mapAre you looking to purchase a Silicon Valley investment property? Now is a great time as several segments of the Silicon Valley and San Jose real estate market are extremely favorable to buyers, and interest rates are being aided by recent government action.

Let’s consider what to buy and where you might want to invest in Santa Clara County real estate. Part of the equation will be the type of housing you’d like to own, part will be the location, and of course much of it will be determined by your budget.

Types of Silicon Valley Residential Investment Properties

The most popular type of property for investment buyers is a single family home. This makes sense in Silicon Valley especially because the structure of the house is not what truly holds the value here. Instead, it’s land value for the long term preservation of your assets and the growth potential. There’s also the issue of control. In a condo, owners have a loss of control in regards to noise and other nuisances, suprise special assessments from a poorly managed Homeowners Association, and so on. With a single family home, there’s less risk because there’s more space between neighbors, more control over one’s own property improvements and maintenance, etc.

When single family homes are not a possible investment (usually due to the price tag), the next best option is a townhouse or duet home in which the homeowner also enjoys ownership of the plot of land that the structure sits upon. With a duet or townhome, there are neighbors often on just one side, possibly two – but not also above, below, and across the hall!

Other Silicon Valley investment buyers will prefer to purchase an apartment building and have it professionally managed. Depending on the numbers, this can also be a wise choice.

Where In Silicon Valley is it Wise to Invest in Residential Real Estate Now?

There are good bargains to be found in middle and low income areas of San Jose, but because of the proliferation of short sales and foreclosures in those areas, I would not want to invest there as prices will continue to decline while there’s a lot of inventory, particularly of distressed properties.

Better is finding a property in a location with some downward pressure but not excessive inventory. Places with better schools, lower crime, and only a moderate amount to low amount of short sales and foreclosures will be better bets for the long term.

An example would be the condo and townhome market in Los Gatos. I wrote about it extensively on my Live in Los Gatos blog, and you can read that article here: How Is the Condo and Townhome Market Doing in Los Gatos?

Other good areas would include Saratoga, Cupertino, Los Altos, and Almaden. If those regions are out of budget, I’d next suggest Campbell, Cambrian Park, and Willow Glen.

Some Words of Caution to Silicon Valley Real Estate Investment Buyers

Here are a few points to keep in mind when purchasing residential real estate for investment purposes in Silicon Valley:

  1. New construction is often appealling to investment buyers because of the low chance of major repairs needed soon after aquisition. Realize that new construction often has hidden costs and special issues all its own. An example of a hidden cost would be the lack of window coverings or lack of complete landscaping. Other special issues will be addressed elsewhere in a post dedicated to this topic.
  2. Bank Owned Properties and other distressed real estate may also conceal hidden problems. With REOs (banked owned), the seller does not provide the buyer with many disclosures, so it is possible to take possession of the home and only later learn that there are issues with the various systems of the house, such as with the pipes or roof. Always get thorough inspections!
  3. With so many people losing their homes, there is an increasing number of renters and that number will continue to rise, at least in the short term. Rent it right! Before becoming a landlord, learn the ins and outs so that you do not make mistakes in terms of the way you rent it (potentially breaking the law, for instance) or the way you manage it. Prepare a realistic budget for ongoing maintenance and replacement of major items over time. Understand depreciation and how it impacts your taxes so that you have a plan, ahead of time, as to how long you intent to hold onto the property.

Please contact me if you’d like to discuss investing in Silicon Valley real estate during this window of opportunity.