Far from the glimmer and glitz of Los Angeles and the hustle and bustle of New York, some call it flyover country, sits the city of Little Rock with a metro population of just over 800,000. You might be surprised to learn that this market is a great place right now for real estate investment opportunities. Jason Hartman talks the topic over with his local market specialist on episode #334 of the Creating Wealth Show.
Introducing Little Rock
From Wikipedia: Little Rock is the capital and the largest city of the U.S. state of Arkansas. The Metropolitan Statistical Area (MSA) had a population of 717,666 people in the 2012 census estimate. The MSA is included in the Little Rock−North Little Rock, AR Combined Statistical Area, which had a population of 893,610 in the 2012 census estimate. As of the 2010 US Census, Little Rock had a city proper population of 193,524. It is the county seat of Pulaski County.
Located near the geographic center of Arkansas, Little Rock derives its name from a small rock formation on the south bank of the Arkansas River called la Petite Roche (French: “the little rock”). The “little rock” was used by early river traffic as a landmark and became a well-known river crossing. The “little rock” is across the river from “big rock,” a large bluff at the edge of the river, which was once used as a rock quarry. There have been two ships of the United States Navy named after the city, including USS Little Rock (LCS-9).
(*Keep in mind the following discussion took place several years ago. The market may have changed significantly in the interim. Do your own research or visit www.JasonHartman.com to find out if this is still a recommended market.)
The Hedge Funds Haven’t Arrived Yet
Why Little Rock? Why now? One big reason the Little Rock area offers such an amazing array of real estate investment opportunities is that hedge funds and private equity funds have not arrived in full force yet. They’re still busy sucking the life from larger markets around the country. A truism in real estate investing is, once the institutional investors arrive, it’s tough for anyone else to find a deal. With deep pockets and lots of capital, a single fund can step in and buy an entire inventory of bank-owned foreclosures, perhaps thousands of properties at a time, driving up prices and putting a serious dent in inventory.
The great thing about Little Rock is that it is large enough to be a viable market for property investors but small enough remain off the radar of the big boys.
Why Little Rock Looks Good for Investment Opportunities
While large cities on the coasts tend to get the majority of media attention, not many people realize that 40% of the nation’s buying power is within 500 miles of Little Rock. Believe it or not, being centrally located in flyover country makes for almost a perfect storm for potential landlords.
A few tidbits:
- Kiplinger voted Little Rock the best city to live in under 1 million population
- Moody’s Investor service says 2nd most diverse economy
- Forbes says it’s the 2nd cleanest city
All of these factors point towards the reality that people have definite reasons to want to live here. But, wait! Like Ron Popeil says, there’s more. At $114,000, median house prices sit 40% below the national average, but thanks to the strong local economy, household income is a healthy $47,000. Look around the city. You won’t see much in the way of boarded up homes or graffiti. The population has increased 14% since 2000, thanks to large employers, two major universities, several medical centers, and an Air Force base. Of special interest to rental property owners is the fact that 32% of the city rents! A decent portion of that number is due to the transient nature of the military.
The Nuts and Bolts of Little Rock Investing
Most properties in the Little Rock area, at least those that are recommended by Jason Hartman, come to you as a turnkey business opportunity. This means you buy a property that has already been remodeled, has property management in place (if you want it), and is already tenant occupied. Jason was impressed to learn that an investor could still find properties with a 1% RV Ratio (rent to value). This metric used to be non-negotiable but the onrush of institutional investors into other markets Jason recommends makes it harder to achieve.
For those who might not be familiar with the terminology, the RV Ratio is found by dividing the selling price of a prospective property by the expected monthly rent. For example, a $109,000 that rents for $1,200 monthly has an RV Ratio of a little over 1%, which is great!
Cyclical vs Linear Markets
One way to characterize the Little Rock housing market is to say it is linear or slow and steady. Contrast this with markets that soar high and then crash to the ground in cycle after cycle, like New York or Los Angeles. While boring old markets such as Little Rock might not have the outward pizzazz of its coastal counterparts, a study Jason likes to refer to compared the cyclical market of Orange County to the linear market of Indianapolis. Over time, the slow steady upward trend of the latter actually beat the dizzying heights and swooning falls of the former.
The true secret to successful investing is to not give back profits. Markets like Little Rock are slow, steady, predictable, and profitable. With cyclical markets it’s all about timing. If yours is off by just a little huge profits can be gone in weeks or even days.
The Bottom Line
You owe it to yourself and portfolio to check out the Little Rock housing market. As long as the institutional investors haven’t sniffed it out yet, you might be able to find some truly great deals. (Image: Flickr | TexasExplorer98)
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