Understanding Real Estate Property Class
You’ve decided to purchase an investment property. Now, where do you begin? Deciding on which investment property location is right for you can be an overwhelming process. Here at Oak Trust Properties, we most certainly know that the early stages of the who, what, where can often be one of the most challenging aspects.
At the beginning of your journey, you will need to know what kind of investment is right for you. A process that can significantly help your investment property search is by learning the different class types between properties.
There are either A Class, B Class, or C Class properties. These properties are classified based on a scaling system. The properties within these areas have specific characteristics that you will want to match with your investment goals.
So, what are we waiting for? Let’s get started!
A Class Properties
A Class properties are located predominantly in the most desirable areas. These properties are super close to restaurants and shops. This area is known as the place where everyone wants to be. The properties themselves are usually less than ten years old. The interior of these properties will include granite countertops, hardwood floors, upgraded appliances, and more. Maintenance issues tend to be minimal in these locations.
The prices will be higher, and the likelihood of this area being heavily owner-occupied will be very high. Typically, these locations will include a good school district and amenities.
B Class Properties
B Class properties are still desirable like A Class properties. Although, B Class properties are a little out of range from the restaurants, shops, schools, etc. These homes are usually older than an A Class property, around 15 to 30 years. You will see more work orders and routine maintenance.
Unlike A Class properties, there is a considerable demand for renters in B Class properties. Renters occupy about 50% of these homes while the other 50% are investor owned. The price is, of course, less than an A Class property.
C Class Properties
C class properties usually are 30 years older or more. Renters are mostly living in these locations, about 80% renters instead of owner-occupied properties. Hands-on maintenance is going to be essential in these locations. For example, there is going to be older electrical and plumbing.
With higher maintenance issues in these properties, you will often see a high correlation in higher liability. C class properties will appear at the lowest price point. A common trend is for C class properties to be a starter investment due to their low price and potential for a positive cash flow.
How To Decide Which Property Type Is The Right Investment For You?
Now that we have the lay of the land down, let’s figure out which investment property is best for you!
Understanding how much time you want to spend working on your investment property is a question that you must know the answer to before your purchase. For example, an A Class property will not have many maintenance costs, while a C class property will. If you are looking to purchase your investment property and set up the property for success without overthinking high-stress decisions, you are best aligned with a B class property. B class properties are attainable, approachable, and almost always cash flow pretty quickly.
For all investment properties, one of the most important elements is cash flow. A Class properties are more expensive, and with that comes higher expenses. In most cases, it is better to diversify your investment rather than spending it all on the initial investment and dues that are involved in an A Class property.
It’s always important to remember that your investment property is your business. You do not want to purchase the property you want to live in; you want to buy the property to bring you the most value.
Of course, if you have any questions about property management and learning about how we strategically manage our investment properties, please give us a call at (843) 804-9991.