Rancho Madera

Time and Space

The goal of all our career, investment, and location decisions is not simply to maximize our net worth. Wealth is a means, not an end. Our goal is to maximize the quantity and quality of our personal free time and living space. The supply of wealth in the world is constantly increasing, but the supply of time and space is in absolute terms only decreasing. (Technology can lengthen human life and can make uninhabitable areas habitable, but immortality is not imminent and the earth's surface area is not increasing.) It is therefore never too soon to invest in shares of free time and living space.

Working Less

As productivity continues the increases that began with the Industrial Revolution, the workweek will continue to shorten and retirement age will continue to drop for people who want them to. (Other people will work more if work is their end and not simply a means.) High productivity allows us to choose career paths that avoid long workweeks, working weekends, all-nighters, overnight business travel, and being on call.

Death of Distance

Throughout history, humans' choice of location has been restricted by two major constraints: proximity to agricultural and industrial production sites, and proximity to family and friends. As the millenium turns, the revolution in information and communication technology is eliminating both constraints. It will become increasingly feasible for knowledge workers (like software engineers and financial analysts) to work remotely through telecommuting and teleconferencing. And it will become increasingly easy for distant friends and family to socialize through videophony and other forms of telepresence.

The death of distance implies that knowledge workers can now locate themselves remotely from the major centers of population and production that previously demanded proximity. Relative transportation costs will continue to decline as relative energy costs continue dropping and infrastructure keeps improving. These trends will combine to allow the current generation of knowledge workers to locate according to other factors, such as time zone, language, political/tax policy, and climate.

California

We want to live in a society that is relatively free, modern, and English-speaking. This means America.

We want to live in an optimally Mediterranean climate: not too hot, never cold, not rainy or humid or buggy (i.e. dry, but wet enough for trees and greenery), and not too windy. We want to live where it's not too flat (and boring) or too steep (and impractical) or too high (and cold). We want to live near a relatively warm ocean, but with a modest intervening mountain range to prevent too much fog, clouds, rain, and wind. We want to live within a few hours of mountains high enough for winter sports. We want to live at most 60 minutes from a cosmopolitan university town and a commercial airport.

There are three areas in California that satisfy these criteria:

The Bay Area, especially the east-facing foothills of the Santa Cruz and Diablo ranges.
Central California, especially the Santa Ynez valley and the area around San Luis Obispo.
Northern San Diego County.

Rancho Madera

We want to live in an area with minimal crime, pollution, traffic, and overall density. We want to live on rolling hills with a view, and with enough land not to see, hear, or smell our neighbors from our doors or windows. This means having at least five acres, but ideally ten or even twenty. This would allow enough room for a pool, tennis court, guest cottage, and perhaps even a second residence on the family estate. As Holtz and Madera are the German and Spanish names for 'wood', we can call the family estate 'Rancho Madera'.

Where is Rancho Madera, and how will we buy it?

Option 1: Trade Up

The conventional real estate strategy is to buy what you can afford where you now live, and trade up later. The problem with this strategy is that we now live in the most expensive real estate market in the nation. The Silicon Valley real estate market has bid up not by rising income (i.e. productivity) but by stocks that have soared on the expectation that technology is about to transform the economy. One of these transformations is the death of distance, which will allow knowledge workers to work in Silicon Valley virtually without living there physically.

If we planned to live on the peninsula long-term, then buying on the peninsula now might not be a bad idea -- even if the valley real estate bubble deflates or plateaus in the next decade. But if we don't plan to live on the peninsula long-term, then buying on the peninsula is a just high-margin speculation. Imagine there were a stock symbol VALY whose price tracked real estate prices in the peninsula. Would we borrow half a million dollars and invest it all in that one stock?

Option 2: Rent To Own

It is important to distinguish between real estate as an investment and real estate as a place to live. Despite all the hype about equity and deductions, there are really only two differences between buying and renting:

Buying captures the appreciation (or depreciation) of the property's entire value, using only the down payment and accumulated equity.
Mortgage payments are fixed (or tied to interest rates), while rent rises (or falls) with the real estate market.

The ideal site for Rancho Madera would be in the foothills of the San Francisco Peninsula, somewhere from Saratoga to Woodside. Unfortunately, land there is a) too expensive, and more importantly, b) too subdivided. It is unlikely there are suitable ten- or five- acre estates to be had there no matter what the price. If one wanted to retire in 1999 to a peninsula ranch, the smart way to do it would be to time-travel to 1969 and buy it ahead of the crowd. Similarly, if one wanted to retire in 2030 to Rancho Madera, the smart way is to buy it in 2000 before everybody else starts trying to move there.