We have discussed location classes in one of our previous posts. However, it is also important to understand that real estate has classes. When you are buying a property, its price will be different based on its class and location class.
In this article, we are going to analyze property classes. Each real estate property you buy will be classified in one of 4 classes (class A, B, C, or D).
Table of Contents:
1. Class A properties
When we talk about class A properties, we refer to the best property in a location or neighborhood. These properties are general new (less than 10 years old) with the best building materials available. They could be old with extensive renovations. These properties are expensive to buy as they are new with less maintenance and sometimes located in class A locations.
If you have an A-class rental property, you will get a high rental income because your tenants are wealthy with stable jobs. However, your mortgage will be a lot. For this reason, you will not make much cash flow. More of these properties are found in class A locations and some in B locations. You find lesser and lesser class A properties as you move down through the location classes (A, B, C, D) hierarchy.
2. Class B properties
As we have seen in the location classes, B properties can somehow be considered as a downgrade of A properties. They are a little older (10-30 years) than class A properties. For this reason, B properties will have more repairs compared to A properties. These upgrades can range from minor projects such as painting walls to something big like roof replacement or electrical and plumbing repairs.
Class B properties are a little cheaper than class A properties. You still get reliable and trustworthy tenants on B class B properties. For this reason, B properties might yield a better cash floor compared to A properties.
3. Class C properties
Properties in this class are old (30 plus years) and they are not upgraded. It costs a lot of money to upgrade C properties due to outdated systems such as plumbing, electricity. The good news is that these properties are really cheap compared to class A, and B properties. You would be expecting less cash flow from these properties because of locations and unreliable tenants. Many investors prefer class c properties because they can rehab them for rentals or flipping.
4. Class D properties
Properties in this class are old (30 plus years) and they are not upgraded. It costs a lot of money to upgrade C properties due to outdated systems such as plumbing, electricity. The good news is that these properties are really cheap compared to class A, and B properties. You would be expecting less cash flow from these properties because of locations and unreliable tenants. Many investors prefer class c properties because they can rehab them for rentals or flipping.
