I have heard people say on your first deal you should invest in your backyard, but I don't want to invest for appreciation (I find it a bit speculative, especially right now with rising interest rates).

I wouldn't speculate.

I went down there prior to the crash in 2007 and new there was a crash coming since I have been trough the tech bubble crash in 2000 when I was finishing my MBA in Finance and had talked to several colleagues in the appraisal field that had seen a great deal of speculation.

It is certainly more speculative since you have no control over the market.

This appreciation is being driven by rapidly growing population, muchly due to tech and biotech company growth (both locally grown and CA satellite offices), not investor speculation, as in most bubbles. 

I guess investors buying these kinds of property without any discount are just speculating that the market will keep going up.

You know yourself and the partner better than anyone here.Everything else is speculation on our part and wont do you much good.One question you could ask yourself is: "Would I want to be in a dangerous situation with this person"Partnerships fall apart when things go bad, try and get an idea for how they handle things with the crap hits the fan.

But the idea that it will turn current cold places warm, reliably enough that we should allow it to guide our investment strategies, is the purest of speculation.  

So unless you just sold a house in SF, you should start looking farther away from the city for something that makes financial sense and is not pure speculation.

It's complete speculation and it tends to give people an inaccurate feel for exactly what their property should offer them.