "hare" phase). Sweat equity, fortuitous timing and advantageous tax laws ultimately provided the down payment on our current Piedmont home.
With a promise to my husband that we would not move again (at least until the boys graduate from high school) and my solemn vow not to "touch anything" until we can pay for it in cash, my husband and I have clearly entered our "tortoise" phase. While we may never fully pay down the 30-year fixed mortgage before we sell, we will have made a sizable dent, hopefully allowing us to realize a substantial profit when we go to sell - years from now.
Here's the irony. Had we held onto our very first flat off Lake Street in San Francisco and never hopped at all, we would have realized almost the same gain and maintained a much lower tax base . Hmmm. . .
Lucky rabbit's foot aside, slow and steady wins the race!
Julie Gardner, has been writing The Perspective for 15 years and has published more than 500 essays. She is also a frequent contributor to the Sound Off column in the Real Estate section of The San Francisco Chronicle.