San Jose's Thin Rental Yields Make It an Appreciation Play

Estimates for a typical 3-bedroom house. Figures are modelled from market data; not guaranteed outcomes.

Short-term rental generates roughly 47% more gross revenue than long-term rental in Santa Clara County, but both yields remain well below the national average. Operating costs for short-term rental are substantially higher, narrowing the gap after expenses.

Short-term rental only outperforms long-term rental if occupancy exceeds approximately 36%. The current county average of 54% clears that threshold, but individual properties can fall short depending on location, listing quality, and seasonal demand.

Occupancy Swings Make or Break Short-Term Rental Returns in San Jose

Occupancy is the single biggest variable in short-term rental returns. Long-term rental income is essentially fixed once tenanted, but short-term rental revenue swings dramatically with booking rates. At the county average of 54%, a 3-bedroom house generates around $59,834 in gross revenue. Drop occupancy to 39% (a realistic scenario for a new listing still building reviews), and gross revenue falls to approximately $43,100, barely ahead of long-term rental income. Push occupancy to 64% (achievable for well-located, well-reviewed properties near downtown or tech campuses), and gross revenue climbs to roughly $70,990.

The difference between the low and high scenario is over $20,250 per year, illustrating why market-level averages are insufficient for investment decisions. Your specific ZIP code, property type, and management approach determine which end of that range you land on.

Yields Range from 1% to 5% Across San Jose's Neighbourhoods

The county-wide average obscures enormous variation at the suburb level. Some of the most affordable pockets of Santa Clara County yield three times what the premium neighbourhoods deliver. The table below ranks the top-performing ZIP codes by gross rental yield.

The entry-level areas of San Jose (ZIP 95002 and 95134) deliver yields above 4.5%, roughly double the county average. Meanwhile, premium neighbourhoods like Los Altos, where 3-bedroom houses exceed $3,449,000, yield well under 1.5%. Mountain View sits in the middle: prices around $2,105,500 to $1,708,888 with rents of $3,393 to $4,541 per month.

These are averages per suburb. The dashboard breaks it down further, by bedroom count and property type, so you can model your specific property.

View San Jose in the dashboard → Free preview · every bedroom count and property type

Operating Costs Consume Over Half of Short-Term Rental Revenue

Short-term rental's gross revenue advantage shrinks considerably after expenses. The major cost categories for a short-term rental in San Jose include:

• Airbnb host fee: 15.5% of booking revenue
• Management: approximately 23% if using a property manager
• Insurance: around $4,908 per year (compared to $3,408 for long-term rental)
• Maintenance: estimated at $12,000 per year, higher than long-term rental due to guest turnover and furnishing wear
• Cleaning: approximately $117 per turnover
• Furnishing (upfront): around $20,250 for initial setup
• Transient occupancy tax: 12.0% of booking revenue (typically collected by the platform)

For long-term rental, the cost structure is simpler: property management at roughly 10%, landlord insurance at approximately $3,408, and lower maintenance costs. There are no platform fees, no cleaning turnovers, and no furnishing to replace.

Property tax applies equally to both strategies at 0.6%, which on a $1,703,944 property works out to approximately $10,990 per year. California's Proposition 13 caps annual assessment increases at 2%, which benefits long-term holders as the effective rate declines relative to market value over time.

After accounting for these costs, the net return gap between short-term and long-term rental narrows significantly. For a self-managed short-term rental (eliminating the management fee), the numbers improve, but that requires substantial hands-on effort in a market where professional management is the norm.

San Jose's Premium Pricing Trails California and National Yields

Comparison of key investment metrics.

San Jose's average 3-bedroom price is nearly three times the California average and over eight times the national average. Rents are high in absolute terms (around $3,393 per month), but they have not kept pace with property price growth. The result is a gross yield of 2.4%, roughly half the state average and a third of the national average.

This is characteristic of premium tech markets. San Francisco, parts of Los Angeles, and Seattle share a similar dynamic: high absolute rents paired with even higher property values, compressing yields. Investors in these markets are not primarily buying cash flow. They are buying into a land-constrained, job-rich metro where long-term appreciation has historically outpaced most US markets.

Why Investors Accept Low Yields in Silicon Valley

The case for San Jose rental investment rests on fundamentals that do not appear in a yield calculation. Santa Clara County is the headquarters of Apple, Google, Nvidia, and dozens of other major technology companies. The tech employment base supports exceptionally strong housing demand, limited by geographic constraints (the Santa Cruz Mountains to the west, the Bay to the north) and restrictive local zoning that limits new supply.

Historically, Bay Area property values have compounded at rates that dwarf the yield gap. An investor who bought a San Jose property a decade ago at $1,173,838 and held it through to today's estimated value of $1,703,944 would have seen appreciation that far exceeds the cumulative rental income from a higher-yielding market. That appreciation is not guaranteed going forward, but the structural supply constraints and employment base remain intact.

The trade-off is clear: investors accept thin current yields in exchange for exposure to one of the strongest long-term appreciation markets in the country. For investors who need current income to cover holding costs, the entry-level suburbs (ZIP 95002 at 4.6%, ZIP 95134 at 4.3%) offer a more workable cash flow profile while still participating in the broader market's growth trajectory.

Tax Benefits Improve the After-Tax Picture for San Jose Investors

California's tax environment is demanding, but federal provisions partially offset the low gross yields. The 27.5-year depreciation schedule allows investors to deduct approximately 3.6% of the building's value annually as a paper expense. On a $1,192,761 property (assuming roughly 70% of value is attributable to the structure in a land-heavy market like San Jose), that translates to an annual depreciation deduction of approximately $43,373. This paper loss can offset rental income and, depending on the investor's participation level, potentially other income.

Mortgage interest remains fully deductible on Schedule E for rental properties, with no SALT cap limitation. For a highly leveraged purchase in this price range, interest deductions in the early years of the loan can be substantial.

California imposes state income tax on rental income at rates up to 13.3%, which is among the highest in the nation. This is a meaningful drag compared to investing in no-income-tax states like Texas, Florida, or Nevada. However, the depreciation deduction applies at the state level as well, reducing the effective tax burden.

For short-term rental operators who meet the material participation requirement (typically by self-managing and logging 100+ hours annually without anyone else spending more time on the property), rental losses may qualify as active rather than passive. This can unlock deductions against W-2 or business income, a valuable benefit for high-earning tech professionals who are the typical San Jose investor.

The 1031 exchange remains available for deferring capital gains when trading into a replacement property, allowing investors to reposition within or out of the San Jose market without a tax event.

Regulations Are Permissive, but City Rules Vary

Santa Clara County does not impose a county-level night cap on short-term rentals. The maximum available nights for houses is 330 per year, making this one of the more permissive major metros in California. However, individual cities within the county may have their own requirements. San Jose requires a business tax registration for short-term rental hosts, and the transient occupancy tax of approximately 12.0% is collected by platforms like Airbnb.

Unlike San Francisco's 90-night cap for unhosted rentals or Santa Monica's strict primary-residence requirement, San Jose's framework allows investor-owned properties to operate as short-term rentals year-round. This regulatory advantage is significant: in a market where gross yields are already thin, a night cap would make short-term rental unviable as an investment strategy.

Investors should verify current rules with the specific city where they plan to purchase, as regulations across the county's 15 municipalities are not uniform. Closing costs and transfer taxes also apply at purchase; consult with your attorney or escrow officer for current rates. For the latest on data sources used in this analysis, see our methodology page.

Investment Bottom Line: An Appreciation Bet, Not a Cash Flow Play

San Jose is not a market where rental income alone justifies the investment. At 2.4% gross yield for long-term rental and 3.5% for short-term rental, the numbers only work if you factor in long-term appreciation. Short-term rental does outperform long-term rental in gross revenue, but higher operating costs (management, insurance, cleaning, platform fees) consume much of that advantage.

The investors best suited to this market are those with substantial equity (or cash purchases), a long time horizon, and a primary motivation of wealth building through appreciation rather than monthly cash flow. The 58 ZIP codes in Santa Clara County span a wide range, from entry-level areas yielding above 4.5% to premium neighbourhoods yielding under 1.5%. Choosing the right suburb is the single most impactful decision an investor can make here. Explore rental data in the dashboard to find the suburb that fits your strategy.

Data reflects market conditions as of April 2026. Learn more about our market score methodology.

This information is for educational purposes only and should not be considered financial or legal advice. Regulations and market conditions change frequently. Verify current rules with local authorities before making investment decisions.