Search
  • aschutsky

Learn the A, B, and C's (as well as D's) of Multi-Family Real Estate

Property Class Designations within Multi-Family Real Estate



When it comes to the various classes of Multi-Family apartment buildings, there are commonly referenced groups (or classes) of these assets. Specifically, these are typically grouped as A, B, C, and D. Let's review the differences here:

Class A

  • Age: Generally new construction or built within the last 10 years. Properties older than 10 years have been substantially renovated to modern standards.

  • Rents: Highest rent potential within a given sub market

  • Finish: Luxury and/or high end finishes

  • Return Potential: Lowest return potential of the 4 classes

  • Risk Profile: Generally the lowest risk of the 4 classes

  • Typically located in major markets

  • Typically good financing options exist with highest amount of leverage available and longer term fixed rates

  • Cost: Expect to pay the highest cap rates / pricing to income

Class B

  • Age: Generally 20-25 years old, some renovations may have been completed

  • Rents: 2nd highest rent potential

  • Most deferred maintenance has been completed

  • Finish: Good quality construction with some renovations completed

  • Return Potential: Good potential for returns, especially in a "value add" strategy where renovations are completed

  • Risk Profile: Good balance of risk/return, slightly increased from Class A in some cases depending on the sub-market

  • Traditional Financing options typically available with longer term fixed rates available, generally 20-25+% down payment required

Class C

  • Age: Typically 30+ years old

  • Limited, dated exterior with improvements needed

  • May show some signs of deferred maintenance

  • Rents: Commands rents below class B due to age and amenities

  • Finish: Majority of appliances and finishes may be original or slightly updated

  • Return Potential: Higher return potential vs. Class B, with increase in risk (noted below)

  • Risk: Increased risk from class B, especially if located in lower income areas

  • Slightly higher financing rates from lenders based on risk profile, still typically qualifies for longer term fixed rates and/or variable rates. May require a 30+% down payment

Class D

  • Age: Typically 35+ years old

  • Dated exterior and interiors in need of significant repair or upgrade

  • Marginal construction quality and shortest remaining lives of system components (roof, HVAC, appliances, etc.)

  • No amenity packages

  • Rents: Lowest of all classes

  • Finish: Original, dated

  • Return Potential: Highest potential for return, likely a candidate for asset repositioning, especially if the property is in a higher income area

  • Risk: Highest level of risk

At Redline Equity, we believe the best value balance of risk and reward is achieved through acquisition, professional improvement, and management of Class B and C assets. These tend to also attract quality tenants with a wide pool of potential candidates for investors.

To learn more about investing in Multi-Family real estate, subscribe to our website and contact us for a free consultation with absolutely no obligation.

Andrew Schutsky

Founder and CEO

Redline Equity, LLC

"We help busy professionals invest in real estate!"

38 views0 comments