Million-Dollar Starter Homes

    Step into the Manhattan offices of Prudential Douglas Elliman, and you’ll see potential buyers negotiating million dollar-plus apartment purchases.

    What makes the scene unusual is that many of the buyers are in their 20s and early 30s, ready to drop seven figures on a starter home.

    “Credit is getting tighter and they’re worried that if it gets even tighter that they’ll be cut out,” says Dolly Lenz, a broker with Prudential. “They’re young, successful kids, and they’re worried they won’t be able to have the lifestyle their parents had: three or four bedrooms on Park Avenue.”

    This is playing out nationwide, but more often on the coasts where the tech and financial sectors are breeding young professionals with money to invest in real estate. It’s not that these young buyers don’t have good credit scores or references; it’s that the days of 5% or even 10% down are rapidly coming to a close. Young, moneyed buyers are looking to get in now, as they’re the most affected by higher down payments since they lack the nest egg of older home buyers.

    Coastal Cash
    On the West Coast, brokers say that tech and venture capital–which are in better shape than many of the big New York banks–are producing a steady stream of young buyers making their first dive into homeownership with a million dollar-plus home.

    In Silicon Valley, home to Google (nasdaq: GOOG – news – people ), Yahoo! (nasdaq: YHOO – news – people ) and countless smaller firms, they’re looking in Atherton, Calif., south of San Francisco, where property values are higher than in Beverly Hills. Other hotspots here include Menlo Park and Los Altos.

    “There is a Google effect, but it’s not like they’ve descended on one neighborhood,” says Courtney Charney, a broker with Alain Pinel Realtors in Atherton. Of the buyers’ profile she says, “they’re usually young couples.”

    Location, Location
    Rich young professionals in their 20s and early 30s come with the territory in places like New York, Silicon Valley, Los Angeles and Miami. As to where they settle, that’s a question of personality.

    In Manhattan, that’s often the prestigious Upper East Side or the more trendy Tribeca. In Los Angeles, they flock to Hollywood or Santa Monica.

    But sometimes, young buyers’ money isn’t enough to gain entree to such exclusive enclaves. Stodgy co-op boards can be a problem in cities like San Francisco or New York. In other places, the exclusive enclaves aren’t enough for these young buyers. In Los Angeles, for example, Bel Air and Brentwood are among the finest enclaves, but they aren’t as lively as Hollywood or Santa Monica.

    But make no mistake: Getting enough money together for a down payment on a starter home in these places is a tough task.

    The National Association of Realtors (NAR) says that a good way to calculate the price of a starter home is to take 85% of the area’s median price. In Greenwich, Conn., or Miami Beach, Fla., where you’ll find super-pricey neighborhoods, a “starter home,” by NAR’s standard, might be a multi-million dollar mansion.

    How did these properties become ripe for first-time buyers? Charney says that “$10 million isn’t what it used to be.” And of New York, Lenz calls a $4 million home “New York middle class.”

    Still, that amount of money can get you a pretty sweet spread. In Miami Beach, $4.1 million lands a 5,453-square-foot palace with five bedrooms, a waterfront and a dock; and in Newport Beach, Calif., $3.6 million gets you a Peninsula Point home with 180-degree bay views from a rooftop deck that includes a fireplace and garden. That same amount, in Greenwich, gets a five-bedroom Colonial home on 1.3 acres of pristine, landscaped grounds.

    It’s amenities like these that make such suburbs attractive to first-time buyers looking for a home with something extra: room for a family.

    “It’s a different lifestyle out here,” says Barbara McKee a broker with Christie’s Great Estates in Greenwich. “You can’t pay enough for good schools, and do you want your child and dog walking on the streets, or do you want them in the garden?”

    by Matt Woolsey, FORBES.com

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