I actually just wrote a blog entry about this very topic. Please see the web reference below.

To update this question the Santa Cruz Sentinel recently published an article stating that Santa Cruz apartment rents are now the second highest in California, even higher than San Francisco! It also stated that we have the highest occupancy rate in the state. The most expensive area was just over the hill in the San Jose/Santa Clara/Sunnyvale area. In Santa Cruz the average apartment rent is $1,637 and occupancy is at 96.5%.

This article references a survey of larger apartment complexes but it reflects on the rental market as a whole here in Santa Cruz County. I know from personal experience and my client's experience how easy it is to find a tenant and get a great price for your rental here in Santa Cruz. Within minutes of listing a rental on Craigslist or other forums you will get a ton of replies.

For 1st time buyers thinking about purchasing a home in the Santa Cruz area take a look at this article. Finding a quality rental at a decent price is really hard in Santa Cruz. Home prices have gotten much more reasonable here and with rents going up and interest rates so low now may be the time to get serious about buying a home and investing in your future.

For investors the article below says it all. Great rents + great occupancy+ lower property prices = OPPORTUNITY

Call or email me at (831) 419-9345 cjess4homes@yahoo.com for more info about the Santa Cruz Real Estate Market.

Follow the link below to read the full article.

Hi Hisham-
Erica Pittman-Gaynor of Keller Williams here. It is a fantastic time to invest in property in Santa Cruz. I'm working with numerous buyers from out of the area that see the opportunity and are taking advantage of it.

There are investments available throughout the County. Depending on the area of the County there are differences in rent, what it involves to be a landlord, type of renter, etc.

Foreclosures, short-sales, high inventory, low rates and high rents are all playing a part in the opportunities we are seeing. Call or send me an email now to discuss in more depth. (831 ) 818-4123 or Erica@EricaPittman.com. I'd be happy to send you several properties to check out. I also have a contact at the City Planning Dept. that I pass on to my clients, so they can access information regarding, red-tags, permits, property history, etc.
Again, I'd be happy to discuss any of the wonderful opportunities with you and/or your friend. Just give a call or shoot me an email. (831)818-4123 or Erica@EricaPittman.com. You can also visit my website - SantaCruzRealEstateByTheBay.com. Hope this helps, have a great day:)

Some of those concerns a realtor can't answer however you need to structure the opp. if a tenant wants to sue you are protected. I own investment properties here in Texas I manage myself amazing when a tenant vacates a property, for no reason with remaining months on a lease wants to sue for the deposit go figure, and no forwarding address. http://www.lynn911.com

Hisham, Curt Abramson from Bailey Properties in Santa Cruz here. You pose some very good questions. In general, the rental market in Santa Cruz County has been and remains strong - there is lots of demand, not only due to the influence of UC Santa Cruz, but because of the desirability of the area to live in and visit. Some of our homes are part of the seasonal vacation rental market, which affects the available inventory for permanent rentals as well.

Rents average $1500-1800 for a 2bedroom, 1.5 bath condo, slightly more for a detached home. If your friend is willing to have student tenants, the Westside of Santa Cruz is highly sought after for UCSC students. However, he must expect more wear and tear, and probably more frequent turnover. Being a landlord here is not particularly unique - California law determines most of the duties of a landlord, and local ordinances don't add too many hurdles.

Positive cash flow for rental property is always a function of the amount of equity an investor is willing to commit to a given investment, and the terms of the loan. There are areas in Santa Cruz County that can generate neutral or positive cash flow more easily than the City of Santa Cruz and surroundings, due to prices dropping over the past year or two. If you'd like to hear more about how to reach the proper balance of cash flow for your friend's needs, contact me through my website, listed below. Good luck to you and your friend!