How to Evaluate A-Class, B-Class, and C-Class Properties?

Introduction

Real estate properties are dime a dozen. You have different kinds of properties that fit every pocket. So can a buyer be a discerning one if there are too many options. This is where real-estate grades play a vital role. Property classifications are an important indicator about the value of a property. This information is of immense worth to the lenders, brokers, including the investors who use it as a guideline to make a decision about a potential property.

Real estate properties are classified into three categories, namely, Class A, Class B, and Class C properties. Each class also represents a certain level of risk and return on investment. So depending on each investor’s risk appetite and objective, they can choose the kind of real estate properties they would like to go with.

Evaluating Different Property Categories

The commercial real estate properties that are classified into real estate grades are based on a specific set of criteria such as location, growth potential, amenities, rental income to name a few. However, there is no specific formula based on which the real estate grades were derived. Let’s take a quick look at each category at a high-level.

Class A refers to the cream. These are properties that are top of the charts, new or constructed in recent years with the latest amenities. Such high-end properties naturally catch the interest of the high-income earning crowd. The buildings with the state-of-art facilities are also managed and maintained by professional services. Understandably, the rent is also extremely high in Class A properties.

Class B are the next variety. The properties in this lot are much older than their Class A neighbours. The rent is also not as high and the real estate properties in this lot may or may not enjoy professionally managed services. However, since these properties have the potential to rise to a Class A property through renovation or improvements, these are generally properties that still remain an investor’s pick. The blue collar crowd may also prefer this class of property. They will give importance to infrastructure that is important for their family to thrive. So this asset class will typically see a mix of both investors and owner occupied properties.

Class C properties are the low-end group, with buildings that are more than 20 years old. The location and amenities available in such properties may be far from desirable. The rental income is much more lower than the previous two categories.

Investing in different asset classes

So each tier starting with the top tier, middle tier and low tier represents an investment potential within its boundaries. For example, Class A real estate properties are typically owner occupied and may not have an immediate cash flow unlike Class B properties that have a return on investment. The type of investment in any asset class is thus guided by your financial goals. Also, bear in mind that the classifications may remain consistent, but the real estate grades of properties will keep changing over time depending on the changes that take place.