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When looking for a real estate property to invest in, investors need to consider factors such as project type, expected cash flows, and property valuation. Each deal is unique, but they can be differentiated further by property class.
While hunting for your next investment property, you may encounter a listing that is marketed as “class B”. Property class is determined by the location, age, condition, and the amenities offered by the property.
The best properties are considered Class A, while older properties that are not in a good location may fall under Class C. Class B properties fall somewhere in between. These categories are used in all types of commercial real estate including multifamily, industrial, retail, hospitality, office, land development, etc. [1]
Sometimes sub-categories like Class A- or Class B+ are used to provide a more accurate description of a particular property.
Investors, brokers, and lenders came up with these different classifications in order to communicate the value of a property quickly. It makes it easier for everyone involved in a transaction to understand the quality and rating that the property has. [2]
Since Class A properties are considered the best, investors may wonder if it is worth investing in a Class B property.
Are Class B Properties a Good Investment?
Based on physical and geographical characteristics, Class B properties are considered “second best” when compared to Class A properties. This is an important thing to consider when investing in real estate because these classifications give you an idea of a property’s level of risk and return. Class A properties may be located in a good neighborhood and have amazing amenities.
Other factors such as growth prospects, tenant income levels, rental income, and appreciation rate can affect the way a property is categorized.
Class B properties would be generally older or have lower income tenants. They may or may not be professionally managed. Remember that these things aren’t necessarily bad. Investors just need to keep in mind that there is more risk involved when it comes to these properties—at least when compared to Class A properties. [1]
Many investors still put their money into Class B properties because they can offer more growth potential. These properties are seen as “value-add” investments, which means they can be upgraded to Class A properties through a few renovations. Additionally, Class B properties tend to be bought and sold at lower prices and higher cap rates.
What is a Class B Multifamily Property?
A multifamily property is a residential building where more than one family lives. More specifically, the property has multiple units that can be occupied by renters. This includes duplexes, triplexes, apartment complexes, and condominiums. The number of units does not matter: a duplex and a large condominium are both considered multifamily properties. [3]
If a multifamily property is categorized as Class B, it may not be in the best location, but it’s still in good condition. It may have good amenities, and the property itself may not be that old yet. Class B multifamily properties typically do not require major renovations or repairs. To upgrade this property, it will likely only take a few interior updates.
Out of all the classifications, Class B properties are expected to have the best balance of risk and return. Even though they are not the best of the best, they are still great for investors who want an investment with low barriers to entry and good value.
Work with BAM Capital
BAM Capital mostly prioritizes A- and A multifamily assets, but we also go for B++ properties since they have great potential and can easily be upgraded. BAM Capital has a Midwest focus, so we offer the best multifamily properties for investors in that area. Investors can enjoy BAM Capital’s low-risk investment strategy that creates forced appreciation.
The capital value of each asset is increased by reducing expenses and increasing rents. The BAM Companies’s vertical integration model mitigates investor risk.
For investors who want to explore multifamily real estate investing, there’s no need to go through all that hassle. You can work with BAM Capital and invest in high quality real estate opportunities that are sure to make you money. [4]
BAM Capital works with accredited investors and negotiates the purchasing and financing of high quality multifamily real estate properties on their behalf. This Indianapolis-based company currently has over $700M AUM and 5,000+ units. Schedule a call with BAM Capital and invest today.
