Is This Is A Good Time To Purchase Investment Real Estate in The Silicon Valley?
Next question? But seriously.
I previously talked about the effect of increased interest rates on Silicon Valley Real Estate. For my analysis of that situation please click here.
The upshot is that higher the interest rates will decrease prices, but maybe not in proportion to the cost of ownership, especially in higher priced/more popular areas of Silicon Valley.
This will keep the affordability of home ownership out of reach of many Silicon Valley residents. That means there will be a greater number of potential renters in the area which is good news for real estate investors.
Currently, the CAP rate on rental real estate has not been great, especially in high end properties. It is not uncommon to see 2% cap rates in multi- family homes in Palo Alto or Mountain View. The value was in appreciation.
No one is predicting much appreciation in this market in the next year or two, and rents are already ridiculously high. I am not convinced they are going to increase much in the next 2 years either.
Where I see opportunity in the Silicon Valley real estate investment market is in areas near the tech expansion in San Jose, or in those easy commuting distance but still affordable like Newark and Union City.
I believe that investing in rental property in these areas of the Silicon Valley have the potential for increased rental values as well as appreciation. They are more affordable than buying in higher priced cities like Mountain View, Palo Alto, Menlo Park, Saratoga, or Los Gatos, and they offer relatively easy commutes to the major employers, so they are good for attracting the demographics most likely to rent.
Of course you need to keep in mind rent restrictions in San Jose, so multi -family homes may not be your best option. Additionally the multifamilyhomes in San Jose tend to be extremely old and need a lot of repairs and upkeep.
I like the newer buildings in downtown San Jose as rental units. They are relatively affordable, don’t need a lot of upkeep, popular with the tech force so easy to rent out, and can give a pretty good return.
There are also many condos/townhomes in Newark and Union City as well as a lot of new construction there that is in the works. If the interest rates get too high and the newer construction becomes more difficult to sell, the builders MAY ease up on the rental restrictions and that would be a good opportunity.
If you are going to purchase a Silicon Valley investment property with a loan, then it is best to do so as soon as possible, because the increasing rates will not be working in your favor.
If you are purchasing a Silicon Valley investment property with cash then I think the first half of 2017 will be a great time to do that, as the pool of renters increases and the pool of buyers decrease.
If you have any questions about buying or selling investment property in Silicon Valley please feel free to contact me.
Keller Williams Realty