Time and time again have people all across the world come up with the following question:
“What Are Real Estate Property Classes?”
Let me tell you that if you are looking forward to investing in real estate, property class is one of the most important terms you should know about.
With the help of the property class classification system, you’ll be able to determine whether a property is worth investing in or whether it will be profitable or not. This system classifies an investment property based on demographic, geographic as well as physical characteristics.
Each property class represents a varied level of risk and return.
The different letter grades are assigned to different properties after taking into consideration various factors like property’s age, location, growth aspects, tenant income levels, amenities, appreciation, and rental income.
Prior to investing in a real-estate property, it’s really important for the investors to have a better understanding of each of the property classes.
And that’s exactly what we will help you with here.
In this blog post, not only will we take a look at the different property classes, but we will also take a look at the benefits of each one of them.
Different Real-Estate Property Classes
Listed below are the different property classes:
• Class A Property
• Class B Property
• Class C Property
Let’s take a look at each one of them.
Class A Property
Class A Properties are the ones that have been built within the past 15 years. These properties are usually in great condition and are subject to lesser maintenance issues. And that’s exactly why they are considered to be a great choice for “Buy & Hold Investments.”
These properties usually have modern amenities as well as high-end finishes like stainless steel appliances, hardwood floors, and granite countertops.
As they are usually high-quality properties, they are priced comparatively higher. This leads to lower cash flow.
If you are a real estate investor with particularly limited funding, you would find investing in Class A Properties to be pretty hard.
Such kinds of properties are located outside the cities. The areas in which these properties are located have a high percentage of owner-occupied properties.
As a result, owner-occupants manage to take great care of their neighborhoods and homes.
Such neighborhoods will have good infrastructure, shopping centers, low crime rates, high income, outstanding medical facilities and so much more. And that’s what leads to the rates of class A properties being sky-high.
Hence, you’ll find the vacancy rate to be pretty low, whereas the rental rates are usually high.
One of the best things about investing in such properties is that you won’t face a hard time selling these properties. They are considered to be “Low-Risk Assets.”
As an investor, you will be secured and won’t have to worry much about issues popping up and higher maintenance costs.
• Highest-Quality Properties
• Low Crime Rate in the neighborhood area.
• Low-Risk Assets
• Investors won’t have to worry about the higher-maintenance costs and issues popping up.
• High Rental Rates
• Luxurious Neighbourhoods
Class B Property
For starters, these properties are not much different from the Class A ones. The only difference is that these properties are a bit older. These properties might be 10-30 years old.
They are in good condition, have various features similar to the class A properties, and are located in pretty great neighborhoods.
However, you will have to invest some money for maintenance purposes.
Hence, the acquisition costs are comparatively lesser.
These properties are usually investor-owned & rented out.
Such properties are occupied by lower-income tenants. That’s the reason rental income is a bit lower than the Class A properties.
But the thing is these properties are considered to be perfect for the investors due to higher growth potential.
All you need to do is perform some renovations and improvements and you will have turned your Class B property to a class A one.
Alongside this, the cash flow associated with these properties is steady. So, you won’t have to worry much about that.
• When compared to Class A properties, the rates of Class B properties are comparatively lower.
• Better Growth Potential
• Steady Cash Flow
• Pretty Good Neighbourhood
• Ability to turn your Class B property into a Class A one.
Class C Properties
These properties are older than 30 years. Most of these properties will have outdated systems and might show visible deterioration.
They might be in serious need of repairs as well as hands-on maintenance. Such properties are situated in lower-income, less desirable neighborhoods with a comparatively higher crime rate.
Alongside this, the rental rates are comparatively lower.
People in the neighborhood usually work on low-wage jobs. These properties are in most cases, investor-owned.
One of the biggest plus points of investing in Class B is the lower acquisition costs.
Plus, they have the potential for great cash flow. All you need to do is to come up with an outstanding strategy and you will be able to turn these properties into profitable investments.
However, some risks associated with these properties are that they need tons of improvements as well as ongoing management. Most of the time, the roof as well as other major systems are at the end of their lives.
Hence, you should invest in such properties only if you are an experienced investor or property manager.
• Lower Acquisition Costs
• With the right strategy, you will be able to turn a Class C property into a really profitable investment
• Potential for higher cash flow
If you want to be a successful real estate investor, you need to educate yourself and create an outstanding strategy prior to making a move.
Without the right strategy, chances are that you might face a huge loss.
Learning which class your potential investments belong to will majorly impact your decisions. Various professional investors focus heavily on investing in Class A Properties. However, some prefer to buy a lower-class property and upgrade it.
Prior to upgrading a property, you need to carry out an assessment of the various factors such as the changes you will be required to make as well as the improvement costs.
And if you need any help, feel free to reach out to me.