Turning Fantasy into Reality

Living in Montecito is as much about inventiveness, sheer gumption and plain naiveté as it is about finding the financial resources to get here. There is no one right way to do it. People take many paths.

Simple, time-tested adages show that people aren’t limited to “just one right way” of doing life. And while we might believe that living in Montecito is about acquiring some huge sum of money before one moves in, that belief isn’t really true.

Life Is About Choices

Wealth management experts have noticed how people are getting more creative about how they pay for life, especially life in an expensive community like Montecito. How do people who aren’t mega-rich find ways to make Montecito their home? Let’s take a look at the various ways people get resourceful and pay for “the Montecito life!”

1. Why Own What You Can Borrow? – Many people who live in Montecito have let go of their need to own a home. Instead they choose to rent indefinitely. Many doctors, real estate agents and bankers do not own their Montecito homes. This gives them financial freedom by not having to pay any maintenance costs, home improvement expenditures or property taxes. It also gives them logistical freedom to be able to move at will to a different neighborhood or city – with limited emotional and financial burden. These advantages, coupled with a favorable rental environment, can provide a nice boost to a person’s bottom line cash on hand. It’s this increased cash on hand that allows many middle to upper class earners to enjoy more “living” – a preference that prompted them to come to Montecito in the first place. The choice to rent in Montecito is made more attractive when one looks at today’s real estate market wherein a strong argument can be made for alternative investments. For example, in the present economic environment, many of these renters will look to investments in stocks, bonds, private equity, cash, hedge funds and even commercial properties as a more strategic approach to getting their money to work for them.

2. Success is 1% Inspiration and 99% Perspiration – This “adage” represents the determined group of Montecitans who have said to themselves, “You know what? I am going to buy that house I want in Montecito and then I am going to go out there and make more money to pay the bills.” These are the people who some might think “put their cart before the horse,” but then rise to the challenge they have set for themselves. Whether it’s by starting a new business, getting a promotion, working smarter or harder, they sign on to a “buy the house and the money will come” mentality. As imprudent as this strategy may sound, many Montecito residents have taken this path. And when they look back years later (once they have found their success), they often say that buying their home was the pivotal turning point from whence their increased success began.

3. Less is More – There is a segment of people that takes the “less is more” route to buying in Montecito. Where the prior group finds ways to earn more after they make their home purchase, this group finds ways to spend less in other areas of their life in order to save more and make their purchase based on current rather than future means. This group generally chooses to buy smaller homes on smaller lots. They remodel the place on their own rather than hiring contractors; they send their kids to public rather than private schools; they drive less pricy cars; they eat more meals at home; and they accept that they will probably retire a tad later in life.

An interesting subset of this group is the people who plan to “downsize” their homes, moving outside of Montecito and even possibly outside of California, at a later point in life. They build a life of home ownership in Montecito during their younger and/or middle years knowing that at some point they will convert some of their residential equity into working assets for retirement. People with this mindset essentially choose to enjoy their “Golden Years” in paradise, with the knowledge that they’ll relocate at a later age when they feel too old to fully enjoy this locale.

4. Buy Now Pay Later – There is also a category of people who are willing to live for today at the possible expense of their financial security tomorrow. These are the homeowners who take out the 90% financed, negative-amortized interest-only mortgages. This group tends to lease BMWs and not drop a penny into 401(k) plans. They routinely buy expensive meals and clothes using plastic, their credit card debts always hovering near the limit. As a financial advisor, I might advocate for a different approach, but none of it is wrong. The trick is to know what consequences are comfortable for you. For while this choice may scare some people, it enlivens other people who may not yet have figured out another way to live their dreams.

5. Blood is Thicker Than Water – This final group of Montecitans has either inherited, been gifted or received the opportunity to buy, at a discounted price, the family homestead. The financial and lifestyle perks that come to people in this way are obviously enormous since even property tax advantages can be passed on. There are many people in Montecito who fall into this category. And while, yes, they are fortunate, isn’t it great to see that there are not just one or two ways to get to Montecito? Anyone who has figured out a unique way to get to Montecito will tell you to forget about what works for others and just focus on what approach might work best for you.