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Characteristics of Cash Flow Positive Arkansas Rental Properties

When it comes to the national conversation on real estate and investing, all of the talking heads in the industry bring up the usual locations. There’s California, New York, Texas, and Chicago. You’ll even hear about growing markets like Nashville, Charlotte, and Austin. But do you know what these national pundits don’t usually talk about? Arkansas.

Truth be told, the lack of national conversation around the Arkansas real estate market is a great thing for local investors. It allows this little slice of the Natural State to remain a hidden gem for savvy buyers who know what to look for. But if you’re new to the real estate investing game, you might be wondering….what do you look for in a rental property?

Cash Flow: The Only Thing That Really Matters

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Real estate investing is appealing to investors for a variety of reasons. This includes a few all-important factors, such as rental income, tax benefits, and appreciation. But if you cut through all of the noise, the reality is that only one thing truly matters: cash flow.

Cash flow is the difference between the amount of cash coming in (revenue) and the amount of cash going out (expenses). If that number is positive, a property is said to be cash flow positive. But if the expenses are higher than the revenue, it’s cash flow negative.

Sure, the other aforementioned factors come into play – like the property’s long-term value – but without positive cash flow, none of this really matters. The average investor needs positive cash flow on a monthly basis in order to continue enjoying the tax perks and property appreciation. 

You might be able to survive a month or two of negative cash flow – or maybe even four or five months, if you’re super prepared – but you can’t continue to hold a property when it’s losing money. 

All of this means just one thing: In order to be a highly successful Arkansas investor, you need a knack for spotting cash flow positive rental properties.

The Top 6 Characteristics to Look For

No two properties are the same. Regardless of the neighborhood or market, you’re going to find unique elements and circumstances associated with any property you’re considering. But, despite the differences, there are plenty of shared characteristics between good investments.

Here are some of the top characteristics to look for in an Arkansas real estate investment:

Affordable Price Point

Nationally, Arkansas is known for its affordable housing market (in comparison to other states). However, even regionally – in a part of the country where pricing is friendlier than it is up north or out west – Arkansas continues to offer some of the best pricing. As an investor, you can use this to your advantage and still secure friendly terms.

Look for properties in neighborhoods that are up-and-coming but still offer low entry costs. This allows you to get a better return on your investment. You won’t be able to charge as much in rent as you would in more expensive neighborhoods, but we’d encourage you to adopt a long-term perspective here. Rents will go up over time, and your low entry price could leave you with a healthy amount of positive cash flow in the years to come.

High Rental Demand

High rental demand is key for ensuring your property remains occupied and you don’t have to deal with long-term vacancies or lots of unnecessary turnover. In Arkansas, cities like Little Rock, Fayetteville, and Bentonville have growing populations and strong job markets. These factors contribute to higher rental demand. 

When looking for rental properties, research the local job market and population trends. A growing job market often means more people are moving to the area, increasing the demand for rental housing. You should also pay attention to specific areas within individual markets. One side of town might have a higher rental demand, while another side may be more geared toward owner-occupied properties. (This isn’t to say you can’t put a rental property in a neighborhood with a high percentage of owner-occupied units, but you’d want to do your research to understand why this is.)

Good School District

This should go without saying, but properties that are located in good school districts are much more likely to attract long-term tenants who have young children. In fact, families with school-aged kids are often willing to pay a premium for rentals in areas that have highly-rated schools.

If all other factors are equal when comparing two properties, go with the one that has the better schools. This will allow you to charge higher rents, and reduces the risk of high vacancy rates. (People don’t like to move when they know it’ll require their child to move schools.)

Property Taxes

When many newbie real estate investors first start evaluating properties to buy, they account for the mortgage payment, interest, and even insurance. But they often forget to calculate property taxes and the impact it has on monthly cash flow and profitability. Big mistake.

Failing to account for property taxes can sink an investment. And even though Arkanasas boasts relatively low property taxes, it’s still something you have to consider. Always check tax rates in the area and do your due diligence to understand how it’ll impact your monthly expenses.

Renter-Friendly Layouts

Properties with practical and appealing layouts are easier to rent than those that are closed up and segmented. Tenants are always on the lookout for open floor plans, sufficient storage space, and modern amenities. Fortunately for you, most rental properties on the market don’t have these features. This creates a gap in the market for you to step in with in-demand units.

When inspecting properties, consider the layout and think about what would make it attractive to potential tenants. Sometimes, small renovations can make a big difference in making a property more tenant-friendly. If you have to put a little money into a property to create a renter-friendly layout, so be it.

Positive Cash Flow Analysis

Before purchasing a rental property, you should perform a thorough cash flow analysis. This involves calculating all potential income and expenses to ensure the property will generate positive cash flow. (Here is a simple resource for how to quickly perform a cash flow analysis.)

As you conduct your analysis, consider factors like mortgage payments, property management fees, maintenance costs, and insurance. Use conservative estimates to make sure you’re not caught off guard by unexpected expenses. A property that passes a rigorous cash flow analysis is more likely to be a profitable investment. (At the very least, there will be fewer surprises.)

Looking for a NWA Investment Property?

At RAR, we are Northwest Arkansas’ premier real estate agents and top-performing REALTORS®. Our focus is on helping real estate investors and single-family buyers and sellers maximize their financial resources for smart real estate decisions.

Want to learn more about how we can help? We would love to chat!  

Sky Richardson
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