Central CT Buy and Hold

14 Replies

Hi,

I've come across a few Connecticut threads already, but none really hit on what I'm looking for so I figured I'd start one on my own. I'm looking to buy my first rental property at some point this summer. I'm hoping to find a 3-family somewhere, and to live in one of the units. I'm just having trouble finding cities/towns where the numbers will work. I live in West Hartford (which is definitely off the table, way too expensive). I'm not opposed to living in a less than desirable town (i.e. New Britain) as long as the area is safe. Does anyone here invest in this area? Any suggestions?

Also, I was thinking about doing an FHA loan. I don't have much to put down, so it seems like the best option. Is there anything that should make me think twice about going this route?

Jay

@Jay Hassey  

With little money down and a multi-family purchase -FHA is going to he the best route. Down the road when you have equity you can refinance with a conventional mortgage. With FHA you can put just 3.5% down and ask the seller to pay closing costs - up to 6%.

Hey Jay I invest in Hartford County. There are multiple ways to acquire multi family houses. There's marketing for motivated seller. FHA loan. Buy from another investor. Feel free to reach out if you need a hand..

@Jay Hassey It's not very nice to call New Britain "less than desirable."  I happen to live in New Britain and there are BP members living and investing here as well.

As Jerry said, the FHA loans would be your best bet, Ask your broker about a 203k loan which allows you to mortgage renovation costs. Also contact Michael Noto on BP he is a realtor and investor specializing in multi family properties in the area.

@Jay Hassey Always great to see other people from Central CT on the forums 

Given your circumstance is sounds like the 3.5% FHA loan is the way to go.

You can definitely find 2 or 3 families in nice areas of New Britain where the numbers work. Check out Plainville, Berlin, and Southington as well. Those towns are a little more desirable so the deals go faster, but you can find them if you or your agent has their finger on the pulse. 

If you need any advice on the local area do not hesitate reaching out. 

@Kim Giannola Just doing a quick 2 minute google search I found that in 2012 New Britain had the 4th most property crimes of any city/town in CT and the 6th most violent crimes. That's out of 169 cities/towns in the state. I'm not here to bash where people live, I'm just stating facts. I also said that I'd be willing to live there if I found a good deal in a safe neighborhood. 

@Michael Noto Thanks for chiming in. All of the towns that you mentioned would interest me. I'm relatively new to the area (grew up in the Boston are, been in CT since late 2011) and still trying to get my bearings on multi-family market. I would definitely like to pick the brain of someone with some experience in the area. 

@Kim Giannola

There was a time not so long ago when people in Brooklyn thought Bedstuy and Bushwick were "not desirable".  Assuming you can make New Britain work for you, there may come a day when you wish that people still thought of it as "undesirable" so you could buy more deals before the run-up.

Jay, I just acquired a house in New Britain- but looking at all the markets in the greater Hartford county- there are definitely places you could invest. You just happen to live in one of the towns which has units which have 5 cap. The house in New Britain I bought is focusing on a line term hold after renovation. The question is for you- do you need to live in the house immediately or could you do a FHA loan with a 203. Then you could really acquire a deal and make a very nice place for you and your tenants to live.

William Collins

Thanks for the response William. I can afford to wait a couple months before moving in to a new place, so a 203k works perfectly for me. In fact, with the help of @Michael Noto I submitted an offer for a bank owned duplex in East Hartford yesterday.

Hi Everyone,  I am looking to employ the same buy & hold strategy as @Jay Hassey in the following target markets in Central CT (in order of desirability):

1. Cromwell

2. Newington

3. Rocky Hill

4. Plainville

5. Middletown

6. Manchester

I am using data I have collected from Neighborhood Scout.com on target markets within a 30 minute commute of Hartford, CT.  My market analysis focuses primarily on 3 criteria: Median Rentals / Median Home Values (assessing the highest rents for my buck ratio), Vacancy Rates, and Property Taxes (using mill rates x median home values).  I have also noted the percentage of the market population below the Poverty Level, the Crime Index Value, and percentage of College Graduates in the area (as social-economic indicators that help me determine where I would want to live and invest).  

So far my analysis has only covered 16 markets (towns and cities in the Central CT area).

Only three (3) out of the 16 market analyzed, Cromwell, Manchester, and New Britain, had Rent to Home Value Ratios above 0.6%, which I am using a indicator of best value for multifamily investing (the higher the % the better the value of the investment). 

My ranking above is a combination of investment and personal criteria.  For example, I like Manchester as an investment market, but I am not a fan of commuting over the river to work in Hartford.  I have decided not to invest in New Britain at the moment due to the combination of higher vacancy rates (10.8% - the highest of the 16 markets I analyzed), % of the population below the poverty level (22% - also highest of the 16 analyzed), and property taxes (Mill Rate = 49).  I was born and raised in New Britain and do believe this market could make a turnaround (especially with the current mayor in office), but I will need to see the data improve before I am willing invest.

Personally, my next challenge will be finding a 3 to 4 unit multifamily residential property that I can finance with a first-time home buyer CHFA (CT Housing Finance Authority) or FHA loan. Since I am not in rush to move, like @Jay Hassey, I would also consider a 203K in additional to the property loan.  

Do any of the local investors have concerns with the market criteria I am using to evaluate target markets for multi-family buy & hold properties? 

Also, if any of the investors have any recommendations/ referrals for banks/ mortgage broker/ loan officers who have experience with the CHFA and/or FHA loan process that would be willing to work with a first home-buyer & investor like myself I would greatly appreciate the help.

Another question I wanted to ask if anyone knows how to figure out the typical/ expected CAP rates for markets in Central Connecticut. It would be great if I could find those by market (town/ city). I have tried looking at larger commercial listing on LoopNet and other commercial brokerages but was not sure if this was most effective way to find this information.

Thank you all for you insights and advice in advance!

Howdy @Frank Luongo ,  Good to see you trying to plan for the future.  I have just about the same radius, but I would council for your best returns on equity gain for rehab a duplex works great (more comps) or for cash-flow a triplex or a quad.  You might look into a duplex which you could house hack one side (aka get a three bedroom and rent the other bedrooms to friends) while renting the other side out.   I own a tri in New Britain and a duplex in Manchester.   Another town you might look at is Bristol.  

Hey @Frank Luongo , 

That is extremely impressive how much research you have done into each of these towns. I would like to point out that there are a lot of good indicators you are using but vacancy rate may not only deal with the city but also the home ownerships in the area. I know people who get very little vacancy because they go the extra mile to make tenants happy. As far as numbers for average cap rates, I couldn't help you on finding that but I would suggest that you find a number that you are happy with. You may be surprised and find an amazing deal in a nicer town if you keep all your options open that has similar if not better CAP rate.

I personally look for something that will make $1000+ month positive cash flow and a Cash ROI of 15%+ . I usually do my numbers around a 10% vacancy rate but honestly, I generally take out 2 months rent out of 1 unit a year as a average worse case scenario. I figure that if you lose a tenant and then go in clean it up and then take your time finding a quality tenant you are out 2 months at least.

Everybody has their own system of what they find works for meeting their needs, but I love going for higher Cash ROI. I don't take into account how much of the mortgage is paid off or the tax right offs that come with owning the house because I plan on owning the homes forever. So equity really doesn't mean much to me unless I plan on refinancing it our leveraging it for another purchase.

Good luck in your search.  I believe Connecticut is an amazing place to invest even though we are a tenant friendly state.

Thank you @William Collins  and @Jason Arcuri for your comments and advice.

I would prefer a triplex or quad-plex, but I understand those units will be more difficult to find in some of my target markets, while duplexes will probably be more readily available and have better appreciation that the 3 or 4 unit buildings. 

I am a big proponent of more units per property.  My initially goals to are acquire 3 multi-family units in the next 5 years, but if I can get my units to produce the $1000+ monthly cash flows that Jason is targeting then I should be able to accelerate the rate as which I can acquire additional multi-family units.  Ultimately, my longer term goal, I would like to either 1031 Tax-Deferred Exchange into a larger commercial unit, again the more units per building the better, or if I can generate enough cash flow from my investments in the residential multi-families I can use the savings to put 25% down on a commercial unit.

Side question - would it be better to put additional cash flow from the multi-family investment into paying down the mortgage, to potential use a HELOC or refinance out of in the future, or just save that money for a down payment on the next property purchase? My thought process is it seems generally better to pay down the mortgage and reduce overall interest paid over time, but then the forecast of a looming interest rate hike makes me think I should just save that money in savings account until I can use it toward a down payment on the next property?

Would anyone be able to recommend good Property Management Companies in the Central CT area?  I do not intend to use one for my first live-in multifamily, but I would like to begin fostering a that relationship so when I am ready to acquire the 2nd unit I will have that team member in place.

Also I would be open to recommendations for residential realtors who work well with first-time investors and are familiar with multi-family units versus the typical SFR agent.

Thank you both again for you comments!  

@Frank, I think if your mortgage is a fixed rate then it shouldnt matter. If you have an ARM and rates go up, be careful.

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