I am thinking to buy something in San Jose (2nd part)

around the downtown area...I'm thinking to buy something close to the schools.
What do you think about the commerical real estate in San Jose now? Do you have some suggestions/Advices for a novice investor?
I am also open to other investing options...
Thank you very much.
~ thanks for Davide and Paul for such good advices!
I am looking for apartment buildings for now. What is the cap rate for san jose downtown? (near to the University). Do you use such calculation for 4 plexes? For 4-plexes, what measurements do you usually use? if I'm buying 4 units in that area now, what is an estimate price/unit to be considered as a good buy? In this market now, would 20% down be sufficient for 4-plexes in san jose?
Thank you so much for the advice again!
In Buying Property - Asked by Kakit T. - Jul 24, 2009
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Daniel B.
Gilroy, CA

stay out of this market!!!!!!!!

Jul 24, 2009
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Davide P.
Pinole, CA

Yes, cap rates are used for fourplex's. In the area by SJSU most of what I've seen was a 5-7% cap rate with a few 4's and 8's in the mix. As for a price/unit it depends greatly on how many bedrooms are in each unit. Obviously the more bedrooms/unit the more valuable it is going to be. Presuming the building is producing income, 20% might be enough, but many of the lender's I have run into are starting to request 25% down - again it depends on which lender you are working with.
One ultra-simple calculation you can use that I have explained to a few of my newer investors is to factor in the rent vs. price - for every $100k a property costs you want to receive $1000/month income. If something costs $500k, you want $5000/month income. Again, this is a VERY, VERY simplified way of doing numbers. Ideally, you want to have your investment double within 10 years. This was nearly impossible in many areas a few years ago (i.e. Bay Area). Now it is becoming quite possible. Since you seem to have your sights set near the SJSU, I would say that doubling within 10 years might be quite a challenge. The reason being is because the area is very stable - the more "safe" an investment is the less you make. Since by the college is almost a guarantee to have tenants your risk goes down, meaning the $100k/$1000rent rule might not work in your situation.
If you have any questions feel free to contact me by phone or email.
Cell – 510-815-2000

Jul 25, 2009
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