Why Should I purchase a Rental Property In San Jose, CA?
Is San Jose, CA a good fit for your goals and strategy as an investor? Learn more about the area, the rental market, housing and rental statistics, and the laws you need to comply with.
In order to make an informed decision, you need to know what to look for in a real estate investment.
What key factors and date should you look at to make an intelligent decision on purchasing a property in San Jose?
- Growth of the city
- Property prices
- Average rent prices
- Cash flow or appreciation potential
- Supply of homes available
- Occupancy rates
- Percentages of rentals in the area
- City trends
- Economy of the area
What to expect from a rental property in San Jose
San Jose, CA is a large city in Silicon Valley, the country’s major technology hub, and has a large population of highly educated professionals. Due to the strong economy, there is a great deal of new construction, with commercial and residential buildings being erected everywhere. It recently became the tenth-largest city in the United States, with over a million people, but only about 40% of its land area is developed. San Jose's downtown is small relative to its population size and most of San Jose is suburban.
- 49/100 WALK score, 41/100 public transportation BUT moderately bikeable at 62/100
- Very very good schools, most 8 or 9 out of 10
- Great colleges near by- San Jose State, Santa Clara, Stanford and more!
Big Tech makes San Jose one of the hottest real estate markets in the country. Among all the cities of Silicon Valley Bay Area, San Jose city probably has the perfect balance of residential and commercial areas.
Factors that might influence the San Jose rental market in 2020, including each of the following:
- Income levels
- Supply of available housing
- Good employment opportunities
- Prediction of a 2020 recession
- Limited housing construction
- Limited availability of land for new building
House prices rise quickly, so you are going to see appreciation go up more than rent. If your strategy is putting a minimum amount down on a property and expecting cash flow, this probably isn’t a good fit for your goals. For this reason, this area is going to be attractive to the investor looking for appreciation.
A couple of additional trends you can expect to positively impact your rental properties in San Jose, CA include:
- Highly rated public schools in the area, from elementary to high schools
- Higher than national average income
- Home of many leading Big Tech companies, meaning job opportunities for residents
- College campuses near by, including San Jose State, Santa Clara University, Stanford and more. This means residents as well as job opportunity
- Public transportation is available and the city is moderately bike-able
If you want help evaluating the area, Mynd offers property management in San Jose and manages many properties in the area. We have proprietary data that can help you run the numbers to make an informed decision.
If it turns out the San Jose, CA rental market isn’t a good fit with your strategy, Mynd has offices in 19 investable markets and can help you find properties that do work within your goals. Sometimes that means becoming an out-of-town investor which can be scary at first. Rest assured Mynd Property Management offers the same level of service at each of our offices, which allows you to work with one property management company and diversify your portfolio across multiple markets.
How to accurately set rent for my San Jose, CA rental property
Every city has a unique dynamic that is constantly changing, and these changes can affect rents. When setting a price for your property you need to factor in occupancy rates, home prices, and rent rates for your property type.
San Jose Rental Statistics
- San Jose had the lowest vacancy rate in the entire U.S
- Of the 50 major cities listed, San Jose’s vacancy rate of 4.26 percent citywide was the lowest.
- San Jose is relatively cheaper compared to San Francisco
- 23 days on market to 33 days on average
- 30% of homes are renter-occupied in the San Jose CA area
- 70% are owner-occupied households
There may be differences in average rents for apartments, single family homes, duplexes, etc. Ultimately, a property management company can help you to determine exact rents for your unique properties based on their types.
Home Prices in the San Jose area
- Home prices $1.08 million on average
- Up from 6.6% last year
Most expensive neighborhoods in San Jose:
- North San Jose- $3031
- Rose Garden- $2,924
- Downtown San Jose- $2,901
- Willow Glenn- $2891
Price the rental home for the current market
If you overprice the rental based on past data, the property will sit vacant. You want to find out the rent that the market will bear in the current market. Just because it rented for a certain amount during the past 3 years doesn’t mean it will be the same today. The area has a 4% vacancy rate which is the lowest in the country. San Jose is normally cheaper than San Francisco, and average days on market is about 23-33 days.
If you have the expectation of renting your property in 5 days and it takes a month, you need to have that factored into your expenses. When setting rent, the further away from the average the longer it may take to rent.
It is important to consider the neighborhood your property is in. Some of the most expensive neighborhoods in the San Jose, CA rental market are North San Jose, Rose Garden, Downtown San Jose and Willow Glenn. If your property is in one of these neighborhoods, you might consider raising your rent slightly compared to what it may be in some of the other areas.
Because prices are going up more than rent, you can expect to make money through appreciation not cash flow. If you want to know what your home in San Jose, CA would rent for, request a FREE rental analysis.
Rental Property Rules& Regulations Specific to San Jose, CA
As a property investor in San Jose, what landlord laws and regulations should you be aware of?
Doing extensive research on the laws you need to follow is required of all investors.
You can find the latest changes in laws on websites such as:
- San Jose’s city website
- State of California government websites
- Federal websites for Fair Housing and discrimination laws, IRS.gov, etc.
Keeping up with all the changes is time-consuming and may require that you read through websites frequently, listen to webinars, and attend seminars to stay current on the latest legislation.
- Local laws and regulations which may include city-wide rent control laws and property code that protects your residents.
- State of California laws and regulations including legislation like AB1482.
- Federal laws and regulations such as Fair Housing and Discrimination laws
- Laws regarding service animals and emotional support animals
AB1482 - Tenant Protection Act of 2019 impacts rental property in San Jose.
This law contains a lot of different requirement such as:
- Statewide law that goes into effect on January 1, 2020 and expires on January 1, 2030.
- Requires a landlord to have a “just cause” in order to terminate a tenancy.
- Limits annual rent increases to no more than 5% + local CPI (CPI = inflation rate), or 10%whichever is lower.
- A tenant may not waive their rights to these protections and any agreement to do so by the tenant is void as contrary to public policy.
- If a unit is already covered by San Francisco’s local eviction and/or rent increase regulations, the unit remains subject to those local regulations and the statewide law does not remove or replace those tenant protections.
There is a lot more to AB1482, and you can read more about it or contact our team to learn about how the Tenant Protection Act of 2019 impacts your rental priorities.
Your job as an investor is to be responsible and follow the laws
As an investor, you may not have the time or desire to spend hours a month reading through legislation to learn what the governing agencies are changing from week to week. This becomes even more overwhelming if you have properties in several markets across the country.
A San Jose Property Manager knows the laws
After contemplating all the work involved to keep up with the laws, it might make sense to hire a San Jose property manager who will do this for you. Your property manager knows the laws and keeps up to date on changes, so you don’t have to do the research yourself.
Mynd property management is ready to be your strategic partner. If you are looking for investment property or San Jose property management services, we are here to help you succeed. We offer a FREE rental analysis of your current rental property, so give us a call today.
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In the meantime, learn more about ways to start with a smaller downpayment here.