Small multifamily (2–10 units) in Central Arkansas is one of the most underwritten asset classes, and most of the underwriting is wrong. Most retail buyers run pro formas with optimistic rent, missing capex reserves, and stale property tax assumptions. Here’s the framework we use on every duplex through 10-unit deal across Little Rock, North Little Rock, Sherwood, Conway, and Jacksonville.
The four-line underwriting stack
- Gross Scheduled Rent (GSR): Sum of market rent × 12 for every unit. Anchored to active and 90-day leased comps within 1 mile, not Zillow Rent Zestimate.
- Effective Gross Income (EGI): GSR minus vacancy and credit loss. We model 7% in stable submarkets, 10% on Class C and value-add deals.
- Operating Expenses (OpEx): All non-debt, non-capex expenses. Targets 35–45% of EGI on Class B small multifamily in Central Arkansas. If a broker’s pro forma shows 25%, the pro forma is wrong.
- Net Operating Income (NOI): EGI minus OpEx. This drives cap rate, debt service coverage, and valuation.
The OpEx line items most retail buyers miss
- Property tax reassessment: Arkansas reassesses on transfer. Current owner’s tax bill is often understated for your underwriting.
- Insurance reset: Replacement-cost insurance has moved up sharply 2023–2025. Use a current quote, not the seller’s number.
- Repairs and maintenance: Budget $400–$700/unit/year minimum on Class B, more on older stock.
- Turnover: $1,200–$2,500 per turn × annual turnover rate.
- Management fee: 8–10% of collected rent + leasing fee even if you self-manage (your time has a cost).
- Capex reserves: 5–10% of EGI set aside for roof, HVAC, parking, exterior.
- Utilities the owner pays: Common area lighting, water (if not submetered), trash.
- Legal and admin: Eviction filings, lease prep, entity maintenance.
The stress test
Before any deal closes, we stress test:
- Rent at 90% of underwritten
- Vacancy at 15% (Class B/C)
- OpEx at 50% of EGI
- Interest rate +150bps on debt
If the deal still services debt at 1.10x DSCR under stress, it’s a real deal. If it only works at base case, it’s a hope.
Cap rate sanity check (Central Arkansas, 2026)
- Class A stabilized 5–10 unit: 6.5–7.5% cap
- Class B stabilized 5–10 unit: 7.5–8.5% cap
- Class C value-add 5–10 unit: 9–10%+ cap target
- Duplex Class B: 7.5–9% cap depending on submarket
If a broker is showing you a 5% cap on Class B small multifamily in Central Arkansas, the pro forma is overstated or the price is wrong.
Financing reality check
Most small multifamily in Central Arkansas finances with local bank portfolio debt or DSCR loans. Typical 2026 terms: 70–75% LTV, 25-year amortization, 5-year reset, rate in the high-6s to mid-7s. Run debt service against stressed NOI for true DSCR.
Frequently asked questions
What’s a realistic OpEx ratio for small multifamily in Arkansas?
35–45% of EGI for Class B stabilized property. Anything significantly lower deserves scrutiny.
Should I use the seller’s tax bill in my pro forma?
No. Arkansas reassesses on transfer. Pull the current millage and apply it to your purchase price for a realistic post-close tax bill.
How much should I reserve for capex?
5–10% of EGI minimum on small multifamily. Older stock or deferred-maintenance properties need more, especially in the first 24 months.
What’s a fair management fee for small multifamily?
8–10% of collected rent plus a leasing fee per turn. Even if you self-manage, model the cost, your time has value.
How do you find off-market small multifamily?
Operator networks, direct outreach to owners holding 5+ years, and broker relationships. We have an active acquisition pipeline if you want to talk.
Want a deal underwritten?
Send us the address and we’ll run the four-line stack with our actual cost data. Chase at 501-650-5137 or sales at 501-902-8242.
About the Operator: Chase Calhoun is the founder of Chase Calhoun Real Estate, managing 150+ rental units across Central Arkansas with 95%+ occupancy and a 10-day-or-less unit turn benchmark. Read full operator profile.
Markets we serve: Little Rock · North Little Rock · Sherwood · Conway · Benton · Bryant · Maumelle · Cabot · All Locations
Operator services: Property Management · Build-to-Rent · Real Estate Sales · Cash Offers · All Services
Want help running the numbers on your next Arkansas deal?
We manage roughly 160 doors across Central Arkansas and we invest here ourselves, so we can pressure-test your assumptions before you buy. Get a free rental analysis on a property you are evaluating, explore build-to-rent if you are building from the ground up, or see how our property management keeps returns on track.
