Different Classes of Apartment Buildings Investors Need to Know

People who are interested in investing in an apartment building should know the different apartment classes. Each class has its own set of features, risks, and capacity to generate ROI. Thus, property investors should consider which apartment class works for them. 

There are four classes of apartment buildings, and they’re designated a letter grade (class A, class B, class C, and class D). Different factors determine each class, such as the building’s age, location, amenities, appreciation, income level of tenants, and potential returns the property owner can earn. 

Read this blog article if you want to be more familiar with the different apartment classes. 

Why It’s Crucial to Know the Different Apartment Classes?

Knowing the different classes of apartment buildings is crucial for property investors. Each of these apartment types has its advantages and disadvantages or risks and rewards. Knowledge of them can help you set your financial goal or what adjustments you have to make for a better return on investment. 

Class A Apartment Building

When you classify an apartment building into the Class A category, it means that it’s among the highest-quality apartments in that location. Class A properties are recently constructed, but any renovated older properties can also be classified into this category. 

Class A apartments often feature exceptional amenities, such as rooftop patios, a pool, and a full-service gym. They also have modern appliances, granite countertops, and hardwood floors. Class A properties are typically located in top-notch neighborhoods, near top-rated schools and employers. 

Rent prices for Class A apartments are top of the market, and tenants living in these buildings are typically in a higher-income bracket. While they’re more expensive to purchase, investing in a Class A apartment is less risky compared to other apartment classes. Another advantage is the fewer maintenance issues and minimal vacancies. 

Class B Apartment Building

Class B apartments are a bit older than Class A apartments, but they’re in good condition and well-maintained. Investors looking for a more affordable investment can find good potential returns in this asset class. Doing a complete renovation on a Class B property can elevate it to a higher class. 

Class B apartments aren’t located in highly desirable neighborhoods. The amenities may also not be the same as those in Class A properties. As such, you can’t charge a higher rent price for a Class B apartment, but it can still attract higher-income tenants. 

There are a bit more risks in investing in a Class B apartment than in Class A property because of the extra maintenance costs and a little lower rental income. Generating a decent ROI on a Class B apartment might take a few years. 

Class C Apartment Building

Class C apartment buildings are typically over 20 years old and have fewer amenities. They’re typically located in working-class neighborhoods where rent prices are more affordable. On average, these apartments don’t have easy access to restaurants, grocery stores, and other amenities. 

Another disadvantage of Class C apartments is that it requires more maintenance and repairs. These buildings are usually characterized by peeling paint, older roofs, and outdated bathrooms or kitchens. So, if you want to move them up to a higher class, you need to shell out money for a complete renovation. 

Class C apartments are riskier investments. Since rent prices tend to be lower, the potential return on investment is also lower. It’s also more common to have vacancies in these apartment buildings. 

However, if you're a newbie in multi-family real estate investment, Class C apartments are a good option since they’re more affordable. It will take more years to see a return on investment in this apartment class. 

Class D Apartment Building

The last category in the four classes of apartment buildings is Class D properties. These are old apartments that require extensive repairs or complete renovations. Some may even fall short of the local landlord-tenant law or building code requirements. 

Class D apartments are situated in the least desirable neighborhoods, lacking access to amenities like pharmacies and grocery stores. Their locations may also have higher crime or unemployment rates. The tenants of this apartment class are typically in the lower income bracket. 

If you’re a property investor looking to buy an inexpensive apartment building, a Class D property may be something for you. However, you’re likely to pay higher maintenance expenses. The rental income also tends to be lower and less stable. These negative factors make Class D apartments way riskier than the other three apartment classes. 

Takeaway

If you’re an investor who wants to invest in multi-family real estate, you should be familiar with different apartment classes. Knowing each of them helps you which is the best to gain higher potential returns according to your financial goals. Always be smart about where to invest your money and avoid risky property investments as much as possible.