We pick a room or a mechanical project every year to invest some money and sweat equity into. Great posts below, I can't speak about the values in the Palo Alto area, but our home has kept up very well with the market increases in our local area. If we were to sell this year we would probably realize an appreciation of 100 to 110%. Not planning on selling for several more years. We love the area in addition to the house itself. Your inspection will be key, as mentioned below. Best of luck! Stacey
Items to pay careful attention to are the foundation, the electrical work and the plumbing. I would buy an older home, but I would also have it thoroughly checked out before removing any contingencies.
I would also check to see if the homes is registered as a historical home and/or landmark. If you buy one one these, remodeling and expansion are extremely difficult if not impossible. The upside is you might get a tax break.
All the pocket doors were original and the previous owner replaced some of the plaster with gypsum board, so we do one room a year back to the wood lathe and plaster. One major warning, if the tuck pointer wants to drill out the old limestone mortar to replace it - find another one, because he's never dealt with old limestone mortar and doesn't know what he's doing. This started out as a summer home and has become our year round home in retirement. Yes it's a little cold in the winter, but with 7 fireplaces, we always have a fire going and I wouln't touch the wavy leaded glass in the windows.
You'd have to check with the historical association and determine why the home was a possibility for historical status. Was it owned by the Packards? or someone unknown (but it is old) who has no historical significance to the city of Palo Alto. There is a good article today in the Los Altos Town Crier about the Shoup house in Los Altos and the problems the current owners are having in getting a remodel/expansion. I suggest you and your realtor check the history of the home and then make a determination. Also, if you don't plan on building or significantly remodeling the home, the only problem to think about is future resale (when you sell the house, will it be tougher to sell as a (potential) historical home). All things being equal, a home registered as a historical home is a little harder to sell.
Also there are statutes you can apply for to designate a home historic that will limit your property taxes as well as the taxes of all future buyers. Talk about having excellent re-sale value.
Every community is different with regard to rehabbing historic homes, I wouldn't be scared off about that before you looked into actual local regulations.