Property Classes In Multifamily Investing: Why They Are Important

In order to be successful in multifamily investing, you must understand the differences between different property classes.The class that a property is assigned can tell you a lot about the property and if it is worth your time and money to invest in. There are four different property classes: A, B, C, and D.

A property class is set by a)the conditions of the property and b)the properties location and surrounding area. Multifamily property classes are not set by appraisers Furthermore, property classes aren’t a formal thing, but more a standard in the multifamily investing community.

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Class A properties are the best out there Class A properties tend to be newer and have an average rent that is higher than other classes of apartments. You can actually have a new Class A property in a Class B area. These buildings are called Class A because they were built recently, but they probably have lower rents than other Class As because of their location

Class B properties , the next in the food chain, are multifamily properties that are 10 – 15 years old, well-kept and are in the “middle class” part of town.

More about Class B below

Class C properties are in low to moderate income or blue collar neighborhoods. They are usually about forty years old, and often have been through at least one rehab.Class D properties can be found in the worst neighborhoods. These are in high crime neighborhoods. You generally do not want to work with Class D properties.

If you are going to do Class D properties, you need to be in that niche. You are not going to turn around a Class D property without turning around the neighborhood that it is in. Class D properties are suffering from a neighborhood problem and not a property problem.

You want to look for those Class C and Class B multifamily properties The further you go down from Class A to Class D, the better your cash flow. A Class C property in a Class B area is the best!lThe premium deal is finding a Class C property in a Class B area that you can reposition.

Also, a property in such a bad condition it is called a Class D, but located in a Class C neighborhood, is a good find In this case, you can come in and clean up the property by either making a physical change or a security change to it. The strategy is to pay little on it, make some necessary adjustments, then sell it for profit.

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