Is there a specific way to distinguish between an A, B, C and D Class property?

Question

Hi,

Good evening. I am a newbie here and I love the conversations.

I would like to get on the same page with real-estate companies or turnkey companies that describe the different classes of properties. How do I know I'm looking at a B class property for example, versus a C- class property for example? I will always run numbers and look at demographics, but I was just wondering if there is a definitive way to address these questions or is there a lot of speculation or difference of opinion between these classes? So if a turnkey company sends me a what they consider a B property, am I going to do my research and rebut their opinion and say it's a class C-?

thank you

Eliott Elias · Answer

Drive the neighborhood at night. There is not clear distinction, it is a feel for the area.

Eric Fernwood · Answer

Hello @Kevin Parnella,

There is no absolute metric defining the three classes. My designation of classes A, B, and C are based on my tenant segment demographic research in Las Vegas. Below is a chart showing part of my research where I plotted monthly rent vs. median length of stay. For ease of reference, I named the three segments Transient, Permanent, and Transitional.

The bottom row shows the class of property the majority of each segment occupied. Below are a description, by property class, of the properties and associated tenant segments.

Class A properties - Class A properties were mostly constructed after 1990 and are situated in desirable locations with good schools and low crime rates. The tenants in this segment are primarily credit-based and understand that a late rent payment will have long-term effects on their interest rates and ability to obtain additional credit. They tend to remain for multiple years. Rent payments are typically made online through automatic payments. Evictions are infrequent and damage is minimal. These properties generally perform the best in terms of appreciation and rental growth.

Class B properties - Compared to Class A, Class B properties are generally older, and tenants have lower incomes and credit scores. They tend to stay for shorter periods (1 to 2 years), and evictions are more common than with Class A properties. Tenant damage is likely to be higher than with Class A properties.

Class C properties - Class C properties are generally older, in poor condition, and located in distressed areas. They are minimum-wage or near-minimum-wage low-skill workers. In times of economic turmoil, they are the first to be laid off and the last to be rehired. They live cash-based lives, with no credit cards or bank accounts. Because they live cash-based lives, there is no future negative impact for current actions so leases, evictions, and property damage judgments mean little. They tend to stay for short periods of time; in Las Vegas, the average length of stay for C Class properties is about one year. Rent and bills are typically paid in cash through 7-Eleven, Walmart, etc.

I look forward to reading other people's definitions of these classes.

Mike D'Arrigo · Answer

@Kevin Parnella it is subjective and everyone has their own defination so make sure that your definition aligns with whoever you are talking to. The factors that usually go in to a classification are owner occupancy rate, home prices, home sizes incomes, and crime levels. I highly recommend sticking with upper C class and better neighborhoods. Here is my criteria:

A class: Primarily owner occupied, usually suburbs, middle/upper middle income, white colar. Larger homes typically 3Br 1.5Ba. or more. Low crime.

B Class: Mix of rental and owner occupied. Middle income, blue colar, medium sized home 1,200 sq ft, 3Br 1Ba. Moderate, non violent crime

C Class: Predominently rental neighborhoods. Lower income/Lower middle income, working class, smalleer homes. Moderate crime

D Class: All rental neighborhoods, often inner city, low income, high crime

You definitely should do your due diligence and validate what the turn key company tells you. You can do this by knowing the prices and rents in your chosen market. If the median price is $180K and median rents are $1200 and you're looking at a property selling for $100K and renting for $900, it's clearly in a lower class neighborhood. Get to know the numbers. Also, you can tell a lot by GoogleMaps. Not just the street view but satelite view also. Look at what's in the immediate area. If you see a strip mall with a tattoo parler and bail bondsman, you can pretty much figure it's not a great neighborhood.

Caleb Brown · Answer

For my area the class of neighborhood varies depending on if it is in the city or suburbs. Suburbs it is best described by the school district rating and crime. Inner city it depends on how close it is to downtown along with the street/block that surrounds the property

Charles Granja · Answer

I have generally called them properties a specific class based on the neighborhood quality, submarket income, crime rate, and school districts. There isn't a strict definition for classes, but it is generally understood what they are.

Hamp Lee III · Answer

Check out this BP article: https://www.biggerpockets.com/...

I wish you all the best!

Bob Stevens · Answer

Yes value of the Propeties and drive them KEEP IT SIMPLE :)  BTW how does one make money renting in an A area? I know in my market everything starts with a B, cant make money in an A,

All the best

Also keeping it even more simple. Just connect with those doing deals in the area. The internet will 100% not tell you what you need to know.

Is there a specific way to distinguish between an A, B, C and D Class property?

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