{"id":92290,"date":"2018-09-30T05:00:12","date_gmt":"2018-09-30T11:00:12","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=92290"},"modified":"2021-03-16T13:40:10","modified_gmt":"2021-03-16T19:40:10","slug":"evaluate-asset-classes","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/evaluate-asset-classes","title":{"rendered":"How to Evaluate A-Class, B-Class, and C-Class Properties"},"content":{"rendered":"<p>One thing is for certain\u2014everyone has an opinion and everyone has a different perception when it comes to evaluating asset classes. I\u2019m proud to tell you that I\u2019m a blue-collar, working class guy, so my perception of a certain asset class is different than someone else\u2019s perception. I\u2019m not here to tell you that I\u2019m right, and I\u2019m not here to tell that I\u2019m wrong. I\u2019m just happy to share my experience, my opinion, and my perception of the different types of asset classes and how to evaluate them.<br \/>\n<iframe loading=\"lazy\" src=\"https:\/\/www.youtube.com\/embed\/zQ2FGuz_KP8\" width=\"560\" height=\"315\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<h2>A-Class Properties<\/h2>\n<p>So, we\u2019ve got three asset classes: A, B, and C. Now, an A-class property should have about a 4-6% net cap rate. What I mean by net cap rate is that after you take out all of your costs\u2014like your property management fees, your insurance, taxes, and a calculation for maintenance and vacancies\u2014you should arrive at about a 4-6% net return investment. If you are investing in A-class real estate and you are not getting that return on investment, I would forget about investing in those areas because you\u2019re not even keeping up with inflation, and in my opinion, it just doesn\u2019t make any sense. Now, these properties tend to be located in areas where properties are newer and have 1,500+ square feet, the school districts are fantastic, amenities are plentiful, and neighborhoods have curb appeal. The homes in these areas are predominantly owner-occupied.<\/p>\n<h2>B-Class Properties<\/h2>\n<p>The B-class area, in my opinion, should offer a cap rate of around 8-10%\u2014once again, net, after you take all of your costs into consideration. These neighborhoods usually consist of a mix of 50 percent investor-owned properties and 50 percent owner-occupied properties. The areas would also be very well kept, with few distressed homes and fairly low crime rates. I would like to refer to these areas as nothing sexy, nothing flashy, but very fundamental, full of blue collar working people. Here in Ohio, I live in one of these B-class areas. They tend to also be in close proximity to infrastructure, amenities, and good school districts. Ultimately, B-class areas represent a very solid asset class.<\/p>\n<h2>C-Class Properties<\/h2>\n<p>Last but not least would be the C-class area, which is predominantly investor-owned, with few owner-occupied properties. The crime rates are usually higher, with older homes, worse school districts, and no amenities within close proximity. Now, what a C-class area can get you as an ROI is beyond me. In my opinion, these areas tend to be very volatile. They tend to have 12, 15, or 18% net cap rates\u2014but honestly, I think those are just paper figures. I don\u2019t see you achieving those returns in real life. It might happen, but every year would be different. I also don\u2019t see any potential for appreciation there. You are pretty much just buying for cash flow\u2014if you manage to get that desired cash flow.<br \/>\n<em><br \/>\n<strong>Related:<\/strong> <a href=\"\/renewsblog\/2016\/01\/26\/vast-majority-investors-stay-fard-class-properties\/\" target=\"_blank\">Why the Vast Majority of Investors Should Stay Far, Far Away From D-Class Properties<\/a><\/em><\/p>\n<h2>What Asset Class Should You Invest in?<\/h2>\n<p>Backtracking a little bit here, in a B-class area, you might see a little bit of appreciation, but it will predominantly be a solid kind of cash flow investment, providing a steady income. The A-class areas would not provide much cashflow, but potential for appreciation because they are desirable. Homeowners want to live in these properties, and we all know that homeowners base their decisions on emotion. And when you base your decision on emotion, you are buying a house not based on the numbers, but on everything else that makes it look pretty, places it in a good school district, or whatever else. Plus, you tend to spend more money.<\/p>\n<p>So that&#8217;s a quick summary guys on the different types of asset classes. I know I have written <a href=\"https:\/\/www.biggerpockets.com\/blog\/real-estate-property-class\" target=\"_blank\">a ton of blog posts on this before<\/a> so feel free to check those out. I would also love to get a detailed correspondence going below in the comments section. I want to hear what your perception is of the different types of asset classes. How you evaluate your deals when you\u2019re looking to invest in a particular area?<\/p>\n<p>I want to end by saying I speak to a lot of investors, and one thing that everyone gets very wrong is this\u2014they all talk about the stats and demographics, asset classes, vacancy statistics, employment rates, and capital growth projections. But it never comes down to the asset class or demographics, in my opinion; it always comes down to the people. The team that you are investing with out of state, out of the country, or even in your own backyard will either make or break your investment. I\u2019ve got a little quote and it goes like this: \u201cIf you buy the best house on the best street in the best neighborhood with the best capital growth projections, but your property manager is incompetent or a cheat, you\u2019re going to lose money because they are going to steal your rent.\u201d<\/p>\n<p>So focus on the people rather than the stats and demographics of the particular area. That\u2019s pretty much it.<\/p>\n<p><em>We&#8217;re republishing this article to help out our newer readers.<\/em><\/p>\n<p><a href=\"https:\/\/www.biggerpockets.com\/real-estate-investment-calculator?utm_source=renewsblog\" target=\"_blank\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-91220\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/08\/blog_ads-02.jpg\" alt=\"\" width=\"700\" height=\"85\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/08\/blog_ads-02.jpg 700w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/08\/blog_ads-02-300x36.jpg 300w\" sizes=\"auto, (max-width: 700px) 100vw, 700px\" \/><\/a><\/p>\n<p><em>What kind of asset class do you prefer? Why?<\/em><\/p>\n<p><strong>Comment below. I\u2019d love to hear from you.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>What differentiates the different asset classes in real estate? Learn how to identify and evaluate A, B, and C-class neighborhoods here.<\/p>\n","protected":false},"author":1672,"featured_media":73774,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4252],"tags":[6400,5037],"class_list":["post-92290","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-deal-analysis","tag-asset-classes","tag-learning-real-estate-investing"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/92290","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/1672"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=92290"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/92290\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/73774"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=92290"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=92290"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=92290"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}