Have you ever heard someone say that a house was a Class A property? In all likelihood,
you had not heard that term before and if you had you probably did not really understand what
they meant, but that ok. It is understandable that if you are new to real estate investing you
probably are not familiar with the large amount of jargon used in the real estate world. To
make things clear, let go over what property classes are and how they are relevant for
evaluating potential investment real estate.
There are of course many factors and aspects to consider when evaluating real estate
property, but one of the first and most fundamental characteristics you can use is the property
class. That is why we are going to overview the different property classes and what each one
tells you about a potential investment property. Before we can discuss the specifics, let’s first
establish what property classes are and how they are categorized.
The term property class is a rating which in general is intended to indicate the quality of the
property in question based on the property’s age and current state, it is affordability, the
surrounding amenities, and the general livability of the area. The primary property class ratings
are A, B, C, with the final additional rating being D. D however is typically less used and refers to
extremely distressed properties in areas of great economic depression or instability. Therefore
we will focus on discussing A, B, and C since they are essentially what we might consider
investment grade property.
Now let us go through the three main classes. Class A property consists of those that are
in excellent shape, typically built within the last few years, and feature very low maintenance
costs because of the low age of the properties. Affordability is a huge factor for class A, as rents
and property values are typically very high because Class A property is located in wealthy and
new neighborhoods. Class A property also typically is surrounded by the best amenities,
including schools, shopping centers, entertainment, etc. Finally the livability in the area is
excellent, with low crime and generally well-cared for and maintained properties.
Moving to Class B, those in this class are typically no more than 20 years old, in good
shape but with higher maintenance costs than with Class A. Class B properties are more
affordable than Class A, but still have high rents and property values. The amenities for Class B
are typically nearly as good as those for Class A. Livability for Class B areas is still very good with
high owner occupancy rates ensuring properties are well maintained.
Finally, we have Class C properties, the age of properties in this class can be highly
variable, maintenance costs can be quite high, and renovations may be required. Affordability
for Class C is good, so these assets typically have low rents and low property values. Amenities
are not guaranteed, often there will be more stores that cater to lower wage-earning customers
present. Livability is also variable, with crime typically higher than with other classes but not
necessarily high, and lower owner occupancy meaning less well-maintained properties
Now that we have established a general understanding of the different classes, it
becomes clear how understanding them is essential when investing in real estate. For example,
Class A property is very high quality, but high costs mean only wealthy investors who can
tolerate lower Cap Rates should likely consider investing there. It must be understood that
there absolutely nothing inherently wrong with any of the three classes discussed above and
that with a little research any of them could potentially feature excellent opportunities, but
that being said each individual investor should carefully consider their own capabilities and the
relevant factors discussed above when deciding on what class of properties to invest in.
Financial Analyst Intern
Christensen, K. (2020, June 26). Classes of Property in Real Estate: A, B, C & D Neighborhoods Explained.
Retrieved from realwealthnetwork.com: https://www.realwealthnetwork.com/learn/classes-of-
Hutten, W. (2019, November 22). Class A, B, C, D Real Estate: A Holistic Approach to Classifying Property
Types. Retrieved from biggerpockets.com: https://www.biggerpockets.com/blog/defining-asset-