San Jose: Steady, Increase, or Pending Drop?

20 Replies

San Jose Investors.  What do you folks think? I hear some say SJ is still growing with potential new IT space attractive to some companies.  Like the new Google facility at Diridon.  I see others say SJ may be headed towards a decline.  

What are your predictions and why?

@Gary F - Have you checked with the San Jose EDC? I looks like someone is building about 500 units on Winchester Blvd.

Personally, one of my investing objectives is to make sure the property cash flows. I haven’t found that in our area. For this reason, I have purchased out a few hours.

Let me know if you want to grab a coffee. I’m in South Bay too. Cheers

I would say it will continue to grow.

@Robert Schumacher . I am with you regarding cash flow....Can you share where and what you purchased "out a few hours"?


@Gary F. I see Bay area real estate continuing to increase over the next year due to continued strong job market and RE supply issues, despite some migration away due to affordability issues...Sometime in 2019-2020, I am speculating a dip due to effects of macro down turn (again a speculation)  but over the long haul, bay area real estate should continue to be a good investment, if you are willing to tolerate lack of cash flow upfront for a period of time.

Many tech companies are expanding into San Jose including Google, Facebook, Apple, and Samsung. the prices have jumped 20% since the Google announcement. The average price in San Jose is so far above what many people can afford that rentals are going to be strong for the foreseeable future. However, there is no cash flow without at least 40% down and I do not believe that will improve. I have a a stronger sense that prices will rise rather than CAP rate rising.

With that said I think that the south county, Morgan Hill and Gilroy, is a good place to invest now as it is much more affordable and rental vacancies still under 3%.

The only decline is housing inventory. When mortgage interest rate is over 5% expect the affordability goes down. With that being said when interest rates were two digits (up to 18.5%) good homes were sold just as quick. In 95087 1 br 1 bath condo starts 1M+, br, 1.5 bath starts at 1.3M.... $2.2M 3/2 SF homes that were 650K a few years ago with two dozen offers... People have wondered how much more local homes can go up for half a  century now.  

Updated 11 months ago

94087 correction-Sunnyvale

The average property is going up 40-70K per year,  wow !  That is crazy inflation, a great return for your cash !

Every house deal has cash flow,   Just don't be poor, and put down $600k on a $750K small house, and you RED to go, cash flow baby !

But most of don't have $600k for down payment,  the poor people like me invest in Manteca, where modest returns occur.   Over here  housing is going up $15-25K per year.  This is all I can afford.      Small house, small headaches.   I am long term buy and hold.    Hold for 30-40 years.    No time to sell,  I am getting Bigger Pockets,   out of my way, going to cash checks !     Been landlord since age 27 with no education !     Been with two houses for a while now.   See you at the bank !

Great replies. Yeah I see the market only going up as well. For equity yes. Not much for cash flow unless you put a sizable down payment. I n my case I’m sitting on “old money” having bought in 2002 and now nearly paid off. Time for a cash out refi towards something else

@Gary F. ,

My approach has been that I want to have no more than 35% equity in my rental property, and I do a cash out refinance anytime my equity goes over 50%. This allows me to take the money and reinvest in another property.

The key to make this work, of course, is that the property can cash flow positively with the new loan. There is nothing worse than you having to pay every month for someone else to live in your rental.

What do folks from the Bay Area think about the Central Valley? Properties in the bay with a 25% down don’t cash flow positive. Am a new investor and looking for options.

Ran into this topic again, and funny how we were all wrong. SJ market has been slowing down considerably. 

The short-term is anyone's guess, to many economic variables.    

Long-term it is all about jobs.  Will Google and other tech companies move operations to other cities like Austin? If they do it will take a lot of pressure off the Bay area.  Where will the next generation of Cops and teachers live in the bay area?  There is a generation of baby boomer cops and teachers who bought in the 70s and 80s.  Those properties will not go to individuals like themselves, they can no longer afford the neighborhood.

 What happens when the average wage earner's entire paycheck is not enough to cover the rent?       

Originally posted by @Lesley Resnick :

 What happens when the average wage earner's entire paycheck is not enough to cover the rent?       

 I think we are already experiencing this

Originally posted by @Lesley Resnick :

The short-term is anyone's guess, to many economic variables.    

Long-term it is all about jobs.  Will Google and other tech companies move operations to other cities like Austin? If they do it will take a lot of pressure off the Bay area.  Where will the next generation of Cops and teachers live in the bay area?  There is a generation of baby boomer cops and teachers who bought in the 70s and 80s.  Those properties will not go to individuals like themselves, they can no longer afford the neighborhood.

 What happens when the average wage earner's entire paycheck is not enough to cover the rent?       

I bought a home in Palo Alto in 1982 ish.. for 185k and it was from Grandma so it was a tad under market probably worth 200 to 210 at the time.. and that market had already priced out the teachers and many others.. so this is not anything new.  Jobs and scarcity will  keep prices from cratering  but history has shown it can happen.. in the great recession of 1989 to 1992  .. values in those areas on some homes dropped worse ( 50%) than they did during the 08 GFC... but then again high tech was not as pronounced as it is today.. its wild there no doubt.. wish I never sold my house there.. it got to just under 500k by 93 and I sold and moved to the Napa valley I thought it could never go higher.. 

I was in SF in 1998 for the first time and loved it.  I was smitten and ready to move.  We were vising friends in Redwood shores and there was new construcion.  I mistakenly went to look at it, a condo on the second floor, 2/2 for $400k.  You could see Oracle from the building.  At that moment, I realized I could sell my house and buy a nice one car garage and live in Redwood Shores.  I can not image what that condo is worth today.   

Originally posted by @Jay Hinrichs :
Originally posted by @Lesley Resnick:

The short-term is anyone's guess, to many economic variables.    

Long-term it is all about jobs.  Will Google and other tech companies move operations to other cities like Austin? If they do it will take a lot of pressure off the Bay area.  Where will the next generation of Cops and teachers live in the bay area?  There is a generation of baby boomer cops and teachers who bought in the 70s and 80s.  Those properties will not go to individuals like themselves, they can no longer afford the neighborhood.

 What happens when the average wage earner's entire paycheck is not enough to cover the rent?       

I bought a home in Palo Alto in 1982 ish.. for 185k and it was from Grandma so it was a tad under market probably worth 200 to 210 at the time.. and that market had already priced out the teachers and many others.. so this is not anything new.  Jobs and scarcity will  keep prices from cratering  but history has shown it can happen.. in the great recession of 1989 to 1992  .. values in those areas on some homes dropped worse ( 50%) than they did during the 08 GFC... but then again high tech was not as pronounced as it is today.. its wild there no doubt.. wish I never sold my house there.. it got to just under 500k by 93 and I sold and moved to the Napa valley I thought it could never go higher.. 

The Google campus initial 3 plots were sold for ~$1.5M about 1.2 ac ish. All the rest of slumlords 2-3 miles away are trying to play catching up with similar asking prices for their fix uppers. The investors took the bait hoarded them.  

The Google downtown construction will not start until 2025.  Anyone in the Valley knows a local company announced a campus can cancel it on last minute notice.


Originally posted by @Lesley Resnick :

The short-term is anyone's guess, to many economic variables.    

Long-term it is all about jobs.  Will Google and other tech companies move operations to other cities like Austin? If they do it will take a lot of pressure off the Bay area.  Where will the next generation of Cops and teachers live in the bay area?  There is a generation of baby boomer cops and teachers who bought in the 70s and 80s.  Those properties will not go to individuals like themselves, they can no longer afford the neighborhood.

 What happens when the average wage earner's entire paycheck is not enough to cover the rent?       

Teachers are poor, but cops are not. Around here, with overtime pay, cops make as much as engineers. They retire at 50 with 90% of their paycheck, then move to a different job earning double salary.

@Gary F.

San Jose, CA Market Single family homes

When it is very inflated it will deflate slightly...… Economy is still excellent 

Sam Shueh

Great to see this thread still alive.

@Sam Shueh   Thanks for those graphs. If Im reading it right, it seems prices have not gone below asking but just not 15% over asking list price as in Spring this year. 

Forecasts:

My take: It might not be the best time for flips being that prices may decrease and building materials and labor are very high. The tariffs certainly didn't help either.  Interest rates continue to rise as they are now at 5%.  DOM are increasing along with the inventory:demand ratio.  A couple of property mgrs I talked to said rents are also going down about 5%. However, late Fall/Winter is also the slow sales and rental season.  When spring comes we'll be able to see a better picture of the market when sales and rentals are high season.

There's always the possible wholesale deal. Its challenging because it seems many people are either an investor or REA. And everyone has some app to find foreclosures and distressed properties. Definitely a competitive market out there. 

I'd like to hear others take on this....  

Who would like to get some coffee/lunch and talk investing?

Gary if you can make the drive there's a meetup in pleasanton next month

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