How do you rate properties?

Question

HI there-

While I haven't posted a lot here, I've been listening to BP podcasts and reading the blogs and articles for the past 6 months. My question is...how do you rate properties? I'm pretty clear on what an A property is (I live in Scottsdale) and and what an F property is. I know I don't want to try and put lipstick on a pig, as @Ben Leybovich would say. But I'm not really clear on what constitutes B,C and D properties. Am I missing a podcast or article on this?

Any help on this topic would be greatly appreciated!

Shannon K. · Answer

In my mind, begin to evaluate neighborhoods based on where I've lived growing up. I've always lived in the suburbs so I'm most familiar with A and B-level neighborhoods. I think about that in my mind and evaluate neighborhoods whether they're better or worse than where I've lived.

A-level: New houses, custom built homes, pretty landscaping, pride of ownership is apparent, big backyards, high re-sale value, good schools, low crime. (~4-6 bedrooms here).

B-level: Similar criteria to A-level but without the custom built homes, 2-income families can afford to live here and raise a family, backyards for the kids, 1500-2000 sq ft houses (~3 bed/2-bath homes).

C-level: Majority of houses under 100K, visual repairs needed in this neighborhood, 1200 sq ft average, houses close together, some properties worn down, grass not cut, porch awnings sagging, concrete stairs crumbling a bit.

D-level: Struggling neighborhoods, garbage on the streets, bars on the windows, higher crime, crowded areas, downtown city area, wouldn't want to walk around here at night.

F-level: War-zone, "get me outta here" property, makes you nervous to enter the neighborhood even in daylight.

That's my basic approach when I think about properties and what areas make the most sense to invest in. Hope that helps!

JD Martin · Answer

It also depends on market, if your grading scale is relative. Some communities don't have any C, D, F grade housing, so if you are investing in those areas you are probably going to work on an altered scale.

I don't grade anything that technically. I look at each house as its own entity. Maybe if I were buying bundles of houses at a time I would feel differently. But if someone pinned me down with a gun at this moment, I would say A property is high neighborhood, high desirability, B property is good quality working class neighborhoods, C property is lower middle class and fringe neighborhoods that are either just declining or are just coming back, D property is lower class property in undesirable areas but houses are still standing, and F is war zone material. So using that scale, personally I would be aiming for the cheapest houses to purchase in Grade B or the best houses in Grade C. Since I buy for neighborhood first (I can fix or change almost anything about the house except the location on the lot and the surrounding areas), I usually only buy/make offers on properties in neighborhoods that I personally would feel comfortable living in, and I have high standards since I grew up in a ghetto.

Alex Franks · Answer

This  pretty much sums it up.

I would add for us here in Charlotte NC and  Surrounding South Carolina.

A  Rental income 2K  and Above

B  Rental Income $1300 towards and up to $2k

C  Rental income Start dipping below $1300 majority of homes in area are rentals not homes owners

D  Simpler Approach $800 and below . Can my wife go collect rent at 7pm on a Friday night and I feel safe.  If no Usually guaranteed D class.

Now Keep in Mind $2k in Charlotte is not going to get you the same as $2k in NY , OR Cali. So regional speaking, answers should vary but you should get the jist of things.

Alex

Account Closed · Answer

Ben, even pigs are graded.

http://www.fsis.usda.gov/wps/portal/fsis/topics/fo...

Andy Robison · Answer

Its based on person. I can have a property in what I'd consider C, others might consider it B or even D.

Account Closed · Answer

It's just that too many people think they have a silk purse but in fact they have a pigs ear.  I've seen too often someone buying a property because it's cheap and then are perplexed why their tenant pool isn't the upper middle class that they intended to get by popping some granite on the kitchen cabinets.

I think one of the most important first analysis of any property is to determine who will be the tenants.

Ben Leybovich · Answer

Damn it, Bob - I have to agree and I don't want to...:)

When someone breeds a Kosher pig - I'm all in lol

Jassem A. · Answer

I base it mostly on crime rates and school test scores

David Krulac · Answer

I don't look at class specifically.

I'm looking at:

1.  Positive cash flow

2.  Good Schools

3.  Low crime

4.  Good jobs and employment

If a property has these 4 aspects going for it its probably something that would interest me.

Beyond that I look at:

5.  Residential area

6.  Not mixed use

7.  No yellow lines on street

8.  Majority owner occupied

9.  Structurally sound

10.  Professionally built

11.  No unpermitted/building code substandard issues.

Brock Adams · Answer

All Asset Classes of the Alphabet can change quickly like any asset class so tread carefully and keep a pulse on it.  Who does not know a neighborhood that used to be nice and then drives by one day and says, "Wow.....Look what's moving in or my favorite, what happen to the HO association in that neighborhood.?"

How do you rate properties?

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