A vs B vs C vs D neighborhood

7 Replies

What is an A neighborhood, versus a B neighborhood, versus a C neighborhood, versus a D neighborhood? What are some qualities you can look at to distinguish between them? What are the implications of flipping/renting in each?

the answer to your question, or questions could take a novel to respond. I will just say that a c neighborhood or d may put you in the slumlord category. There is a happy medium of tolerance in these neighborhoods and you can be sure to receive a check from the government through section 8 housing. Depending on your county and state laws, and proper screening of tenant, you could find yourself a section 8 niche, and yes I have seen very successful investors do so without being slumlords.

The answer is always market specific. One way to think about it is how the home price compares to the median home price in that city. Well above median would be the A. Around median would be B. Less than median C and well below median D. Or you could look at rents. In Indy I would call SFR rents 1500 A. The lines are not very sharp and one can argue about the cutoffs but thats the way I look at it.

Another way is to think about who would live in that neighborhood

A: Doctors, Lawyers, Executives

B: Nurses, salespeople, other white collar

C: Truck Drivers, Retail Workers, Construction, other Blue Collar

D: Welfare/Section 8/Drug dealers.

On the surface, the answer appears to be simple...BUT one will caution that in order to make a true determination, it requires a lot of actual research on a local market/neighborhood and the answer is actually much more in-depth...so take this with a grain of salt..lol

Class A- Newer Growth Areas (new construction, rebuilding of infrastructure, core fundamentals reflect strong growth, low unemployment, pro-active government, home prices increasing, vacancy rates decreasing, demand slightly higher than supply, School Districts usually have a 5+ rating, etc.)

Class B - Older yet Stable Areas (Little new construction, no major fluctuation in growth or reduction of population, little to no change in employment opportunities or unemployment rates, infrastructure is old yet functional and not being updated, supply and demand are fairly equalized, rental vs home ownership relatively equal, home prices stabilized, School Districts usually have a 3-5 rating, low to moderate crime rates, etc.) 

Class C - Older yet Declining or Barely Stable (Know as Crap Shoot areas, large population decrease, home prices flat-line or slightly decreasing, infrastructure needs repairs, School Districts usually rated a 3 or below, high localized unemployment, no new construction, businesses moving out of the area, moderate crime rates, more inventory than buyers, high rental communities vs home ownership, etc.)

Class D - Older, Declining, potentially rapidly declining areas (potential "War Zones", high crime rates, properties is vast disrepair, very high localized unemployment rates, small pockets of population, high number of vacant and boarded up properties, bad infrastructure - barely functional, disorganized local government, vast numbers of public assistance housing puds, overall community in need of extreme assistance.)

Each Community though has its' own Real Estate Cycle and for the most part that occurs every 7-10yrs on average. While I highlighted some of the most regarded tell-tail signs some look for to determine a community type, it should not be considered all inclusive signs by any stretch of the imagination.

Hope this helps some...but again, take with a grain of salt because no one can answer your question completely as each market is different and each have their own tell-tail signs...not a one size fits all classification./

Originally posted by @Anish Tolia :

Another way is to think about who would live in that neighborhood

A: Doctors, Lawyers, Executives

B: Nurses, salespeople, other white collar

C: Truck Drivers, Retail Workers, Construction, other Blue Collar

D: Welfare/Section 8/Drug dealers.

I think this is a pretty good description for stereotypes, but I think drug dealers can live in C and B class areas too.  I have some working class tenants who are CNAs and that's not in a B area.  So profession is not always the best descriptor.

@Joshua Chen  It will be pretty hard to answer those quests bro. Look, just use your judgment and trust that you will make the right decisions in investing. 

I'll try to use my judgment and gut instinct

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