How do you designate a rental into a class ?

A-B-C ?

we don't class them. no matter what area we have all "A" properties. C neighborhood-- we maintain as A.

Hi Hammer,

I don't claim to be the first, but about 3-4 years ago I did a post about what I consider the basic classes. Everyone has a little different spin on it. Some separate the unit from the hood as well, which is an interesting concept.... Class C house in a Class B hood: the tired older house in a nice blue collar/white collar neighborhood for example. There are also the extremes... Class A could have several sub classes: new construction in the burbs (single A), swanky urban condos/lofts (double A), high-rise apartment in NYC (triple AAA), the Ritz (????), etc. It also varies a lot based on homes or apartments, since there are different community amenities offered in multi-units (gym, pool, etc).

So take all of this with a grain of salt. Also, I'm descrbing what I view as common/generally observable characteristics of the houses/units. There may be some variations. Here's a summary of my breakdown:

Class A: High quality new construction/fresh full rehab. All the latest amenities as well as trendy design and the hottest location. For high income earners only with mid-700 and up credit scores. Best private/public schools. Not a trace of blue collar crime (or very low profile crime....white collar). Cash flow is non-existent up front unless you're doing 40-year or interest only loans and are in it for the long haul of appreciation and rising rents.

Class B: Very nice homes in new or established neighborhoods. Recently constructed or rehabbed fully.

All houses in good repair. Maybe one "blight" house one street over. Very low crime. Quick access to restaurants, employment and other city life hot spots. May have HOA with pool, lawn care provided, etc. May cash flow some, but like Class A there's a lot of room for appreciation as these homes are sought after by mid to upper level income earners that want good schools and safe living for their kids. Lower class white collar/mid-upper paid blue collar residents are common.

Class C: Average/upper low end housing stock in older neighborhoods. Maybe some homes renovated but many are dated. Area is not filthy, but not clean either. Between 1/3 to 1/2 of houses look shabby, tired or neglected. Some visible evidence of crime (i.e. the "drug house" the next bock over). School are okay or marginal. Cash flow is what it's all about here, because at best these houses stay even with market inflation only and sometime lag behind. Tenants often have some bumps and bruises in their history, unstable employment history, etc, but many are trying to do the right thing going forward. Mid to low end blue collar working class describes many of the renters here. May have a sizeable Section 8 population as well. A few properties per street may belong to a "sl*m lord".

Now here's where it gets tricky... Class D to some means a war zone. To me, it's a step below Class C. Houses with broken windows. Non-violent drug users evident. Inoperable cars parked on street/lawn. Overgrown yards. People with upholstered couches on the porch. Dirty streets and overflowing trash cans. Wandering animals are plentiful (cats, dogs, etc). Minimum of one pit bull on every block. Tenants only live here because they can't afford anything better or have very spotty references/criminal history. Poorly performing schools. Cash flow is critical here, because that's the only profit you'll ever see. Zero appreciation, and possibly depreciation as the neighborhood "gets worse". Hardly anyone is putting any money into these homes and owners are basically milking them dry until the city condemns them or some bright-eyed newbie investor buys their first money pit. Heavy population of Section 8/ Govt subsidized units. Half or more properties belong to sl*m lords.

Class F to me is a war zone. I'm afraid for my life in this hood and would not buy there for any reason, even if the houses were free. Gangs are rampant and visible. Violent crime rates are high. Probably at least one unmarked brothel on the street. Many houses are falling down. They have past the point where rehabbing would make any sense. All they need is TLC (Torch, Level, Cart Off), and that's probably the only way to "clean up" a hood like this is to get rid of the folks who live here. To me, this is one step above homelessness, and not a very far step either as properties are in such poor condition you risk your life almost as much living inside them vs. the street. Pretty much every house belongs to a sl*m lord, or maybe doesn't even have a living owner.

Others will have their views, but this serves as a "broad brush" method of IDing properties.

I see everything's been too polite and quiet recently! :P

Classes mostly come into play when you're dealing with multifamily housing. It's a way to quickly categorize a property.

So Class A is upscale new build in a desirable location, landscaping, tenants who pay top dollar for the best. That sort of thing.

Class B used to be Class A, but it's over 10 years old. Things have aged a bit; it's no longer cutting-edge.

Class C is going to be sturdy, but dated. It probably hasn't had a whole lot of extensive updates or upgrades.

Class D is more fringe-y. The neighborhood starts getting sketchy; the tenants are going to be less desirable and stable; etc.

The problem comes when you start trying to class sfh with multifamily terminology. I can have a lovely 1920's foursquare house on a shady lot on a quiet street in a sleepy town, but due to age/location/finishes, it's going to rank as a Class C, in comparison to the dorms they're building across the street from the university in a nearby big city. And so due to age/location/finishes, those dorms might rank as Class A housing-- even if 8 out of 10 people would prefer to live in the 1920's house. :) If that same house was across the street from some old 1940's bungalows that were occupied by undesirable neighbors, suddenly it's dropped to Class D. :)

Some conversations that are worth getting a cross-section of opinions---

Sid' "Classes of Rentals" 4/10/15 thread--

bbs2.mrlandlord.com/display.php?id=14204998

Sid's "Rent Low End Class C" from 8/5/15

bbs2.mrlandlord.com/display.php?id=14229067

Gary's 8/6/15 "Class What?" follow-up

Many years ago when I was looking into buying income units I noticed that in the nice part of town (A area), each unit went for $100,000 and the rent was around $1200 per month.

In the "B" areas buildings were older and housed a mixed working class people and went for $50,000 per unit and rented for $750 per month.

In the "C" areas, property was aged and the people had limited education. Each unit cost around $25,000 and rented for $500 per month.