Pros and Cons of C Class Apartment Buildings

Member since 2019 · 4 posts · 2 votes

I am interested in hearing from the BP Audience what the Pros and Cons are for C Class Apartment Buildings. I am looking to purchase one and this would be my first Apartment Building. 18 units. The deal seems right, but not sure about C Class properties. I plan on having a property management company take care of it. Thanks.

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Greg Dickerson

Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes

A lot of factors to consider. Location and market is a big one. I like class C if the location is good and market demand is strong. You need to know what you’re doing and not overpay. C properties can be very lucrative or they can clean your clock.

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
pro's looks better on paper than a B or A
cons.. wont run as advertised and return might be as good as B
class or you could get your butt handed to you.
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Mark Fries
Contractor · Jacksonville, FL · Member since 2017 · 1k+ posts · 2k+ votes
7y
@Jay Hinrichs
I'm not even sure C class even exist for apartment buildings anymore.... I think you got A and B class and then it goes right to D class...lol
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
Originally posted by @Mark Fries:

@Jay Hinrichs
I'm not even sure C class even exist for apartment buildings anymore.... I think you got A and B class and then it goes right to D class...lol
yup D masquerading As C .. I had some friends in Oregon buy a C class at least they said it was in Memphis.
they dropped 600k into fixing it up.. it reverted to the mean and they lost all their money.. after following me to Atlanta and buying courthouse steps in 2012 to 2013 were we each made million plus.. they then thought MF C D was the ticket enamored with the numbers but had no clue as to tenant base and how to run it.. need to be careful.. smaller returns that you actually get are better than big returns on paper you never get.
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Greg Dickerson
Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
7y
A lot of factors to consider. Location and market is a big one. I like class C if the location is good and market demand is strong. You need to know what you’re doing and not overpay. C properties can be very lucrative or they can clean your clock.
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Paul Barbeau
Nashville, TN · Member since 2017 · 37 posts · 41 votes
7y
If its a C class building in a B class neighborhood, it may be a good opportunity. Then you can improve the property to match the neighborhood and get better tenants in there. If the neighborhood is a C class, then don't worry about making the property too nice. But do your due diligence, talk to property managers, and get a feel for your tenant pool and if they are going to cause too many headaches.
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Bryan Blankenship
Investor · Cincinnati, OH · Member since 2014 · 538 posts · 432 votes
7y
@Judson Offner Everyone's advice so far has been spot on. C Class, especially apartment buildings, can be very tricky. Location, of course, is your greatest determinant of whether or not it's going to be a solid investment. Property management is #2, and can EASILY make or break you regardless of every other factor. You need someone very familiar with the area and realistic about expectations for you when it comes to vacancies, turnover, and maintenance costs.
Repairs on that many units in a lower-class neighborhood can eat away at your cashflow in the blink of an eye. I've had an 18-unit in a C+ class area before that gave me a pretty decent return - however, I didn't outsource the management or repairs at all, so I was able to control costs and turns.
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Bjorn AhlbladPro Member
Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
7y
For me it comes down to who are the tenants. Inherited tenants can pose the biggest risk, especially those that were processed shortly before the building was put up for sale; you need to rescreen them properly. Then it is up to you and your screening process.
Have a plan for the property, keep adequate reserves, and get the building inspected before you buy, and leave nothing to trust. All the best!
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Mike Dymski
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
7y
Your biggest challenge is not class, it's size. 18 units is too small for onsite management and a different business model than SFR management companies have (no apartment vendors, slow unit turns, retail pricing on maintenance). This is a bigger deal than most would expect. It can work but many investors experience trial and error.
C class varies by market...from quiet, long-term residents in one market (or location) to high turnover, high touch residents in a different market (or location). That is why there is so much debate on BP about C class...experience varies by market.
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Lien VuongBusiness Member
Real Estate Agent · Boston, MA · Member since 2018 · 2k+ posts · 1k+ votes
7y
Hiring a PM does not mean that all your problems go away. Yes, they will alleviate the phone calls and manage the renovations but purchasing a C class property means there'll be high turnover and a lot of CapEx associated.
I purchased and sold 16 units of a C class last year and if i was not in a sound economical situation and landlord experience, I would not have been able to made it out the way I did.
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Judson Offner
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Member since 2019 · 4 posts · 2 votes
7y
Thank you for all the great insights. The property I am speaking about was already under contract when I inquired. The quick response on BP and knowledge of members is exceptional.
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Justin Kane
Specialist · San Antonio, TX · Member since 2015 · 909 posts · 297 votes
7y
18 units is great, youll need just do your homework, make sure that area NEEDS a value add, and if the numbers still work great then go for it, just make sure you bring a commercial inspector with you
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Account Closed
Investor · Portland, OR · Member since 2017 · 182 posts · 115 votes
7y
AFTER OWNING AND MANAGING D & C'S FOR A BIT---- AND THEN WORKING WITH AND OWNING A'S AND B+'S----- NOT EVEN CLOSE... A'S & B'S ARE PREFERABLE. THE APPRECIATION & LINES OF CREDITS FOR THESE TYPES OF PROPERTIES EASILY MAKE UP THE PRICE DIFFERENCE.
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Brian Ploszay
Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
7y
There are plenty of successful operators in this space. Usually they are hands on, local and experienced with the issues for these types of properties. The checks just don't come in the mail.
I used to characterize these properties as a graveyard for amateur investors. Then the pros come along and buy up these distressed properties. That is at least half the attraction to this product type: You're able to buy cheap distress properties. Those opportunities do not exist in better areas often.
For your first property, 18 units of class "C" might end up poorly. Plan to be hands on, local and have a mentor to help you through all of this. Get quick training on best tenant screening techniques.
Collections are going to be your number one problem. Another poster mentioned about over-investing in these properties. So true...
There are certain more durable finishes, which are also easily replaced.
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