A system of the classes of property real estate has been developed by the commercial real estate industry to make it easier to communicate between investors, lenders, and brokers. The classification of multifamily apartments and other properties is a valuable tool to represent varying levels of risk and return on investment.
Letter grades assigned to commercial real estate properties are based on a wide range of factors, including:
- Age of the property
- Income levels of its tenants
- Potential growth expectations
- Appreciation rates
- Property amenities
- Rental income
Classes of Property Real Estate
While there are no specific guidelines or formulas to determine the classes of property real estate for multifamily apartments, there are some guidelines to follow to give investors a general idea of what to expect from various types of properties.
The highest quality real estate typically consists of properties that are less than a decade old and offer high-income earning tenants the widest range of top amenities and services. These properties are well-located in the commercial real estate market and are usually managed by professional property management companies. Class A properties generally come with the highest rent with little or no deferred maintenance problems.
- Newer properties
- High rents
- Prime locations
- High valuations and low market cap rates
- High appreciation potential
A step down from Class A properties, these real estate opportunities are typically a bit older and cater to lower-income tenants looking for more housing affordability. Class B properties are generally well-maintained and seen by investors as a value-add investment. Renovations and upgrades can lift a property to a B+, or Class A. These properties can be purchased at a higher CAP rate as they are generally seen as riskier than Class A investments.
- Up to 20 years old
- Well-maintained properties
- Middle-class tenant base
- Mid-range cap rates
Mostly consisting of properties over 20 years old and in need of some renovation, Class C properties are typically located in more impoverished neighborhoods and communities. These buildings often require an update of the infrastructure to bring it up to date on building codes and regulations. Class C properties have lower rental rates and often need significant reposting for investors to see steady cash flows and profits.
- Built within the last couple of decades
- Lower-income tenants
- Below market rental rates
- Attractive to cash flow investors
Class D properties were built decades ago and typically house Section 8 and other government-subsidized tenants. These properties are situated in some of the lowest socioeconomic areas. Success in a Class D property located in a high crime area requires significant security and management. Experienced investors should only acquire class D properties.
- Built over 30 years ago
- Many Section 8, government-subsidized tenants
- Low socioeconomic, high crime areas
- Heavy security, management needed
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Whatever class of multifamily apartments you may be interested in investing, the commercial real estate experts at MyEListing.com has what you are looking for. Log on today to find a wide range of available listings of various classes of property real estate for sale.