Risk Taken By Buyers Investing in the Willows Has Paid Off

Much like “Risk,” the famous board game and source of intense family discord, purchasing real estate always involves the investment of limited resources – armies in “Risk,”equate to personal savings in real estate. In addition, people must decide into which defined territory they wish to make their investment. Outside of board games, those territories are the cities and neighborhoods that buyers can choose to call home.

For the past half century, home purchases in cities, and specific neighborhoods in Silicon Valley, generally have had excellent returns in the form of high appreciation and quality of life. However, the amount of risk buyers have taken when choosing which neighborhoods to invest in has varied greatly. This is especially true for Menlo Park, which has neighborhoods that have enjoyed stable reputations and appreciation through the years, as well as neighborhoods that previously had poor reputations but later yielded far greater monetary returns if the home purchase was made prior to the gentrification of the neighborhood.

Several of the older and well-established neighborhoods of Menlo Park have seen solid, consistent appreciation over the long-term due to their continuously strong reputation and high quality of life. Central Menlo, home to the wealthiest citizens of Menlo Park, with large lots and close proximity to downtown, is an excellent example. Since 2005, Central Menlo has seen 4.5% average appreciation year over year. Beside the large lots and proximity to downtown, the residents’ loyalty to the neighborhood has reduced inventory gradually, further contributing to the price increases.

In contrast, the Willows neighborhood had a less than stellar reputation in the past. Its proximity to East Palo Alto, higher crime rates, and low quality of original construction all served to keep residents from seeing much appreciation. From 2005 to 2012, the Willows appreciated just 1.5% on average year over year, with fairly volatile swings relative to Central Menlo.

However, everything changed when Facebook moved into Menlo Park and other high tech companies began expanding their campuses, creating an influx of buyers with entry to mid-level high-tech jobs into the local housing market. As a result of the limited housing supply and their budgets, these buyers decided to purchase homes in the Willows as they are relatively affordable and are within an easy commute to most workplaces. Some of these new homeowners had children, which contributed to the increase in school performance scores in the area, and further increased the desirability of the neighborhood. As their family grew in size, these homeowners expanded and remodeled their homes. The combination of influx of buyers, limited supply of homes, improved schools, and new construction have greatly increased appreciation in recent years. In 2012, the Willows appreciated 24.11%, and 18.13% in 2013, marked increases that have only strengthened the desirability of investing in the neighborhood.

Just as in “Risk,” where couples and families may debate what territories to send their armies, those who invest in riskier locales will see either significantly higher or significantly lower payoffs than those who take the more conservative route. Couples who decided to invest in the Willows in 2005 may have been pioneers, but their risk-taking has paid off handsomely, and that upward market trend is set to continue for the foreseeable future.