Investors Choice Lending Brooklyn Explains The Types Of Property Classes
A common question we receive from our investors is what do properties marketed as Class A, Class B and Class C mean, and why does it matter? To begin, investors, brokers and Brooklyn investment lenders have developed property classifications to make it easier to communicate amongst themselves about the quality and rating of a property quickly. For investors, property class is an important factor to consider because each class represents a different level of risk and return. Investors can use these differences about property class types to also consider how each property fits within their strategy of investing, such as return objectives and amount of risk they are willing to accept in order to achieve those returns.
Types of Property Classes
A Class A property is within an area that has the newest buildings, hottest restaurants, best schools, wealthiest people, and highest-cost real estate. This is truly the best location you can find, and the highest-quality tenants are looking to rent here. A Class A building follows the same concept. It is generally newer, probably less than ten years old, and therefore has fewer maintenance issues. The building has modern amenities, such as granite countertops, hardwood floors, and other in-demand features. Class A properties generally command the highest rent but may provide a lower amount of cash flow, because of the high-demand for an “easy investment.” More demand, higher purchase cost = lower cash flow.
A Class B property is typically less than 20 years old and in a desirable location. Many Class B multifamily properties exist very close to Class A properties and, therefore, can often experience similar economic growth. In 2018, rental rates of Class B apartments grew by an estimated 3.2 percent, averaging $1,152 per month. Class B properties, while older than Class A, should not require foundation or structural repairs. Interiors are typically not fully updated, however. General maintenance is necessary, of course, but there should be no need to allocate substantial cost to major repairs or replacement of large systems, such as HVAC or plumbing.
Class C properties are mostly above 20 years old. Some Class C properties remain occupied, commanding lower rental rates and attracting tenants with smaller operations that cannot afford nicer spaces or that do not need their businesses to be located in centralized hubs. Other Class C buildings are sold as rehabilitation opportunities. With some improvements and repairs, a Class C building can be upgraded to Class B, though it is unlikely to ever achieve Class A status, due to its location and age.
Before jumping into real estate investing it is important to understand the various property classes so that you can assess the risks and know what you are getting involved in. Investment advisors and real estate attorneys are two individuals who may come in handy during the investment process. The investment advisor can detail exactly how you should structure your investment dealings while the real estate attorney can ensure that the purchase and/or sale of the property is done correctly and in a legal manner. Both individuals will be your best friend with regard to this type of transaction and help you to stay on track throughout your investing endeavors. Visit our website: https://investorschoicelending.com/brooklyn/ for more information.
Check Us Out On Social Media: