Is the 2% rule in Connecticut realistic?

Question

Currently looking for a buy and hold in CT, but would prefer to stay out of the cities (Waterbury, Hartford, New Haven, Bridgeport etc.) is the 2% rule realistic outside of those areas? I know it is just a rule of thumb, but looking for our first property we are trying to stay conservative and are having trouble finding something that even approaches the 2% rule outside of the cities.

Filipe Pereira · Answer

I can't remember the last time I saw a listing at 2% in CT, MA, or NY. When I got my 4 plex it was 1.8% (200k PP, $3600 Gross rents), and that was by far the best deal I had seen to date. It was off market, but it came as a lead from another property I went to see that was listed on the MLS. I do still see some properties listed around 230K with 3200 Gross rents here and there. Those tend to do well for investors. What I advise other people to do is to find a deal that already cashflows and might be ready for a value add or bump up in rents. 1 year later, my property is over 2.2%. Took some sweat equity and about 12K of material, but it sure is nice to be yielding those returns!

Michael Noto · Answer

@Bryan Dorsey If you are willing to take on a value add project that is in bad shape (not financiable) you can get 2% in non major cities in CT. The only thing is you will most likely have to expand where you are looking.

Those deals are out there, but if the 2% is most important thing for you to achieve then you have to go where the deal is in the state. Typically you will have to sacrifice something to get a real good deal. Sounds like location may be it for you.

If you do not want to sacrifice going outside of your desired area then maybe you can get 1.0-1.5% but you will have to be willing, ready and able to act very quickly when those deals come up because as you are probably experiencing they do not come available much the smaller the area you are looking.

These are all things your agent should be making you aware of. If they have experience closing the kinds of deals you are looking for they should be prepping you on what the market can realistically give you based on your criteria.

Adam M. · Answer

@Bryan Dorsey I think the 2% rule is a myth unless you want to play in class D neighborhoods.

Jonathan Godes · Answer

2% isn't totally mythical, but you have to buy very discounted and not over improve. I am finding 1.5% rules all day long in class B neighborhoods, but if you want to push into the upper 1% territory, you will mostly likely be B- or C+ in my experience.

I have had good luck in North Carolina finding deals and passing them off to other investors - almost always in the 1.6-1.8% area. You will mostly likely be all in for less than $50k, but that doesn't mean a class D dump in a lot of the country.

Brandon Malone · Answer

I live in the DC metro, and while I'll never say something is impossible, I can say that I've never come across 2%. Getting 1% can even be a challenge around here. Usually the 2% deals I see come with substantial capital costs to prepare the property to market.

Mat O'Grady · Answer

@Bryan Dorsey

I would agree that 2% is difficult outside of a city area, but it is not impossible. You need to keep looking. Try looking for off market deals. Drive around the area you want to invest in and look for houses that need work and find out who owns them.

Why do you want to stay out of the city? That is where most of the multi-families will be and the better likelihood of reaching 2%. Are you looking for a multi-family or a single family?

Bryan Dorsey · Answer

@Chris Puglisi primarily looking in Wallingford, Cheshire, Milford and Shelton as those are the areas that I know the best, but open to most places in New Haven county.

@Michael Noto properties don't have to be rent ready, we are willing to have work done and don't necessarily need conventional financing.

Michael Noto · Answer

@Bryan Dorsey Are you looking for properties that are rent ready and can be conventionally financed from day 1?

Chris Puglisi · Answer

Hi Bryan,

You might be able to find a deal that meets the 2% rule outside of the cities but it is very uncommon.  A much better chance to find them off market but still difficult.  I typically look for 1% and even that could be a stretch sometimes,  especially when looking in more of the suburban areas.  Are you looking to invest in a certain area of the state?

Is the 2% rule in Connecticut realistic?

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