The 4 Multifamily Asset Classes Defined (12 Images)

When it comes to multifamily real estate investing, there are four distinct asset classes: Class A, Class B, Class C, and Class D. As investors, it is important that you have the ability to distinguish between the four, which will enable you to determine which asset class best fits your investment strategy and which ones you should avoid.

 

Class A properties

 

  • Usually less than 10 years old and are upscale, luxury apartments.
  • Average rents are high
  • Generally located in desirable geographic areas
  • White-collar works live in them and are usually rented by choice
  • Generally have the highest valuations per door and the lowest market cap rates
  • Bought primarily for appreciation

 

Image Credit: The Future Tense

 

Image Credit: LIV Development

 

Image Credit: Homestead U

 

Class B properties

 

  • Can be 10 to 25 years old
  • Generally well-maintained
  • Have a middle-class tenant base, including both white- and blue-collar workers. Some renters are by choice, and others by necessity.
  • Cap rate that is higher than Class A property but lower than that of Class C property
  • Bought primarily for appreciate rather than cash flow, but they generally cash flow more than Class A property

 

Image Credit: AZ Big Media

 

Image Credit: RE Business Online

 

Image Credit: Urban Turf

 

Class C properties

 

  • Built within the last 30 to 40 years
  • Generally have blue-collar and low- to –moderate-income tenants
  • Where you’ll find many tenants that are renters “for life,” while some tenants are just starting out and are likely to work their way up to Class B or Class A property as they progress in their careers
  • Rents are below market
  • Most attractive to cash flow investors because they offer the best cash flow
  • Can be the first to appreciate in a rising more
  • Some of the best deals occur when an investor finds a Class C property in a Class B area and makes the required improvements to bring it up to market standards

 

Image Credit: Anthony Griffin Blog

 

Image Credit: The Real Estate Guys

 

Image Credit: Bolour

 

Class D properties

 

  • Built more than 40 years ago
  • House many Section 8, government-subsidized tenants
  • Generally located in lower socioeconomic areas
  • Newbies beware: due to high vacancies, substantial deferred maintenance, and likely being located in a high crime area, they require intense management and heavy security. They are for seasoned investors only!

 

Image Credit: Anthony Griffin Blog

 

Image Credit: Uprising Radio

 

Image Credit: Jefferson Village Apartments

 

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