Class A class B class C.... Help please!

7 Replies

I really like this easy classification of neighbourhoods. Has anyone seen a listing of cities or neighbourhoods with these categories indicated? Or does anyone know of a proxy criteria I can use? Really struggling to find good usable data to evaluate neighborhoods in a target city. It's easy to find the A or A+ areas, but how do you find the solid B? Help please! 

@Peter Jetson I would suggest going to some local REIA meetup groups. The local investors, agents and loan officers will know where the best B markets are at in your area. Stereo typically you would look for decent schools, low crime, etc, but this is incredibly location specific. In my area, schools are not necessarily the deciding factor in neighborhood desirability for B class areas as I invest in fairly dense urban areas out side Chicago (Berwyn, Forest Park, etc). This could be totally different in your area which is why local knowledge is key.

Thanks guys! Yes sweat equity and a good pair of shoes (or tires) will build local knowledge no doubt, but even then, it's a bit hit or miss, and more of a challenge for out of state investors. With the amount of discussion about neighborhood classes on this forum, I was hoping an online resource existed somewhere that I could tap into. At least, some savvy people must have developed some sort of a proxy by which they look up certain demographic characteristics or some specific retail presence (Starbucks or something) to identify target neighbourhoods? Any experience on the subject from fellow distance investors? 

@Peter Jetson -

This is for MF but will give you some idea.

From the web -

“The grades can sometimes be more of an art than a science, the property class’s will typically be characterized by the following:

* A Class properties are newer properties built within the last 15 years with the most amenities, highest income earning tenants, lowest vacancies, and will typically demand the highest rents with no deferred maintenance. These buildings are usually owned by Institutional investors and demand the lowest Capitalization Rates (CAP Rates), highest per unit prices, and generally have the most appreciation potential, but lowest cash flow starting out.

* B Class properties consist of properties built in the last 15-30 years with some amenities; rents will be a bit lower than the A Class buildings with low deferred maintenance. These buildings demand rents slightly lower than Class A properties, with a mix of white collar workers and more skilled blue collar workers. Class B properties are typically owned by Institutional investors and private investment groups, or very high net worth individuals. They are valued at slightly higher cap rates than Class A properties and usually have appreciation potential with decent cash flow on acquisition.

* C Class properties are typically older properties, built 30+ years ago with much fewer amenities, if any; rents are lower than B Class buildings and usually have more deferred maintenance and a lower occupancy rate. Your tenant base will be mostly blue collar service employees, and could have a mix of government-subsidized tenants. These buildings are usually owned by private investors and private investment groups, and provide for higher cash flow and CAP rates, but will normally have much lower appreciation.

* D Class properties are older buildings in challenging neighborhoods and potentially dangerous areas. They are older, with no amenities, have high deferred maintenance, functional obsolescence, and the tenant base can be very challenging and very management intensive. These properties will usually have double digit CAP rates and will not have appreciation potential. D Class properties are the most challenging, and definitely are not recommended for most investors, especially new investors. While they might look like cash flow kings, the cash flow is often diminished greatly due to repairs and lack of payment by tenants.

When you look at areas, the classifications are very similar, with the same A, B, C, and D area class as follows:

A – newer growth areas

B – older, stable areas

C – older, declining, or stable areas

D – older, declining, potentially rapidly declining areas”

@Manish A. these are great definitions many thanks. I had sort of guessed them but it is much clearer reading these paragraphs. It does not solve the problem of no reliable source to desktop research distant neighborhoods though. I wonder if I can identify typical retail stores nearby A, B or C neighborhoods. Or perhaps income levels and average age. I'm looking at Atlanta and Boise at the moment for instance, how do you think I could spot the B class areas on the map?