Trying to figure out if a rental in Alexander will actually cash flow? You are not alone. Between rent estimates, vacancy assumptions, and shifting rates, the math can feel messy fast. This guide breaks it down with clear formulas, a step-by-step framework, and an example you can mirror. You will also see how to compare long-term and short-term strategies in Central Arkansas. Let’s dive in.
ROI metrics to know first
Before you look at a property, get familiar with the core metrics investors use. These tell you how the asset performs and how to compare options in Alexander and nearby Saline and Pulaski counties.
Gross Potential Rent
- Definition: Total yearly rent at 100% occupancy at current market rents.
- Formula: GPR = Monthly Rent × 12.
- Use: Starting point for your income side.
Effective Gross Income
- Definition: GPR minus vacancy and credit losses, plus other income.
- Formula: EGI = GPR − Vacancy Loss + Other Income.
- Use: Reflects what you actually collect.
Operating Expenses
- What to include: property taxes, insurance, utilities you pay, repairs and maintenance, landscaping, HOA dues, professional fees, advertising, legal and accounting, routine turnover, and reserves for capital expenditures.
- What not to include: mortgage principal and interest, or income taxes.
Net Operating Income
- Definition: Income available before debt service and taxes.
- Formula: NOI = EGI − Operating Expenses.
- Use: Core figure for cap rate and valuation.
Capitalization Rate
- Definition: Return on property value based on NOI, excluding financing.
- Formula: Cap Rate = NOI ÷ Purchase Price.
- Use: Quick way to compare deals. Higher caps often imply higher risk.
Cash Flow
- Definition: Money left after expenses and mortgage payments.
- Formula: Pre-tax Cash Flow = NOI − Annual Debt Service.
- Use: What hits your bank before taxes.
Cash-on-Cash Return
- Definition: Annual pre-tax cash flow divided by your cash invested.
- Formula: CoC = Pre-tax Cash Flow ÷ Total Cash Invested.
- Use: Shows short-term yield on your cash after leverage.
Gross Rent Multiplier
- Definition: Quick screening metric.
- Formula: GRM = Purchase Price ÷ Gross Annual Rent.
- Use: Use to filter, not to decide.
IRR and Equity Multiple
- Definition: Multi-year metrics that account for time, cash flows, and sale.
- Use: Best for 3 to 10 year holds with exit assumptions.
Break-even Ratio
- Definition: Occupancy needed to cover operating expenses and debt service.
- Formula: Break-even % = (Operating Expenses + Debt Service) ÷ Gross Income.
- Use: Tests your vacancy risk tolerance.
Tax note
- Residential rental depreciation is typically over 27.5 years under federal rules. Depreciation affects taxes, not cash flow. Consult a local CPA for specifics and planning.
Step-by-step framework for Alexander deals
Use this repeatable process when you analyze a property in Alexander or nearby submarkets.
Step A: Collect deal inputs
- Purchase price, closing costs, and any immediate repairs.
- Market rent by bed, bath, and condition. For STRs, estimate average daily rate and occupancy.
- Property tax assessment and millage from the county assessor.
- Insurance quotes for landlord or STR coverage.
- HOA dues and any special assessments.
- Utilities responsibility by line item.
- Vacancy assumptions: 5% to 10% for long-term rentals in stable areas. STR occupancy varies by season and location.
- Management approach and fees. Typical ranges are in the quick reference below.
- Financing terms: down payment, rate, amortization, points, and loan costs.
Step B: Build the income side
- Calculate GPR from comparable rents or STR ADR × occupancy × 30.
- Subtract vacancy or use occupancy for STR.
- Add other income like pet fees, parking, or laundry.
Step C: Build the expense side
- Fixed expenses: taxes, insurance, HOA.
- Variable expenses: repairs and maintenance, turnover, landscaping, supplies, and utilities you cover.
- Management fees: LTR often 6% to 12% of collected rent. STR can be 20% to 35% and may include cleaning and platform costs.
- Reserves: set aside capital reserves each year based on the property’s age and condition.
Step D: Calculate returns
- NOI = EGI − Operating Expenses.
- Annual debt service from your loan terms.
- Pre-tax Cash Flow = NOI − Debt Service.
- Cash-on-Cash = Pre-tax Cash Flow ÷ Total Cash Invested.
- Cap Rate = NOI ÷ Purchase Price.
- Run sensitivity tests for rent down 5% to 10%, vacancy up 5% to 10%, and interest rate changes of about 1%.
Step E: Multi-year model
- Project rent growth, expense inflation, and principal paydown.
- Estimate sale proceeds using a cap rate on forward NOI or appreciation.
- Compute IRR and equity multiple after selling costs and estimated taxes.
Example walk-through
Below is a simple, illustrative example to show the math. These numbers are for learning purposes only, not a reflection of a specific Alexander address.
- Purchase price: 175,000
- Monthly market rent (long-term): 1,450 → GPR = 17,400
- Vacancy: 7% → Vacancy loss = 1,218 → EGI = 16,182
- Annual operating expenses estimates:
- Taxes: 1,900
- Insurance: 900
- Maintenance and repairs: 1,200
- Management at 8%: 1,295
- Utilities paid by owner: 0
- Reserves: 600
- Total operating expenses: 5,895
- NOI = 16,182 − 5,895 = 10,287
- Financing: 25% down (43,750), loan 131,250, 30-year fixed, assumed annual debt service ≈ 8,300
- Pre-tax Cash Flow ≈ 10,287 − 8,300 = 1,987
- Total cash invested: down payment + closing + initial repairs = 43,750 + 6,000 + 5,000 = 59,750
- Cash-on-Cash ≈ 1,987 ÷ 59,750 = 3.3%
- Cap Rate ≈ 10,287 ÷ 175,000 = 5.9%
Interpretation: You have small positive cash flow and a modest CoC. To improve returns, test higher rent supported by comps, negotiate a lower price, adjust financing, or consider whether a legal STR strategy could outperform after accounting for higher expenses and risk.
Long-term vs short-term in Central Arkansas
Both strategies can work near Alexander. Your returns will depend on demand drivers, regulations, and operating skill.
When STR can outperform
- You can achieve strong ADR and occupancy tied to metro events and corporate travel.
- You or your manager can operate efficiently with fast turns and strong reviews.
- Local rules allow STR, and taxes plus licenses are budgeted.
When LTR wins
- Stable monthly income matters more than peak revenue potential.
- You want lower operating intensity and fees.
- You prefer a larger resale buyer pool for long-term rentals.
STR modeling checklist
- ADR by bedroom count and season.
- Occupancy percentage by month or quarter.
- Cleaning per stay, platform fees, payment processing.
- Utilities, supplies, linens, and frequent repairs.
- STR insurance and any license costs.
- State and local lodging or sales taxes on stays.
- Sensitivity for seasonality and event-driven demand.
Regulatory notes
- Check municipal and county rules for STR registration, zoning, and enforcement. Some HOAs restrict rentals. Confirm taxes that apply to STRs, including any state lodging or sales taxes. Verify all requirements before you buy.
Stress-test your deal
Markets change. Build your downside and upside cases so you can move with confidence.
- Rent down 5% and 10%: Recalculate GPR, EGI, NOI, and cash flow.
- Vacancy up 5% and 10%: Model the hit to EGI and your break-even ratio.
- Rate up or down 1%: Update debt service and CoC.
- Expense inflation 5% to 10%: Increase variable lines and reserves.
- Exit cap 50 to 100 basis points higher: Test your sale proceeds and IRR.
If your numbers hold in the conservative case, you likely have a stronger asset.
Local inputs to verify in Alexander
Use current, local data to make your model real.
- Recent sale prices for 2 to 4 bed homes in Alexander and nearby ZIPs.
- Advertised long-term rents for comparable homes in Saline and Pulaski counties.
- STR ADR and occupancy from providers that track Little Rock area demand.
- County assessor data to estimate annual property taxes using assessed value and the tax rate.
- Landlord and STR insurance quotes from local brokers.
- Management fee schedules from firms that operate in Saline and Pulaski counties.
Common assumption ranges
Use these as a starting point, then refine with local quotes and comps.
- Vacancy rates: LTR 5% to 10%. STR occupancy often 40% to 75% depending on season and location.
- Management fees: LTR 6% to 12%. STR 20% to 35% for full-service.
- Maintenance and repairs: 5% to 12% of gross rent per year, higher for older homes.
- Reserves and capital expenditures: 300 to 1,200+ per unit per year based on age and condition.
- Typical down payment for investor loans: 15% to 25% depending on product.
- Depreciation: 27.5 years for residential rental under federal rules.
Get help running the numbers
If you want a second set of eyes on your Alexander rental analysis, you are in the right place. Our boutique, advisor-first approach helps you compare long-term and short-term scenarios, verify local rent and tax inputs, and pressure test offers before you write them. Ready to model a live deal and build your plan? Connect with Dunivan Real Estate.
FAQs
How do I calculate monthly cash flow and CoC for an Alexander rental?
- Add up EGI, subtract operating expenses to get NOI, subtract annual debt service for pre-tax cash flow, then divide by your total cash invested for Cash-on-Cash.
What cap rate is reasonable in the Little Rock and Saline County area?
- Use recent sales and actual NOI from comparable rentals to benchmark. Cap rates vary by location, condition, tenant profile, and risk. Compare several similar assets before deciding.
Where can I find local rent comps for Alexander properties?
- Use current listings, local MLS data, and nearby comparables by bed, bath, and condition. Confirm with local property managers for on-the-ground insight.
How much should I budget for repairs, turnover, and reserves?
- A common starting range is 5% to 12% of gross rent for maintenance plus 300 to 1,200+ per unit per year for reserves, adjusted for property age and condition.
Are short-term rentals legal in Alexander and the Little Rock area?
- Rules vary by city, county, and HOA. Confirm zoning, registration, licensing, and taxes before you buy or convert. Budget for applicable lodging or sales taxes.
How do financing options differ for LTR vs STR investments?
- Some lenders have different underwriting or loan products for STRs. Down payment, rates, and reserves may vary. Compare options early with a lender familiar with investment properties.
What vacancy rate should I assume for long-term vs short-term rentals?
- A common LTR assumption is 5% to 10%. STR occupancy depends on ADR, location, and seasonality and may average 40% to 75% in many markets.
How will property taxes and insurance affect my NOI in Alexander?
- Pull the parcel’s assessed value and tax rate to estimate taxes, and get landlord or STR insurance quotes. These fixed lines can materially change NOI and Cap Rate.
What are major risk factors for STRs near Little Rock?
- Seasonality, event-driven demand, neighbor concerns, higher operating costs, and regulatory changes. Model conservative scenarios and confirm rules in advance.
How can I run a sensitivity analysis on my deal?
- Re-run your model with rent down 5% to 10%, vacancy up 5% to 10%, expenses up 5% to 10%, and rate changes of about 1%. Test exit cap rates higher as well to see IRR impact.
