San Jose is still rated as one of the top growth areas for rental income. And true investment properties (2+ units) have not suffered the same losses associated with under qualified buyers and spec flippers.
Avoid soft areas, single family homes, and condo's for the time being. You can find a quality long term investment in most of the bay area.
Let me know if you would like to discuss further and complete your approval process.
As mentioned in a previous response it depends on whether you're looking for cash flow or for appreciation. It also depends on your price point. If you want appreciation, plan to invest for at least 5 years, and you want something local that you can keep track of then invest in single family homes in the areas that are desirable in any market. For example in your area Los Gatos, Monte Sereno & Saratoga are prime. Rentals are hard to find and rents are high, of course so are the purchase prices. You could focus on the low end of these communities and make sure they are within the school district. There is a property on the market on San Benito in LG that has 3 separate units on it with potential income of $4400 per month, offered at $1,365,000, MLS: 772739. It's on a great street where many new homes are being built so down the line you also have a great lot that can be sold to someone who wants to build a new home.
Alain Pinel Realtors, Los Gatos
Well, compared to prices you're used to in Los Gatos, current prices in Sonoma County would seem like a bargain. Prices are still unstable, so you can make a good deal, however even with a 20% down, you would not have a positive cash flow after taxes and insurance are included. If cash flow is not your main objective, then, "Yes, it is a good time to buy an investment property". And the rental market is strong.
Would you be interested in a single family dwelling or multiple units? I can e-mail you a list if you'd like.
Lisa Nunes, CRS
Century 21 Alliance