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Updated over 8 years ago on . Most recent reply

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545
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Ray Johnson
  • Irvine, CA
613
Votes |
545
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Choosing a Class A or Class C/C- Rental Property

Ray Johnson
  • Irvine, CA
Posted

I’m on the fence between buying a Class A- rental property where I’d be putting in the typical 25% cash and financing the remaining 75%, or to just purchase a Class C/C- rental property for 100% cash.

I know there are several articles on BP discussing the advantages of leverage and I’ve considered them when thinking about this decision however I’m a fairly conservative investor always looking for ways to mitigate risk.

The two risk factors I see in this scenario are:

  1. The Class A- property allows me to leverage my cash into a better property in a better neighborhood minimizing the risk of higher vacancy rate, the need to rely on subsidized rents, and getting a better qualified tenant mix for the long term, minimizing the possibility of fewer headaches.
  2. The Class C/C- property comes with a lot more cash flow due to there being no debt on the property, however it also comes with a lot more risk in the form of all the issues that come with renting a C/C- property and there seems to be a lot of them.

I currently only have Class A properties with zero tenant or property issues however I’m thinking about going with this property class to increase my overall portfolio cash flow.

I know the saying “More Risk = More Reward”, my question to the BP community that have dealt with both Class A properties and Class C/C- properties:

  1. Is there really that big of a difference in managing the tenants, and property?
  2. If I went with a C/C- property is it better to pay the 8% Property Management fee and not deal with the issues that typically come with the C/C- property class?

Thoughts?

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