I need to update my place when the tenant moves out, but I'm not sure to what degree I need to upgrade it as that will depend on what Class it belongs to. But, I'm not sure how to identify what class my property would be- if its a Class A, Class B, or Class C.
What should you be looking at to know what class your property should be in?
There's objective criteria if we're talking about an apartment to identify the differences between different classes where they look at the age of the property, but I'm not sure if they should apply to a SFH.
According to that criteria, my place would be Class C or Class D because it was built in the 70s.
But, its got peek-a-boo ocean views from the various rooms and attached decks. And, its fairly close to the beach where it takes me over 10 minutes to walk to the beach. The bathrooms were renovated a few years ago with new vanities and granite countertops, but the kitchen still has its original countertops and cabinets but comes with stainless steel appliances.
Its located a famous coastal California city that you've probably heard of, but it also means there are neighborhoods that are much nicer than mine. When you're looking at Class A vs Class B, are you looking at the differences between properties in the same city or are you casting a wider net across the county?
This is for a townhome so should I factor in the community's amenities- pool and tennis courts but no fitness center?
Would you call this a Class A or Class B?
Huntington Beach is by no means a class C or D, unless its a mobile park and/or inside a complex that is poorly maintained. It is a beach city in Orange County. If you compare what your renting your apartment for at its current condition, vs renting a similar apartment inland and not in orange county (let alone walking distance to the beach) your rent would probably be significantly higher. As far as updating your property it all depends on your end goal and the type of tenants you've been having. One of my family members own a condo with a peek-a-boo ocean view on PCH in Huntington Beach walking distance from the pier, she spent a lot of money renovating the inside because she uses it for personal use and enjoys the luxury of it, but her complex was built in the 70s as well, with a small pool/jaccuzi, no tennis courts or fitness center. Bikes sometimes chained on the outside rails of the walkways/corridors.
If your complex attracts higher rents, working professionals with little renovations/repairs/upkeep required between tenants then upgrade it accordingly to attract same type of tenants. However, if you are not planning on keeping this property long term too much expensive upgrades can turn into a negative if you have to flip it, but end up pricing it too high to try to recoop your costs. I am sure you've seen examples of homes that were over-renovated in neighborhoods that should not have been done so. See if you can find rental listings for your complex or nearby properties that show the interior to compare might be a good start. Another BP member posted this
" there are no carved in stone definitions but these are the rough guidelines that we use. Note that they combine property class with neighborhood class and of course we're all looking for the B property in an A neighborhood or a C property in a B neighborhood because they come with built in upside. Also in historic neighborhoods there can be old buildings that don't meet the age qualification of an A or B property but can be rehabbed into a very nice, desirable property:
Class A Properties:
• Typically less than 10 years old (No deferred maintenance)
• These apartment communities have a definite market presence.
• Typically occupied by white collar workers who are renters by choice.
• Residents pay above average rents.
• High levels of unit features and amenities such as garages, in-unit washer/dryers, pools, spas, exercise gyms, the latest technology, etc
• May have less cash flow than B or C properties but greater appreciation potential.
Class B Properties:
• Typically 10-20 years old (Little or no deferred maintenance)
• Occupied by both white and blue collar workers
• 80% to 120% of an areas median income (the middle class apartment dweller)
• Usually renters by necessity, not by choice (can’t buy for one reason or another)
• Tend not to move as often as other tenants.
• Generally command average rental rates
• Property finishes are fair to good and systems are adequate
• Includes former Class A apartments that are 10+ years old
• Complexes are well maintained
• Properties will have decent cash flow and decent appreciation potential.
Class C Properties:
• Built within the last 21-30 years (varying degrees of deferred maintenance).
• Typically occupied by blue collar workers and even some Section 8 tenants
• Usually have below market rental rates
• The projects have fewer amenities
• Renters by necessity.
• Properties will have decent cash flow but appreciation has to be created with physical improvements (remodeling, aka rehabbing or repositioning)."
best of luck!
What else is on the rental market?
What is the ratio of rentals to owner-occupied? If you are looking a low ratio of rentals, you are usually looking at a class A neighborhood.
If you bring your kitchen up to market standards, would that kill cash flow? It might be worth considering selling and re-investing if you are in that situation.
I would say just because there are much nicer properties doesn't mean your house isn't an A class rental. There are a fair amount of high end properties that are pretty much irrelevant from a rental perspective - in a lot of markets there seems to be a cap in what people are generally willing to pay for rent, that is much lower than the cap for purchase prices. True you might see rentals at higher points, but I suspect they have very high levels of vacancy.
This was a great question @Josh L I was looking for an answer to a similar question.
Thank you for the detailed breakdown @Sandy Salazar ! I was looking for something like that.
I've got a TH rental in HB about 1.25 mi from beach. Sid of MO classified units slightly differently.
Class A - higher dollar SFHs, townhouses, lofts or condos in very desirable neighborhoods or swanky "in" downtown areas.
Top notch school districts.
May have lots of hi-end amenities such as gated community, exclusive access pool / fitness / spa.
New construction and/or rehabbed extensively with top notch quality, design, and "fashion" in mind.
Attracts only the highest class of tenant who can a) afford it and b) wants only the best.
Very low / non-existent crime rates.
Class B - solid, desirable units for stable tenants who want a decent value but who are also willing to pay above average rates for above average amenities.
May be new construction or recently rehabbed, but no so much a fashion statement as just a really nice place to live.
Good neighborhood/area. Good schools. Low crime rates.
Class C - basic, functional housing at a reasonable price. Nothing fancy, but clean and everything works.
May or may not be recently renovated.
Okay schools and moderate crime rates.
Attracts people who cannot or don't want to spend more on housing than is necessary.
I consider a Class A example to be an SFR or apt within 3 or 4 blocks from the beach or on the bluffs overlooking the wild life sanctuary which has top notch fashion up grades. If its actually in Surf City then crimes are usually theft not personal injury.
I consider a Class B or C example to be a surfer shack which looks like a converted garage, within 2 block from the beach with looping electric lines to its flat tar roof.
Hope you get the idea.
@Brandon Chipman No problem! Although I can't take credit for that detailed breakdown, another BP member had posted it a while back and I saved it for my reference. There is so much information here on BP sometimes typing in a few key words will give you a lot of information, questions and answers to things that you didnt even think about but should know. Best of luck @Josh L. and lets all connect being we're all southern californians =).
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