What is a Class?
Multifamily Housing classes are separated as “A,” “B,” “C,” or “D.” This grading scale depends on the physical condition of a building, as well as its market attributes. The ability to distinguish between these classes is essential in ensuring that you can find the best apartment deals for you. But what separates these classes from each other? Well, let me tell you.
Class A properties are valuable assets and are typically less than 10 years old. These will mostly include apartment/multifamily buildings that are more on the luxurious (and more expensive) side. These sites will feature higher rents, owing to their desirable geographic areas and top-notch conditions. The people who live in these buildings typically work in high-paying jobs and have chosen to rent there. These properties are typically safer investment options because they are in areas that are favorable; however, this does mean they are typically more difficult to acquire, as they are in such high demand.
These properties, compared to class A buildings, are typically older and more run-down. They are also likely to be located more on the outskirts of highly desired geographic areas and markets. They will generally require some renovations and upgrades and feature fewer amenities than higher-class buildings. In tandem with this, the rent will also be lower for the tenants who live there. While certainly not as desirable as a class A location, these multifamily buildings still garner stable and reliable renters.
Considered to be one of the riskier class properties to invest in, Class C multifamily buildings are typically older than 20 years and should be expected to require quite a bit of upgrading. These locations, due to their age, will generally show a greater amount of wear-and-tear and need significant upgrades. These properties are usually far cheaper to live in due to these poor conditions, and their locations in generally less desirable areas. This could mean they are more on the outskirts of major towns and employment areas and may have higher crime rates in their area. Due to these factors, it is likely that tenants in these buildings are renting there because it is more affordable rather than desirable. These qualities can make investing in Class C properties risky; however, they also bring the highest potential for cash flow out of all the class types, due to their high need for heavy management.
Class D multifamily buildings are over 40 years old and serve as housing for tenants who rely on government subsidizing. These buildings tend to be in lower socioeconomic locations and require a great deal of experience to manage. These locations feature heavy vacancies, low maintenance, and are likely to be in areas that experience high volumes of crime. These qualities mean that investors looking to work with these properties should expect to deal with heavy management and security responsibilities.
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