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?

[John Woodrich]

You can't compare Missouri with Apple Valley.  Probably closer to compare those Missouri numbers to what you would find in north Mpls...  You can get a higher return but is it worth the effort....

The problem you have is that you are trying to invest in your back yard and compare with people who are willing to invest in crappier areas.  Many of us are willing to pay a little more to invest in areas we like or ares that are close to home.  You can definitely get a better return investing elsewhere but that goes against your prior thoughts of wanting to invest in the area you have chosen...  I bet you can get a better return going to Cannon Falls and other further south cities but do you want to invest there...