For a city of a little more than 180,000 people, Little Rock is relatively “little,” but it offers a big variety of investment opportunities.
With a stable base of major employers, including the state government and a large medical industry, Little Rock has managed to avoid the sorts of dramatic economic changes that attract national media attention.
Its low prices and positive growth pattern are attracting investors with both short-term flipping opportunities and long-term rentals with stable appreciation.
Slow, steady growth
Little Rock itself may be small, but the greater Little Rock/North Little Rock Metropolitan Statistical Area had more than 600,000 residents in 2005, and the 11-county Metro Little Rock Alliance had nearly 1,000,000, according to the Little Rock Regional Chamber of Commerce 2007 Business Guide.
Little Rock is stable, Rusty Armstrong, broker and owner of the ERA Armstrong team, said. “Our main two employers are the state government and the medical community. Neither one of those go down very much, and they don’t necessarily grow massively either.”
The University of Arkansas for Medical Sciences (UAMS) plays a big role in the medical community, with a renowned cancer research center that brings faculty, students and patients to Little Rock.
Office demand is highest for medical and professional services, and high growth companies include local banks, nonprofits and health insurance, according to the Colliers International U.S. Real Estate Review 2007.
Other employers with a big local presence include the U.S. Air Force (with a base in nearby Jacksonville), Dillard’s Department Stores, Alltel, Target, JB Hunt, Heifer International, International Paper Company, Kimberly Clark, Kohler and Raytheon.
Little Rock was ranked the second most diverse economy by Moody’s Investment Service, according to the Little Rock Regional Chamber of Commerce. The city was ranked favorably by Forbes in early 2007 as a good place for business and careers and competitive in cost of living and cost of doing business.
Forbes ranked Little Rock 10th in income growth, and a Brookings Institution study on the nation’s 100 largest metro areas ranked Little Rock 12th as a “wealth builder,” meaning a city that increases income growth without increasing population.
The median price for an existing home in Little Rock was $119,000 in 2005, with the price-to-income ratio “in a comfortable range. By this measure, local home prices are underpriced,” according to a July 2006 report by the National Association of Realtors (NAR).
“The affordable home price and the associated low mortgage servicing costs in the local region suggest that there is a good possibility of better-than-average price growth in the coming years, provided the local economy is able to generate jobs at a respectable pace,” according to the report.
“Our demand is very constant. We really don’t have the real highs and the real lows that you see across the nation. Our market really stays pretty consistent and pretty positive,” Kerry Ellison, a local Keller Williams agent, said.
Property prices in Little Rock are lower than much of the nation. “You can get more bang for your buck here,” Scott Grummer, president of the Little Rock Real Estate Association and executive director of the Downtown Little Rock Community Development Corporation, said.
“There are very few places in the country [where] you can buy a brand-new constructed three-bedroom, two-bath house for $150,000 or less,” Betty Fletcher, owner of Fletcher Property Management in Little Rock and president-elect of the National Association of Residential Property Managers, said.
In the central Little Rock area, rental rates can be roughly $175 for a one-bedroom apartment, $300 to $325 for a two-bedroom and $400 to $500 for a three-bedroom, Grummer said.
Apartment rentals in the downtown renovation districts can be anywhere from $275 to $325 for a one-bedroom, $425 to $525 for a two-bedroom, $525 to $675 for a three-bedroom and $750 to $800 for a four-bedroom, Grummer said.
Single family homes can generate rents from $500 for a two-bedroom home in a less desirable area to $1,600 for a three- or four-bedroom home in a nice area with many amenities, Fletcher said.
West Little Rock
West Little Rock is growing significantly, in part because the Arkansas River on the north and the airport and waste management plant to the east limit growth in those directions, Fletcher said.
“West is the only direction really that Little Rock can grow at this point in time,” Danny Been, associate broker of Adkins, McNeill, Smith & Associates in Little Rock, said. “For maximizing my cash flow, I would spend money there….Everyone seems to want to live and work there. The vacancy rate on the commercial as well as the residential is very low.”
Commercial buildings for lease “are receiving $12 to $18 a foot for their rent…for Arkansas, that’s very good,” Been said.
Single family rentals are strong; in some cases, “renters pay more for rent in West Little Rock than they would pay if they were to own the home and pay a mortgage payment,” Been said.
West Little Rock is good for cash flow because of its “strong, steady growth,” Victor Wynn of Wynn and Associates Real Estate Investments, Inc., said. The city is “growing by leaps and bounds in that area.”
Downtown and east
Downtown Little Rock is on the eastern side of the city, bordering the Arkansas River. The river market area has recently begun a growth spurt, in part because of the new Clinton library and pedestrian-friendly bridges and walkways, Grummer said.
“Downtown Little Rock consisted of a lot of commercial buildings that were vacant, old historical buildings,” until investors redeveloped them and turned them into residential housing and commercial storefronts, Grummer said.
Grummer said he expects to see development on the river market continue, as well as across the river in the town of North Little Rock.
“Over the next five years, I see a lot of positive things happening in the downtown area of Little Rock,” Wynn said. “It’s going to appreciate; it’s going to be a good investment.”
Revitalization and affordability make downtown optimal for commercial cash flow, Wynn said.
The Quapaw renovation district is a place to watch for, with historic homes being rehabbed, Grummer said. “I’d really keep an eye on that area; it’s going to be very hot.”
East Little Rock has long been overlooked but is showing promising signs, Wynn said. “East Little Rock has been lying dormant for years, but now there’s been a whole lot of development over there with the Clinton library…and you’ve got Heifer International, which is a real powerful entity in the state of Arkansas.”
The Arkansas River marina in the east also offers opportunity. “One could go into that area and buy the land and develop condominiums and/or boat docks and/or commercial….I really think that’s going to be a prime area within the next five to 10 years,” Wynn said.
“The Midtown area includes many older, established neighborhoods with sidewalks, mature trees and parks that appeal to young families, Been said.
However, young buyers do not like the compartmentalized style of the homes, many of which were built between 1955 and 1978, and investors can rehab and flip the homes to modernize them for young buyers, he said.
Midtown landlords often seek easy maintenance, rental stability and long-term appreciation rather than cash flow, Grummer said. Properties around Hall High, for example, can be found for $80,000 to $125,000, and rents will range from $800 to $1,200 per month, he said.
The Hillcrest Heights area contains high-end homes with a short commute to downtown. The Heights, which has “older homes built in the 1940s and ’50s that have been completely remodeled and redone,” has seen a “tremendous amount of growth” with prices of $150 to $200 per square foot, depending on location, Grummer said.
The University of Arkansas at Little Rock generates steady rental demand and cash flow because the college doesn’t have many dorms on campus, Ellison said.
The nearby UAMS campus also generates demand. “We always see a great push in that area when our residents are coming in or when our med school students start,” Ellison said.
Hotels and motels are doing well, especially those near hospitals, Been said. The cancer research center at UAMS attracts out-of-town patients who need a clean environment for recovery close to the hospital, he said.
“Solid demand has caused many hotels and motels built within the last five years to expand, and several older hotels have been rehabbed recently, Been said.
Southwest areas are less expensive, with rental and flip opportunities rather than long-term appreciation.
“Cash flows would probably be in the southwest part of the city,” Armstrong said. Older neighborhoods such as Meadowcliff and Broadmoor have low property prices, but rents are still relatively competitive, he said.
Ellison recommended considering the southwest for rehabs and flips because “we do have some housing in there that’s good price points as far as under $100,000 but still in really safe neighborhoods.”
Where we’ve seen a lot of our profits from rehabbing and also rental have been…in the southwest Little Rock area,” Grummer said.
Rental rates for a three-bedroom, one-bathroom home in the southwest are typically $600 to $650 per month, Grummer said. Property prices in some areas can range from $20,000 to $60,000, and $10,000 of work can dramatically increase a property’s value, he said.
Much of the region’s growth is occurring in bedroom communities rather than in Little Rock itself, Fletcher said.
“The majority of the [residential] growth has been in the satellite cities,” particularly those within 10 to 20 minutes of downtown, such as Benton-Bryant, Cabot and Conway, Grummer said.
Conway, which is 20 minutes north of Little Rock and home to the University of Central Arkansas, has seen the most growth in real estate values and population, Wynn said.
Maumelle in the northwest, Benton and Bryant in the southwest and Cabot, Sherwood and Jacksonville in the northeast have good rental demand, Fletcher said. She attributed some of that to their school districts.
Bryant, a “little bedroom community” 17 minutes from downtown Little Rock, offers rental rates that can be higher than mortgage payments, Been said.
An Interstate 30 expansion project caused land prices along the Benton-Bryant corridor to jump in the last two years, and land parcels along that corridor near Bryant would be a good choice for long-term appreciation, Been said.
Investors should tread carefully in new residential construction, Grummer said, “because of the housing stock that’s out there and…the slowdown in the sales rate for new construction.”
“We’ve really started seeing oversupply of the newer [home] construction,” Ellison said.
Overbuilding of high-end condos downtown is also a concern because most high-end buyers are more likely to opt for homes in exclusive neighborhoods near downtown, Ellison said.
Been said he is “a little skeptical” about how many new condos and lofts the area’s population can support. “There may be a glut coming down the road.”
“There may be a negative outcome for this current developer, but…a future investor may be able to pick up some of these condos downtown at a bargain,” he said.
Clean air, outdoor activities, natural beauty of the landscape and low cost of living are attractions for retirees.
Retirement and patio homes are currently “few and far between,” but more patio homes, townhomes and one-level, maintenance-free condos are likely to develop for retiring baby boomers, Ellison said.
Little Rock’s baby boomers have already begun downsizing into smaller properties to enjoy retirement, Been said. “And they’re…getting rid of some very large homes.”
“We do have a lot of patio home development in the West Little Rock area,” but most are more than $300,000, Ellison said.
Developers are beginning projects in Midtown with lower-priced patio homes in the $200,000 to $250,000 range, she said.
Senior home communities are also beginning to arise in downtown Little Rock and the southwest, Wynn said.
Convenience store lots
The convenience store craze of 25 years ago has fizzled out, Been said, leaving a unique opportunity in its wake. “We used to have convenience stores on every single corner.”
Many of them are now losing money, and the corner lots are being sold to large coffee shop and 24-hour drugstore chains, Been said. This opens up an opportunity for investors to purchase these struggling corner stores and resell them to a major chain.
With such low property prices, Little Rock offers opportunities in both residential and commercial properties, with potential for success in cash flow, long-term appreciation and even rehabs and flips.
Unlike many areas of the nation, Little Rock’s market has resisted dramatic price inflation, keeping it affordable and profitable for smart investors. Little Rock’s stable economy and steady housing market make this little city a big win for many.