However, when you think of your plan to "start a family soon", let this be your best guide...see yourself there 1, 3, 6 years down the road.....taking walks throughout the community...playdates down the street.....getting a few quiet moments away to walk to the coffee shop. Do some research into the schools and look at them from other standpoints that may be of interest to you: teacher student ratio, music/art programs?, teaching philosophy, etc.
I can almost guarantee that those observations you have made about the 'junker cars' and the 'run down homes' will become like grains of sand chaffing you as time goes on. In short: You've Got to Love Where You Live!!
It's fine to be in on the early stages of gentrification, but it often isn't the best choice for a young couple considering starting a family. A couple of issues: First, such areas often aren't as safe as the more established or trendy communities. The "quality of life" often just isn't as good. What you're often doing is speculating on the future--that the area will be cleaned up, new folks moving in, and so on. Those early years can be difficult.
Further, it's often difficult predicting how long the clean-up process will take. Back in 1980, I bought a condo in an "up and coming" area of Washington, D.C.--Logan Circle. The area had been fabulous in the 1880s-1920s, but had fallen on hard times. There were still the mansions around Logan Circle, but there were also crack houses, drugs dealers and women on many corners, about two liquor stores on most blocks...that sort of thing. The "word" was that the area would turn around in a couple of years. Well, just in the past couple of years it's become trendy. Those guestimates on the Logan Circle area turning around were off by about 25 years. If you move into a similar area, with a similar time line, you could be grandparents by the time the area turns.
Some areas turn much quicker than that and, as I said, I'm not an expert on Seattle. But that's the sort of issue you should be examining. And the questions you should be asking.
Also, just to return to Logan Circle for a moment, I saw plenty of young couples move there, for the same reasons you did. And, to add something, the DC public schools weren't up to the same levels as those in the suburbs. When those young couples started having children, and education became a higher priority, most soon moved to Virginia or Maryland.
Just something to factor into your equation.
Finally, you ask about which would be the better long-term investment. Remember that the primary purpose of your residence is to provide good, comfortable, safe, affordable housing. It's a valid question to ask about appreciation, but in the big scheme of things, for primary residences it shouldn't be the overriding factor. And, from personal experience, that Logan Circle condo worked out nicely from an investment standpoint. And my worst investment, from a dollars and cents standpoint, was a house on 5 acres in the country, just a mile from an elementary school with a great reputation. So, sure, appreciation does count. But so do a lot of other things.
Hope that helps.
Schools are very important for resale value. If you are second-guessing the schools belonging to Phantom Lake, other buyers will do the same when you go to sell this house. Although Bellevue is a great investment, you still want to make sure to stay with Bellevue areas that tend to appreciate more then others. http://www.schoolmatters.com is a great independent school rating site if schools are your main concern.
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The previous responses did a great job of crunching the numbers for you, so I won't bore you with more numbers. You did mention however concern about the school districts. Here are two web sites to help you do a little more research. GreatSchools.net, and SchoolMatters.com. Both offer a wealth of information about individual schools and districts, including parent reviews.
Hope it helps.
2nd point... schools. All the areas you mentioned have great school districts. You've got Northshore SD feeding the South Bothell/North Kirkland areas, Lake Washington SD mostly Kirkland, and Bellevue SD. All are great and you aside from perhaps a few individual schools, you really can't go wrong with any of those three.
Okay with that being said, onto the fun stuff. Which area ..between Kirkland and Bellevue is the better long term investment? If I or anyone could predict these kinds of things...we'd be really rich right now. But I can't so I use the next best thing... track record. I don't have these figures down to the specific neighborhoods you mentioned, but this will give you an idea. If you want more detailed, ..contact me and I can provide.
Let's first look at Bellevue...East of 405 ..which Lake Hills/Phantom Lake would be a part of. The average quarterly growth in 2001 was 5.6%....meaning ...when averaged out...each quarter in 2001 grew about 5.6%. In 2002 it was 4.3%, 2003 it was 3.2%, 2004 it was 10.2%, 2005 it was 20.1%, 2006 it was 18.5%, and 2007 it was 8.73%. If you averaged all those out, ...you get the average growth per annum of 10.1%
Do the same thing with Kirkland, the average growth per annum is 11.3%. So roughly a 1% delta. The difference?...(oh by the way ..these figures are for single-family homes only ) ...since 2001, Bellevue has only had 3 years with average quarterly growths in double digits...with 2005 and 2006 as the standouts. Kirkland has had 5 years since 2001 in double digit average quarterly growths. .. Kirkland's growth basically has been more consistent.
So what's this all mean....history says Kirkland appreciates basically as good as Bellevue in the long run (a tick better actually) and it does so in a fairly consistent manner. (2001 - 1.3%, 2002 - 14.2%, 2003 - 2.52%, 2004 - 16.5%, 2005 - 11.0%, 2006 - 19.0%, 2007 - 14.6%). Bellevue on the other hand had two really great years and the rest were only so-so in comparison. So...historically, Bellevue is more volatile than Kirkland.
Last point... what time frame will Lake Hills/Phantom lake area improve? Belleuve is/has been doing improvements to the infrastructrue (mainly parks and roads) in those areas, but I hardly would call that an improvement. My belief is it takes re-zoning of an area to stimulate any kind of re-development. Otherwise, all you'll get is a house here and there being torn down to rebuild another house. I don't see big chunks of Lake Hills improving any time soon....they're all 50 year old homes ...some here and there have been remodeled fabulously, but you're still surrounded by 50 year old homes in various stages of care (or neglect ..depends on how you look at it).
Lastly, the number of sales in Bellevue has been slowly declining in the last 3 years while inventory has been dropping. In 2007, we saw an increase in inventory but still a decrease of overall activity. Not a good trend as that's trending toward a buyers market. Good for you now, ..not good for sellers now. Kirkland has been steady every year ...inventory vs. sales wise. Again proves ...Bellevue ..more volatile, ..Kirkland more stable. Both achieved relatively the same return over the same period of 7 or 8 years, just depends on how bumpy of a ride you like.
I have all this data in easier to read formats ... just contact me if you're interested.
Good luck, sorry for the novel length answer, and let me know if I can help.