As you begin investigating the ins and outs of multifamily properties, you’ll hear terms such as “Class C Property.” Don’t let the terms make you nervous. Once you understand these terms, they will help you to understand a property’s assets and make quick decisions. Below you’ll find a guide to property classes and what they mean for you as an investor.
Class A: Class A properties are new, upscale apartment buildings. Average rents are high, and they are generally located in desirable areas. Class A properties have the highest valuations per door and the lowest market cap rates. Their main attraction is their area appreciation.
Class B: Class B properties are usually around 10-15 years old. They’re well-kept and have middle class tenants. They will have cap rates higher than Class A but lower than Class C properties. However, they are primarily appreciation, rather than cash flow, vehicles.
Class C: Class C properties generally have blue-collar and low to moderate income tenants. The buildings are 30-40 years old, and the rents are low. Class C buildings are very attractive to cash flow investors because they offer the best cash flow – compared to Class A and Class B. And they can be the first to appreciate in a rising market.
Class D: Class D properties are in shady parts of town. The neighborhoods feel like war zones and are plagued with violence. Class D properties can be cash flow machines, but they don’t appreciate because of their condition and where they are located. Owners of Class D properties have to spend more money on management and security.
These class distinctions are part of the vernacular; they’re not set rules used by appraisers or banks. Investors use them as a way to immediately understand the state of properties.
Class C properties are the bread and butter of the apartment industry for the cash flow investor. The best deals occur when an investor finds a Class C property in a Class B area and makes improvements to it. Likewise, finding a Class D property in a Class C area and repositioning it to generate more income through higher occupancy or increased rents can reap great rewards in equity.
8 Responses to How to Make Money With Class C Apartments
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How can you aquire a multi family property when your personal credit score is in the tank?
I really have enjoyed and learned a lot from your e-mails and teleseminars. Keep up the great work.
Nice work. Maybe you’ll elaborate on this subject in the future.
Thanks, Lance. This explains more clearly how to identify Class “C” properties. I was getting a feel for it, but this clears it up.
Another good post Lance! I guess the real money can be in a value play. Keep it coming Sir!
Once again, Mr. Edward, you’re right on the money. I heard about this once by a professional real estate agent but it was done in one or two sentences. Thank you, sir, VERY MUCH for further elaborating on that. I will be looking forward for more of your great incites!!! Thanks again.
Awesome post that has answered my question regarding “why Class C?” My other question now is; if Class B ranges from 10-15 years in age and Class C ranges from 30-40 years in age what Class is between the 15th year in Class B and the 30 years in Class C?.
Regardless of the class of an asset (building) the fundamentals are consistent with
NOI management. It is a function of ownership while providing tenants (customers)with the highest degree of confront and safety while having the discipline to control cost and not jeopardizing the tenants living experience.
The webinars and other info you present is great,no,awesome. More Sir,Please.