How to determine A/B/C/ D property type

Question

David Faulkner · Answer

A/B/C/D is more of a grading of the location and the neighborhood more so than the property itself. The neighborhood then sets the standard for the level of fit and finish that is appropriate for the property. Realtors often try to trick you saying it is an "A" property because it has "A" finishes ... well, even if that is true, if the "A" property is in a "D" location/neighborhood, then guess what, it is a "D" property, or if it is not with its "A" finishes, it soon will be ...

As for grading, agree that there are no hard and fast rules, but a few determining factors in my mind are: quality of the school district, age of construction of most home, percentage of owners vs. renters, median income & education level of citizens, typical property size/finish/amenities, percentage of SFRs to apartments or condos (not always true for dowtown locations), crime rates and types (violent vs. non-violent).

Another subjective grading system (along with investment strategies) I've heard is:

• A is where you would want to live
• B is where you could live
• C is where you could live if you had to
• D is where you'd rather live under a bridge than to live there

Finally, below are some notes and RE strategy for each:

• A: Low to negative immediate cash flow, but higher potential for future appreciation and rent growth. Long term rentals for appreciation (if you can hold with no cash flow), RE development, flipping, wholesaling, vacation rentals, be a realtor.
• B: Balance between mid cash flow and mid appreciation. Strategies for both A and C neighborhoods both work but in a more balanced risk/reward fashion + be a property manager.
• C: High immediate cash flow, but lower potential for future appreciation and rent growth. Long term rentals for cash flow, be a turnkey provider.
• D: Very high immediate cash flow but good luck collecting, negative future appreciation. Lease to own, bring a bullet proof vest to collect rent, be an eviction lawyer.

Jaysen Medhurst · Answer

Hi, @Jason Krac, it's really as much a subjective art as anything else. Here's how I think about it:

A class: White collar/upper-upper middle class, higher-end finishes, very safe neighborhoods, good schools. Cash flow might not be great, but good appreciation and solid tenants. Lots of families, young professionals.

B class: Working class/upper middle class; nice, not fancy finishes. Properties are clean and neat. Everyone from the successful plumber to the young, professional couples just starting out live here. Safe neighborhoods, maybe location isn't as good as A. Good balance of cash flow/appreciation.

C class: Bit more transient, properties are not very well kept. Perhaps some cars on blocks or couches on the front porch. Really good cash flow, cheap properties, little to no appreciation. Tenants will turn over more, higher chance of evictions. Much more work in property/tenant management.

D class: war zone. not for the faint of heart.

Ayodeji Kuponiyi · Answer

@Jason Krac A: Newly built properties in the nicest areas.

B: Slightly older property, but still nice. Might be not quite as nice of an area. C: Older properties. Likely really could use some work. Not the best areas. For investors, these are really the bread and butter for rentals. D: Run down properties in bad areas.

AND/OR

A = higher end

B = middle class

C = working class

D = drugs, bugs, thugs

Ayodeji Kuponiyi · Answer

@James Wise Go for it, no worries.

Julie Marquez · Answer

I just listened to a BP podcast from the #80s or #90s, and the guest classified them by the rent vs. value rule (1% rule, 2% rule). He said A class were like .5% and the house value was so large that you could not get enough rent to make the 1% (and then he would sell the house and get other rentals).

I don't remember his exact figures, and it depends on your exact location. Maybe B was 1%, C was 2% but little appreciation.

While I prefer Jayson's great description, I thought I would add another thought.

@Jaysen Medhurst

Kim Younkin · Answer

Hi, @Angie Meeker, yes I think people would really appreciate that. And if you have the time and knowledge to do that you could get a lot of traffic to it that might help you with your personal investing growth goals i.e. new connections. Here's what @James Wise did https://www.biggerpockets.com/blogs/4704/42419-cleveland-neighborhood-grades.

Kim Younkin · Answer

@Jason Krac, I wish someone would do what @James Wise did for Cleveland. He put together a totally awesome map of A-D areas through the section of Cleveland where his company operates that got a ton of reads and votes here in the forums. That would be so nice to have for Columbus, especially with so many BPers being interested in our city.

Yep, campus definitely B/C ...

James Wise · Answer

Thank you for the kind words @Kim Younkin

For the copy and paste impaired here is the link to The Ultimate Guide to Grading Cleveland Neighborhoods.

@Ayodeji Kuponiyi

D = drugs, bugs, thugs....I love that, very clever. I think i'm going to start using that if you don't mind.

Brandon Schlichter · Answer

I'd put Campus solidly in a B class neighborhood with some parts bordering A class, just looking at property values.If you want C/D , hop over 71 and look at Linden. Even there, there's a differentiation of areas where there are somewhat nicer parts of Linden (C neighborhoods) and then a great deal that's a warzone (D Neighborhoods).

Jaysen Medhurst · Answer

Thanks, @Julie Marquez, I think it's important include ROI in the understanding.

How to determine A/B/C/ D property type

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