Real Estate Classes (A, B, C... etc.) What do YOU call it?

Question

I'm just curious - do you include "D and F" when talking about different property types? Or just "A, B, or C?"  I'm just wondering what the general consensus on BP is.

Like... I've got an "A" property in a "C" area.  Is there such thing as "D" for you? Or F?

Thoughts?

Joel W. · Answer

Do investors not know their alphabet, why did we skip E?

Matt R. · Answer

@Brandon Turner I normally just call it A,B or C. I might add a plus or minus. When I really want to get a flavor flav and dail in on potential tenant pool I check Esri Tapestry. Esri has identified 67 unique segments of consumers/tenants. Each zip code has a percentage of those possible 67 types. These are generalities still but definitely deeper than straight A, B and C and helps if one is not local to know what's up.

For example it has identified my recent LA investment as 50% Pleasantville.

Here is that take;

Pleasantville "Prosperous domesticity pervades our settled suburban neighborhoods in New Jersey, New York, and California. We're either empty-nesters or sharing our homes with our adult kids. We're happy staying put in our older, high value, single-family homes. Older homes mean more maintenance, so contracting for home improvement and remodeling projects is a priority. Two high incomes support our affluent lifestyles, and provide our high net worth. Willing to pay for classic timeliness and quality versus trendy, we're not particularly concerned with price. We drive imported SUVs serviced at the local gas station or car dealership. Internet usage includes shopping, paying bills, and tracking investments. Going to the beach, gardening, visiting museums and theme parks, and going to rock concerts fills our spare time."

Give it a try...see if it is accurate.

Linval T. · Answer

@Brandon Turner

Good try with the class extensions suggested, it's thought provoking and I would hate to see the areas identified beyond class D.

Frankly, I have not gone beyond C, but, was tempted to purchase a D.

Online, I found the details of the classifications listed below and have used them as a guideline when additional checks and balances are needed.

Class A: Newer property in a highly desired, stable location with good schools.  These attract high income earning, stable, and responsible tenants leading to low vacancy rates.  Purchase prices and the investment amount required are driven up by owner occupied buyers which provides appreciation but lower cash flow.

Class B: Property in a mostly stable location with average schools. The vacancy rates are mid level and normal wear and tear is expected from tenants.  The added managed risk provides opportunity of higher cash flow than A class with lower purchase prices.

Class C: Older properties in a less stable location with typically less than average schools but must not be in a "war zone".  These may experience higher than average vacancy and higher than normal wear and tear with a mix of government subsidized tenants.  The additional managed risk allows for potentially high returns but can be difficult to manage and may require longer time to liquidate.

Class D: Old properties in challenging and potentially dangerous neighborhoods with little to no amenities. These are characterized by high maintenance, high vacancy rates, and the tenants are the most challenging.  The cash flow will appear to be the highest on paper of all classes but will be greatly effected by the cost of repairs and eviction fees from the lack of payments from the tenants.

Dawn Anastasi · Answer

I classify as A, B, C, and D.  I've never gone to an F area.  I can't even imagine an "F" area!