Rental Property Investor · St. Peters MO · Member since 2019 · 18 posts · 7 votes
on some of the podcast and videos I've been watching I've heard people discussing things like C homes in B neighbourhoods. How can I learn more about these grading systems and how to determine what grade a neighborhood our home is?
Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
7y
Robert:
The ABCD grading system really comes from the apartment space, but is a convenient way to talk about neighborhoods so some use it in the single family space as well.
Unfortunately, there is no firm definition out there and for marketing purposes, brokers will often call a C-class property a B-class, so definitions get blurred further. I've heard some pundits say that D-class properties no longer exist, but I can show you some. It gets confusing. The National Apartment Association has created some definitions referenced in this article: https://bit.ly/2YoqJZS. Even this article calls it "more art than science".
Having an engineering background, I was never comfortable with "more art than science". I prefer a clearer definition. I heard someone propose this solution once and it is the definition that I always use now.
If you take all the apartments in an MSA and divide them into quartiles, you can label them ABCD.
I love thinking of it this way because then the brand new construction that gets $2000/mo for 2 bedroom is in the same bucket as the 100 year old building in a hot area that was recently refurbished that gets $2000 per month.
You will find the D class properties are generally in older areas with more crime.
This system generally maps to the NAA methodology but with much less room for "spin"
Now, when I hear someone say they bought an A-class single family rental. I re-evaluate. If it rents for $1000 per month, I just ask myself "Is that more rent per month than 75% of the properties in the area?" If it is in the 45th percentile, I would call it a C+ not an A.