Multifamily Asset Classification Explained
When it comes to investing in any multifamily asset is to receive a healthy return on investment. Therefore, before putting your money in a multifamily property, among others, it is a prerequisite to learn the different classes of multifamily properties. Investors, lenders and brokers have developed multifamily property classification for ease in their work. Broadly, multifamily properties are classifiable into A, B, C and D categories, depending on their age, renovation, and other factors that we will elaborately discuss in this write-up.
Class A properties are usually the ones that they have recently built, with the threshold being 10 years. In some cases, however, high rise properties in prime locations also come under Class A, even if they are as much as 20 years old. Class A properties, with a promise to provide a home that is more than just a house, offer high-end interiors and exteriors, comprehensive amenities, and attractive landscaping. Quality of construction is long lasting, meaning very less expenditure on renovation and remodeling in future. In short, investment in Class A properties is almost certain to be worthwhile. During times of recession, however, investors might suffer a loss, as many people would not prefer living in their properties due to high rents.
Class B multifamily properties are generally built within a time frame of 20 years. These properties too have high quality construction; though there can be a need of some remodeling, which can be done by consulting a multifamily property remodeling agency. Though the interiors and exteriors of Class B properties are decent, they lack in appeal if compared with Class A properties. For many investors, investing in a Class B multifamily property is a ‘value-added’ investment opportunity, because in most cases, these properties can be easily turned to Class A categories after remodeling.
Any multifamily property that is built within the last 30 years comes under Class C category. These properties are substantially functional and usually located in prime areas of the town; however, they may demand extensive renovation and remodeling. Class C category of multifamily properties is also known as the ‘workforce housing’, meaning houses for lower income group. Therefore, if you are looking for a low-value investment, putting your money in a Class C multifamily asset is unarguably one of the best options.
Class D multifamily properties are older than 30 years and usually located on the outskirts of the city. These multifamily property do not offer too many amenities and the construction quality might be fairly substandard. In most cases, people with a marginally lower economic background prefer Class D multifamily property. From investment perspective, it all depends on the total cost of ownership paid and the possibilities of returns in terms of rent.
Basic understanding about the class categorization of multifamily properties helps investors to invest smartly and yield great returns on their investment. Investors with a large budget consider investing on Class A properties, whereas those who are looking for a small investment usually opt for Class B and lower categories. In all cases, those investing in a Class B property or any of the lower categories can upgrade the class of their multifamily property by remodeling. Should you wish to learn more, please feel free to contact our team of consultants.