A Quick Guide to the ABCD's of Commercial Property

By Richard Sorrentino

Multifamily properties, use terms like "Class A, B, or C Class Property". Like any professional language there is terminology you can learn. These terms, are used to help you to understand a property's assets and expedite decision making when referring to asset property classes.

Let us take a look at what these terms mean for you as an investor:

Class A: Class A properties are new, upscale apartment buildings. Average rents are high, and they are generally located in desirable geographic areas. Class A properties have the highest valuations often referred to as per door and the lowest market cap rates. Their main attraction appreciation as it relates to their area position.

Class B: Class B properties can be ten to fifteen years old. They are generally well maintained and have middle class tenants. Cap rates will be higher than Class A but lower than Class C properties. However, they are valued primarily as appreciation assets, rather than cash flow, vehicles.

Class C: Class C properties generally have blue-collar and low to moderate income tenants. The buildings tend to be thirty to forty years old, and the rents are below market. Class C buildings are very attractive because they offer the best cash flow - compared to Class A and Class B. And they can be the first to appreciate in an emerging market.

Class D: Class D properties are generally positioned in lower socioeconomic areas. The neighborhoods are often referred to as war zones and can be in neighborhoods prone to violence. Class D properties can cash flow but typically do not they appreciate because of their condition and where they are located. Owners of Class D properties have to spend more money on management and security and renter overturn.

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These letter classes are used as industry vernacular by multifamily investors;

they are not generally used by appraisers or banks per se. Investors use them

as a way to immediately understand the state of a commercial property.

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The cash flow investor generally considers Class C properties are the bread and butter of the apartment industry. The best deals occur when an investor finds an unlisted or pocket listed Class C property in a Class B area and makes improvements to it. Likewise, finding a Class D property in a Class C area and repositioning it to generate more income through forced appreciation will increase occupancy and/or rents while creating equity that enhances Return On Investment.

Learn the Insider Secrets of Commercial Property Investment from Richard Sorrentino ATR who has personally contributed to the hands on growth of a commercial real estate portfolio valued at $150 million in three states over a four year period. CLICK THIS LINK NOW to start your Private Placements Education with his 19 page FREE Report "Top 37 Questions about Self-Directed IRA's" Feel Free to share this article as written.

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