2% Rule & Southern Minnesota Market

[Justin Egge]

I recently had a Q&A session with a respected Missouri investors with a 100+ units. One of the key statements that individual made in the conversation was "You're not even getting 1% of rents in your market, ...I would invest long distance if I were you." That statement has sparked a months long inspection of my local market, and I'm coming up with little to argue against the logic. 

To set the stage, I am focused on SFRs for the moment, 3B/1B minimum, southern suburbs, ideally in district 196, but stretching to the Farmington/Hastings area as needed. I prefer B-/B/B+ areas as the tenants are longer term and I have fewer issues. Goals: long term hold. So far, that means market prices of 225-300K (ARV).

While the 2% rule is subject to area, and a guidance bar only, I can't help but think I should be looking elsewhere based on rents being sub 1%, and the high capital required in acquisitions when compared to other markets (ex: 85K home). Two queries:

• Are other investors achieving a 1-2% rent return on their SFR Minnesota investments?
• If not, as it can vary from 0.5-2% based on market, what are you seeing?

Perhaps I need to alter my perspective, work harder, or be enlightened. Thoughts?