Tenant Profiles, ABCD

[Trevor Ewen]

I recently sent an email to another investor explaining the off the cuff tenant rating system residential real estate investors tend to use. I wanted to double check my definitions based on your experience, and thus I am putting my list out to the crowd for any correction.

A Class: Super stable (usually family) tenants in a neighborhood that is otherwise own-occupied. These are the kind of tenants who could probably buy their own house, but have not for reasons of near-term uncertainty. Professors, military officers, and some foreign business people fit into this category.

B Class: Solid working class renters who are on the edge of being able to afford their own home. A lot of these tenants are people who got messed up in the crisis, and are out of the game. On the B - end, you get people with rougher credit, generally good jobs, but bad finance skills. These homes are the low cost houses in an owner occupied neighborhood or the high cost houses in a rental only neighborhood.

C Class: Tenants likely have jobs and employment, but have a harder time making things work. Definitely don't have good enough credit to buy on their own, and could have some other things holding them back. I would even put some Section 8 tenants in this category, particularly the older people who have been on the program for years.

D Class: People who have only ever lived in public housing or with family. No credit history, rough on employment, rough on living standards. Not great in general.

At the end of this, I will write a more formal article outlining these profiles. Thanks.

[Nada Mohamed]

Hi there!

In my own experience I have found that trying to fit entire communities into a neat definition or classification is just not helpful. For me, it just doesn't work to assume that just because a certain community has certain characteristics that it will definitely have a certain type of tenant. It really doesn't work that way in real life. Every community is unique. Most communities will have some of the characteristics of at least two of these groups. As is, these groups offer too big a generalization and only use a few characteristics of what shapes a community to determine what kind of tenant to expect. Anyways, I personally don't use this classification system, but what you wrote looks about right from what I have seen on these forums.

Nada