How do you rate potential properties (A-D)?

[Spenser Murphy]

I've read about investors rating properties on an A-D scale? What are your criteria for an A, B, and so on. I posted here because ratings are different from market to market. I've lived in San Antonio all my life so I'm comfortable with this market.

[Leland Barrow]

A---I am a speculator

This property is where everyone wants to be. With apartment complexes these would be your large corporate or fund owned properties. They have the best location, amenities, and the highest rents. With houses these are your growing areas that everyone wants to move to. It could be downtown neighborhoods that are within walking distance of night life. They could be a "snob hill" and are defined by being a mixture of upper middle class and wealthy. Most of the time they will be on the west side of any town and are populated with doctors, lawyers, and professionals. Everyone would live here. These areas tend to have high appreciation.

Garden clubs, people jogging, BMWs.

B---I want it all

These can be older and neglected homes in A areas or be homes in B areas. These are the middle class to upper middle class areas. They can be a mixture of blue collar and professionals. The have significant income and good schools. Most people would be ok living here. Investments in these areas have moderate appreciation. Usually they have a good mixture of demand and appreciation. 

Manicured lawns, BBQs, Toyota Camrys

C ----I am a manager

These properties are in low income areas. The areas have more crime and the schools are mediocre. The properties can be generally neglected. Tenant turnover can be high. People live in these areas because they are limited by their income or life circumstance. These areas can have greater cash flow but usually have flat or negative appreciation. These are your 30k-75k homes in cities that have an average home price of around 150k. There is a reason why a $30k home built forty years ago is still worth 30k forty years later. These areas have potential if you have strong management and people skills. Buying an apartment complex known for drugs and crime that is under-performing is an opportunity to decrease the vacancy rate and upgrade the tenant class.

Bars on windows, hanging out on the porch, bus stops

D-----I am a thrill seeker

These are properties located in areas with high crime and violence. The properties are dirt cheap and life is never boring. Your tools and materials will get stolen. Your tenants will struggle to pay. You will stay busy.

Hope that helps. Properties are not so much ABCD as the areas are. Although distressed and under-performing assets in A areas can be considered B properties.