Multi-family investment properties are assigned property classifications A, B, C, or D. Property class is determined based on characteristics such as condition, location, tenant income levels, age, rental rates, appreciation, and amenities. Similarly, areas in which properties are located are categorized into A, B, C, and D classes. Understanding a property's class and area rating are imperative for determining the success rate of your investment goals and for communicating your needs to your real estate agent.
These comprehensive descriptions of each class will help you better understand how multi-family investment properties are standardized:
“A” Class Multi-Family Properties
- Built within the last 15 years
- Consist of the highest income-earning tenants
- Most amenities such as pool, playground, etc.
- High appreciation potential
- High rents with no deferred maintenance
- Lowest Capitalization Rates
- Generally owned by institutional investors
"A" Class Areas refer to newer growth areas.
“B” Class Multi-Family Properties
- Built in the last 15-30 years
- Mixed tenant base
- Some amenities
- Rents slightly lower than "A"Class buildings
- Low deferred maintenance
- Higher Cap. Rates than Class "A" properties
- Appreciation Potential
- Primarily owned by institutional investors, private investment groups, or high net worth individual investors
"B" Class areas refer to older areas with stability.
“C” Class Multi-Family Properties
- Properties built 30+ years ago
- Limited amenities
- Lower rents
- Lower occupancy
- Lower appreciation
- More deferred maintenance
- Higher cash flow and Cap. Rates
- Typically owned by private investors
"C" Class Areas are older, declining, or relatively stable areas.
“D” Class Multi-Family Properties
- Older buildings
- No amenities
- High deferred maintenance
- Potentially insubordinate tenant base
- High Cap. Rates
- No appreciation potential
- Not suggested for new investors
"D" Class Areas are older, rapidly declining areas.
When searching for investment properties for sale in the Puget Sound Area, choosing a property with a class of equal to or higher rating than the area (for instance, a "C" class property in a "B" or "C" class area) will stimulate growth and appreciation potential. Familiarizing yourself with multi-family investment property and area classifications will help you to determine which properties and areas align with your investment goals.