Downtown San Jose presents a tremendous opportunity for real estate investors to diversify their portfolios and turn a significant profit. It’s normal to have questions about where the best investment properties are in a particular location, regardless of whether you’re a first-time investor or a seasoned professional. Read on for some practical tips that will guide you if you have an interest in multi-unit real estate investing in San Jose.
What are the benefits of multi-unit investments?
Multi-unit investments are among the safest investment vehicles that you can choose because they offer a significant upside for appreciation. This is especially true in San Jose, given the plans for expansion that Google has for its 7.3-million-acre headquarters and housing units in the area.
Multi-unit investments help grow your profits at typically a lesser cost than other types of properties. By investing in multi-unit properties, you can make financial moves that will benefit you in the long run by diversifying and expanding your portfolio and achieving strong asset appreciation, even in times of economic uncertainties or distress.
Multi-unit investments help grow your profits at typically a lesser cost than other types of properties. By investing in multi-unit properties, you can make financial moves that will benefit you in the long run by diversifying and expanding your portfolio and achieving strong asset appreciation, even in times of economic uncertainties or distress.
What are the best neighborhoods for multi-unit investments?
Japantown
Japantown, or Nihonmachi, is one of the last remaining authentic Japantowns in the entire United States. The area has a thriving dining scene with restaurants that serve various types of cuisine in addition to their delicious Japanese fare. You’ll also find a number of contemporary clothing and gift shops as you walk through the neighborhood. With several new high rise buildings and consistent investment, this area is primed to be the next trendy hotspot for your young professionals.
North Willow Glen
I target North Willow Glen because it’s sandwiched between desirable downtown Willow Glen and the future Google Headquarters and San Jose downtown proper. North Willow Glen is currently priced at a discount to other areas of the Willow Glen Neighborhood but with some vision, we predict property values will continue to rise as the Google and Downtown areas continue to develop.
Rose Garden
Rose Garden is one of the oldest neighborhoods in all of San Jose, as many of the homes were constructed during the 1800s. The area is quiet and well-maintained. In the center of the neighborhood is San Jose’s famous rose garden, which stretches out across 5 ½ acres and includes over 3,5000 rose shrubs. Visit anytime during the year, and you can expect to see over 200 rose varieties represented.
Other great neighborhoods to target are Lakehouse, Naglee Park, and Little Portugal. Ask the professionals at the Poncetta Real Estate Group for their reasons these area values are about to expand.
What are some other tips for choosing a location for multi-unit investments in San Jose?
Consider properties near transportation options
Try to buy near future BART or light rail stations if you can. Google plans to make Diridon Station a global transportation hub, and there are other locations throughout San Jose that may be prime options as well. As BART continues its plans for expansion, properties with close proximity to these destinations will be in high demand, and are anticipated to appreciate at a higher clip than other options.
Look for properties that have the ability to add units/ADU’s
San Jose is considered one of the most progressive cities in California for creating new housing opportunities through the ADU (accessory dwelling unit) program. It’s not widely known but cities have developed aggressive strategies for allowing and encouraging additional units to existing multi unit dwellings. Targeting properties that have the ability to add additional units can be very profitable, creating equity development opportunities that weren’t formerly available.
What else should I know about investing in multi-unit properties?
Set a budget
Set aside time to think about your operating budget while also coming up with a system that will help you track profits and performance over time. This will show you where you can cut costs and how you can plan for specific capital improvements. Don’t be surprised if most of the properties that you see available on the market will need some sort of renovations before you can begin to rent them out to tenants. This is normal, and it’s something you’ll want to plan for as you create your budget.
Start small
If this is your first multi-unit investment, you’re probably not going to want to start with a 70-unit building. Smaller multi-unit properties are overlooked in many markets, and choosing an investment property like this will help you get your bearings as you learn about what it’s like to be a landlord. You’ll come to better understand the dynamics of your local real estate market, and you can use the information to take on a larger property later down the road.
Decide on a rental rate
Setting a rate for rent is challenging. You don’t want to price rent too high and risk having open units because you can’t attract tenants. You also don’t want to set your rent too low and leave money on the table. One of the best ways to choose a price for your unit is to research what other options are available in your market. You’ll get a better idea of what features and amenities these properties have to offer and how they compare to the units in your building.
Expect the unexpected
You’ll quickly find that surprise expenses come up often when you own a multi-unit property. You may have to facilitate an unplanned maintenance project or address repair concerns for your property, or you might take longer to fill a unit than you initially expected. It’s a good idea to set aside 10% of your rental income for these sorts of costs. This will protect you in the event that you have an unexpected vacancy, a building issue, or the market declines.
Make incremental improvements
Every market has properties that will stay on the market for months, while others tend to be snatched up in the first few days after they are made available. While there are a number of factors that can lead to one property standing out among other options, it usually comes down to how desirable and appealing that property appears.
If you want to have consistent tenants (and income), you’ll have to make sure your units are well-maintained. Resolve issues quickly, and look for ways that you can continually make upgrades to each unit.
If you want to have consistent tenants (and income), you’ll have to make sure your units are well-maintained. Resolve issues quickly, and look for ways that you can continually make upgrades to each unit.
FAQ About Multi-Unit Investments
What are the specific tax implications or benefits for investing in multi-unit properties in San Jose?
Investing in multi-unit properties in San Jose comes with several tax implications and benefits that investors should consider. Firstly, property owners can deduct expenses related to the operation, maintenance, and improvement of their investment properties, including property management fees, maintenance costs, and interest on mortgages. Additionally, investors can take advantage of depreciation deductions, allowing them to recover the cost of buildings and improvements over time, reducing taxable income. San Jose, being in California, may also offer state-specific tax credits or incentives for real estate investments, especially for properties that meet certain energy efficiency or affordable housing criteria. It's essential to consult with a tax professional familiar with California real estate investment to maximize these benefits and understand the full scope of your tax obligations.
Are there any city or state-specific regulations or zoning laws in San Jose that affect multi-unit property investments?
San Jose, like many cities in California, has specific regulations and zoning laws that directly impact multi-unit property investments. These regulations can include restrictions on the number of units that can be built on a lot, parking requirements, and height restrictions, among others. Additionally, San Jose has been proactive in encouraging the development of accessory dwelling units (ADUs) as a strategy to increase housing supply. This includes streamlining the permitting process and relaxing certain zoning requirements. However, investors must navigate these regulations carefully, as non-compliance can lead to significant delays and increased costs. Before investing, it's crucial to consult with city planning and zoning departments or work with a real estate professional like Poncetta Real Estate Group who understands local regulations to ensure that investment strategies align with current laws and policies.
Work with an agent you can trust
If you’re serious about investing in a multi-unit property, you should look for an agent that specializes in these types of transactions. They will understand the unique factors and nuances that go into purchasing a multi-unit property. Their past experience and expertise will enable them to answer any questions that you have while effectively guiding you through the process and increasing your chances of success.
The Poncetta Real Estate Group specializes in helping buyers find their ideal San Jose real estate investment properties. Scott Poncetta leads the team and has over 20 years of experience working in the Silicon Valley market. His goal is to help each of his clients make smart and savvy investment decisions. Reach out to their office if you have more questions about investing in San Jose real estate or if you’re ready to move forward with your search.
*Header photo courtesy of Poncetta Real Estate Group
