How to identify between A-D class properties?

Question

Hi all. I really probably should have known this prior to investing in my first couple properties, but what is the definition for each class in multi family?

A, B, C, and D ? Is there more than D?

What do you invest in and why is it one of the following?

Bjorn Ahlblad · Answer

I use a tried and tested formula that works: The property is always one letter lower than the seller's or broker's claim. If they say it is a 'C'; I know it is a 'D'. Try it for yourself! ;)

Steve K. · Answer

Surprised to see "age" getting so much attention here. I'm not a subscriber to this ageism personally. Condition is a big factor for sure, but not age necessarily except in that age often speaks to condition.

As @Gaspare U. adeptly points out, Park Ave is very old but nobody would call it Class D. Many of the swankiest, leafiest, trendiest and most expensive neighborhoods in the U.S. are also some of the oldest and historic buildings usually hold value better than new construction. Society Hill in Philadelphia, for example, is that city's most stable real estate market, and New Orleans' French Quarter is the most expensive district in that city. Old Cambridge, Back Bay and Beacon Hill in Boston, Lincoln Square, the Upper East Side, SoHo, Park Ave, West Village etc. in NYC, Haight-Ashbury in San Francisco, Bel Air in LA, Old town Charleston SC, Georgetown DC, Capital Hill, Wash Park, Cheesman, Country Club, Belcaro, Highlands in Denver, the list goes on these are all among both the oldest and most expensive real estate locations in the country. All would be considered Class A in most people's books despite the buildings there mostly being super old. Basically if George Washington or Jerry Garcia or Jack Kerouac slept there, or if Hitchcock shot a film there, you know it's Class A. So I would say quality of construction and condition, but not necessarily age.

Median income in correlation to tenant's income, as @Mike Dymski pointed out, is a great indicator.

Surprised nobody has mentioned rent amount or just plain price yet. Higher the rent and higher the value of the building compared to the local average, higher the class obviously.

The overall character of the area is definitely a large factor as it will determine the type of tenants living there/demographics: Yoga/Orange Theory studios, Whole Foods, Starbucks, micro breweries, wine and cheese shops, public parks, bike paths, green spaces, public transportation, good schools, nice restaurants, cranes/new construction, low crime rate, high prices all indicate a Class A area whereas boarded up buildings, lots of Payday lenders/check cashing stores, dollar stores, fast food, liquor stores, homeless shelters, army recruiting centers, addiction recovery centers, industrial areas, dumps, shoes hanging from power lines, junked cars lining the streets, high crime, blight, abandoned buildings, urban decay, burnt out buildings, low prices, low rent, etc. would indicate a Class D area.

It's really pretty subjective though, I'm not sure there are universally accepted definitions but rather just people's opinions. Basically if it's a crack house that is approaching economic obsolescence that rents for less than a couple hundred/unit, then that's Class D and if doctors, lawyers, and business executives would rent there, Class A.

Mike Dymski · Answer

many investors use median household income to define class rather than an arbitrary definition

Gaspare U. · Answer

This is a great question and will be following along. I think it has to do with BOTH condition and amenities of the building AND the area. I wouldn’t use age of property as a guideline. You have some pretty old buildings on Park Ave and categorizing them as a D would be foolish. You could also have a company who was subsidized by the government to build projects in a war zone and I wouldn’t call that an A.

Someone brought up the correlation of income. I think that may be a great starting point. Look at the area’s median income vs the building’s tenants income. If the area is in low crime, good schools and the town offers other desirable characteristics (transportation, lively downtown, proximity to beach/lake/ski) That area may be an A or B. Look at the medium salary per family and then compare those tenants. Then compare rents w/ other buildings, where would you rather live?

Dennis M. · Answer

A- wow I’d  love to live here

B- this is where I live

C-I’d have to be really desperate to live here

D - no way in h:// id live here !

F- where is my bullet proof vest and mace ?

Mark Cruse · Answer

According to some of these descriptions a majoirty of buildings would be class D in DC or NY, even if its the most expensive and high end real estate.

Greg Dickerson · Answer

It’s generally defined by the age and condition of the property as stated above however as also mentioned older buildings can be made new. The area can also come into play but this is also subjective as you can have a class A building in a B,C or even D area.

So all that being said it is first and foremost the age and condition of the building followed by the area and demographics of the population.

Tj Hines · Answer

@Timothy Swenton A B C & D can be classified as the age of the asset along with the quality of the area.

A = Newer built properties maybe from 2005 - Present

B = Properties built 1980s -Mid 2000s

C= Properties built in 60 & 70s

D = These can also be properties built in 60 and 70s too as well. D class is specifically categorized as the area not the age or condition of the property.

How to identify between A-D class properties?

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