B class vs C class ?

[Robert Collins]

Is it far better to buy in a B class area at a fair price than Purchase in a C area at a wonderful price ? 🤔

[Jay Hinrichs]

you know the answer LOL

[Steve Vaughan]

Originally posted by @Robert Collins:

Is it far better to buy in a B class area at a fair price than Purchase in a C area at a wonderful price ? 🤔

Depends on why it is c class.  I have 100+ year-old c class buildings. They are just old.

I have c class neighborhood stuff because it's rural.  Not crime-ridden or dilapidated, just rural.   I can place b class tenants in both pretty easily.  

What is your c class like you are considering? C class PP and b class tenants has worked works for me.  A little higher vacancy rate is the bulk of my rural headache.  Don't play with rural without adequate patience reserves.

[Robert Collins]

@Steve Vaughan

I was reading a warren buffet book and he quoted something like this about companies , so I posted on here to gather opinions of others to see how they tAke the approach in real estate investing .

But your absolutely right , there are so many variables to determine.

For me I would rather purchase on the B which will cash flow slower but will go up in value like a train compared to a C area .

But someone can argue that they could jump in a C area and but twice as much and use the cash flow to move faster but not calculate the extra hassle which could slow you down .

[Robert Collins]

@Jay Hinrichs 😂

[Steve Vaughan]

Originally posted by @Robert Collins:

@Steve Vaughan

But someone can argue that they could jump in a C area and but twice as much and use the cash flow to move faster but not calculate the extra hassle which could slow you down . 

In general, of course that's the idea.  More cf per dollar imvested.

My point was areas and assets can be considered c for different reasons.  I can deal with the hassles of older buildings and rural settings, not crime and crud.   

Whether an asset and area will support and be attractive to b class tenants or not is the tipping point for me. Most think of urban lower mediocrity when they hear c class. 

[Robert Collins]

@Steve Vaughan

Yeah when I think of C class I think if urban area , cars scatter in the yard , no major crime .

When I think of D area I think of crime , bando homes , police roaming every where .

When I think of B area I think of desirable area and home most want to live.

When I think of A , I think of the area people dream of living .

I know all of these aren’t accurate, they just the first things that come to mind

[Steve Vaughan]

Originally posted by @Robert Collins:

@Steve Vaughan

Yeah when I think of C class I think if urban area , cars scatter in the yard , no major crime .

When I think of D area I think of crime , bando homes , police roaming every where .

When I think of B area I think of desirable area and home most want to live.

When I think of A , I think of the area people dream of living .

I know all of these aren’t accurate, they just the first things that come to mind

Yep.  So my answer to whether it's better to buy a b class at a fair price vs a c at a wonderful price is?  Unless that c class can attract and retain b class tenants, stick with b. 

[Syed H.]

Class doesn’t matter. Management does. I’ve seen people succeed & fail in every class of property. 

[Ola Dantis]

@Robert Collins Yea, this is an interesting question...

If it is a C class property (>20 YEARS OLD) in a Class B area or on the brink of a Class B location. 

I think it's important to make the differentiation when it comes to property class by location and age.  

[Dennis M.]

it comes down to management in my opinion . Can you handle tough or low income neighborhoods and do it effectively? I would take a c or d class everytime but I’m local I self manage and I’m used to the idiotic crap my tenants put me through so I’m ok with the drawbacks .. and there are drawbacks . B is great but the cash flow sucks as does the acquisition price . To each their own

[Anthony Rosa]

Think about it like this.  Your the employer and your tenant is the employee.  

The B tenant goes to work everyday and shows up on time.  The B worker makes an okay income, wants a promotion, shows responsibility and has a steady history of employment. The B tenant has fair/good credit, not great credit, but is improving and saving money because one day B wants to buy a house.

The C tenant goes to work but has poor attendance and is often late. C tenant is satisfied with his/her income but is always behind on bills.  C has gotten written up at work for attendance, tardiness and attitude because C expresses to everyone that being 10 minutes late everyday is no big deal.  C has a checkered work history, changes jobs every 1-3 years and his resume shows years with no employment. C always talks about getting a house but has poor credit and can never get ahead.

This is not to knock any of you that love their C tenants. Of course, there are exceptions to this but this is only an example of the likelihood and chances you take between B and C tenants. You are running a business so in the end you want whats best for your business.  

[Syed H.]

Originally posted by @Anthony Rosa:

Think about it like this.  Your the employer and your tenant is the employee.  

The B tenant goes to work everyday and shows up on time.  The B worker makes an okay income, wants a promotion, shows responsibility and has a steady history of employment. The B tenant has fair/good credit, not great credit, but is improving and saving money because one day B wants to buy a house.

The C tenant goes to work but has poor attendance and is often late. C tenant is satisfied with his/her income but is always behind on bills.  C has gotten written up at work for attendance, tardiness and attitude because C expresses to everyone that being 10 minutes late everyday is no big deal.  C has a checkered work history, changes jobs every 1-3 years and his resume shows years with no employment. C always talks about getting a house but has poor credit and can never get ahead.

This is not to knock any of you that love their C tenants. Of course, there are exceptions to this but this is only an example of the likelihood and chances you take between B and C tenants. You are running a business so in the end you want whats best for your business.  

That sounds great in theory. 

Class B is generally more educated and knows how to take advantage. Class B hires an attorney when you evict them just to cost you an extra month or 2. Class B's attorney tells the judge the tenant's elderly mother lives with them and of course the judge doesn't want to evict them in middle of December so why not give them an extra month. 

They all have their pros/cons. IMO they are all the same. There are good and bad tenants in literally every rental. I have no bias one way or another. I have owned/own something in Class A-D. 

[Robert Collins]

@Syed H.

Great examples

[Luis G Hernandez]

@Steve Vaughan is there a book that may have more info on this ? Like criteria’s for zones etc. Maybe a website ?

[CJ M.]

@Robert Collins

Most people here will hate on anything less than A or B...I say ignore what people say and do what's best for your situation and goals.

[Martin Neal]

@Robert Collins depends on your focus. A little cash flow with more appreciation versus a lot of cash flow with slower or no appreciation. Also you have to take into consideration what makes it a class B/C property working for/against you.

[Dennis M.]

@Anthony Rosa

I like your comparison and I agree but you forgot your d class tenant at the work place . He is rarely there when he does show he’s late more than he is on time .. shows up drunk/high with neon purple hair and gets in fights with coworkers .blames everyone and anyone about the cards he was dealt never realizing he is the one dealing out the cards.wears designer clothes ,150$ shoes and buys 9$ a pack cigarettes but complains he’s always broke .

[Michael H.]

@Robert Collins

I have some people in my network that are killing it by turning a C property into a B property, But were less successful trying to turn a B property into and a A property

[Javier D.]

@Robert Collins

Buy the c class, value add and 1031 into the b class.

[Mario Am]

@Robert Collins my favorite is C+.

It is just the right sense in the middle

[Brian Ploszay]

If you are new, error on conservatism and buy B class.   C areas are a niche, which is profitable for experienced investors who understand the risks.  Risks include defaulting tenants, excess wear and tear, higher crime rates and more.   The foundation of C area investing is buying the assets at a distressed price.   Distressed assets are more plentiful in C area for the reasons above.