Neighborhood Grade Criteria

7 Replies

Can anyone point me toward a good article, blog, resource explaining different property and neighborhood ratings. For example a B+ neighborhood versus a C neighborhood. What are the differences between the two? I have read different sources on this subject but it seems to be mainly speculative from the eyes of the beholder. Am I off base? Is there definitive criteria used to grade a property or neighborhood? TIA!

@Cameron Peters You can just Google around and find a few different ways to look at it. Every the large institutions have subtle differences in their grading criteria. So it’s a little bit subjective and in the eye of the beholder. With some I see “walkability” being a metric they like to use. That’s great for urban but if you’re suburban I have a hard time thinking that’s a requirement for an “A” area. And, by the way, it’s also not static.

The real danger I perceive is that newer investors find a deal and love to rationalize their purchase by trading to shade the grading. The $50K duplex is in a “C- Area but getting better” because they don’t want to admit it’s a “D”.

What matters the most is establishing your threshold. If I see cars on cinder-blocks, chainlink fences, a check-cashing place one block over, cars parked on the street with a garbage bag taped over a broken window, etc. then it’s not for me. I don’t care if someone else tells me it’s a B- or gentrifying or what a crime heatmap shows. But those are my quirks, it limits me, but it’s based on my experience. Other people will see opportunity in those areas that I don’t. They might make a killing and be able to gloat about my buffoonery in passing on that area. I’ll live with it.

All that matters for you is what your desire is in terms of B vs. C vs. D. When you figure out what you want you can map it back to those grading scales and then the shading (C vs. C+) won’t make quite as much difference to you.

At least it doesn’t for me 🤷🏻‍♂️

@Andrew Johnson - thanks. I would say our thresholds are very similar. I look for SFRs in established neighborhoods with homes built during the 50s-70s. I have many of these neighborhoods in my area and I drive/walk them regularly. Warning signs to me are always: able body men hanging out on the street in the middle of the day, boarded up houses, cars on blocks etc. I'm with you that these are deal breakers for me. I will stay out of the neighborhoods with these warning signs. I guess my ideal neighborhood is a C neighborhood? And maybe the "title" of the grade doesn't matter a great deal, I just hear the terms being used and I don't want to use them incorrecly.  

It's hard to find a reliable metric to grading.  And many turnkey companies will shade their grading higher just to sell.

Some grading factors could be average/median income in a city, school district is a huge factor, etc.  

I'm writing a short intro book to this for our turnkey company now.  If the median sales price of a home in any given city is $140K, it's going to be very hard for a turnkey home being sold at $50K to be rated a "B class" property.  

We take a mix of crime stats, area stats, school ratings, population growth/decline, median income, rents, ownership vs rental percentage, and overall desirability to rate our properties.  

And I'll be the first to admit it's not 100% accurate or static, just our local "on the ground" opinion.  

Originally posted by @Cameron Peters :

Can anyone point me toward a good article, blog, resource explaining different property and neighborhood ratings. For example a B+ neighborhood versus a C neighborhood. What are the differences between the two? I have read different sources on this subject but it seems to be mainly speculative from the eyes of the beholder. Am I off base? Is there definitive criteria used to grade a property or neighborhood? TIA!

 I wrote the The Ultimate Guide to Grading Cleveland Neighborhoods. It's obviously specific to that particular market but a lot of the descriptions of asset quality can be applied to similar markets.

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