Class A, B, C, D, property?

[Jorge Rivera]

Hello everyone,

I have read some articles and post where people talk about a class A, B, C, or D property. Could someone  please explain on what it means and how can I find out what class my property falls in?

I just purchased a home, and to be honest I kinda bought it blindly. I comp to other properties around the area (same size sqft, bed/bath, average rent. All after buying) and after running the numbers. I believe it could cashflow $50 a month (After all expenses: property tax, maintance ,insurance, etc.) But then after reading the post about Classes, I got a bit concerned to attract the wrong type of tenants. So now I need to figure out what class my property falls in. Just need a little push in the right direction. 

Thank you in advance. 

[Brandi Carballo]

Class A properties are newer and have the highest quality tenants. They have great amenities and are in the best locations. They will cost more and have lower cash flow, but will be stable, need little maintenance/repair and tenants will be fantastic. There will likely be appreciation in property value. These properties can be nice apartments in dense cities or planned communities in suburban areas, for example.

Class B properties are in similar areas to class A, but are a little older and will need a little more maintenance, command less rent and will have tenants with stable careers but not high class professionals. This could be a house built in the 1990's in a suburban neighborhood, or a moderate sized apartment with decent carpet and a dishwasher in a nice downtown neighborhood. Cash flow will be better than class A properties, but appreciation will be less.

Class C properties are older, have deferred maintenance and are not in prime neighborhoods. Tenants will be working class people with lower incomes or subsidized rents. Cash flow will be good, but ongoing maintenance and repairs will cost money, too. 

Class D properties are the run down properties in the crappy neighborhoods. Tenants will have bad credit and often criminal records. Properties will need work at purchase and ongoing. There will be a lot of turnover and finding qualified tenants will be more difficult. The tradeoff is great cash flow. Some people think the cashflow is not worth the headaches. I have a property I would classify as C-/D+ and there are days when I wish I hadn't bought it, but then I remember that one property pays my mortgage. These are the cheapest properties and easy to buy, but come with the most risk. I went to replace a rusty bathtub and had to gut the bathroom down to the studs, even replacing the subfloor due to deferred maintenance and a leaky bathtub drain. Fun times.