How to tell if a property is A class, B class, etc.?

[Bradley White]

Do you go by price per unit, or by physical appearance? Is there a specific way to determine whether an apartment complex is an A,B,C, or D property?

[Giovanni Isaksen]

@Bradley White, as @Joel said there are no carved in stone definitions but these are the rough guidelines that we use. Note that they combine property class with neighborhood class and of course we're all looking for the B property in an A neighborhood or a C property in a B neighborhood because they come with built in upside. Also in historic neighborhoods there can be old buildings that don't meet the age qualification of an A or B property but can be rehabbed into a very nice, desirable property:

Class A Properties:
• Typically less than 10 years old (No deferred maintenance)
• These apartment communities have a definite market presence.
• Typically occupied by white collar workers who are renters by choice.
• Residents pay above average rents.
• High levels of unit features and amenities such as garages, in-unit washer/dryers, pools, spas, exercise gyms, the latest technology, etc
• May have less cash flow than B or C properties but greater appreciation potential.

Class B Properties:
• Typically 10-20 years old (Little or no deferred maintenance)
• Occupied by both white and blue collar workers
• 80% to 120% of an areas median income (the middle class apartment dweller)
• Usually renters by necessity, not by choice (can’t buy for one reason or another)
• Tend not to move as often as other tenants.
• Generally command average rental rates
• Property finishes are fair to good and systems are adequate
• Includes former Class A apartments that are 10+ years old
• Complexes are well maintained
• Properties will have decent cash flow and decent appreciation potential.

Class C Properties:
• Built within the last 21-30 years (varying degrees of deferred maintenance).
• Typically occupied by blue collar workers and even some Section 8 tenants
• Usually have below market rental rates
• The projects have fewer amenities
• Renters by necessity.
• Properties will have decent cash flow but appreciation has to be created with physical improvements (remodeling, aka rehabbing or repositioning).