As a renter, you may have heard about apartment building classes. They range from Class A to Class D. This terminology generally applies to real estate investors, but you may want to understand it, too. We're going to break it down for you in simple terms and explain what it means.
Apartment building classes help investors, property managers and real estate brokers easily understand the condition of an apartment building or multi-family complex. There are four grades — A, B, C and D — that sum up the type of building, the amenities included and its condition.
Investors use this information to determine the level of risk and return when they invest in a property. Just like letter grades on a report card, a Class A apartment or Class B apartment is a higher classification than a Class C or D apartment. Investors want to invest in buildings with little risk and high returns. Apartment building classes provide a quick way to verify their investments
Let's break down the different classes now in more detail.
Class A apartments are luxury, high-quality apartments. They are very new — usually less than 15 years old — and require little to no maintenance or repairs as everything is in tip-top shape. Most Class A apartments come with the best amenities, offer locations in nice neighborhoods and tally less crime. These apartment buildings usually attract high-income earners who will pay more for the perks of a Class A apartment.
Class A apartment buildings are generally a smart investment because they'll only appreciate (grow) in value. However, there's some level of risk in times of economic turmoil. If the economy declines and renters lose their jobs, they may no longer be able to pay the high rent associated with this type of building.
Next in line are Class B apartment buildings. One step below Class A apartments, Class B apartments are still relatively new — only 15 to 20 years old. They may need some updates, but generally, they're in good condition. Most Class B properties offer amenities and locations in safe, clean and desirable neighborhoods. They attract middle to high-income earners.
Investors view this category of buildings as a safe bet. With a little work and some upgrades, these apartments are nice and could become Class A apartments. They may appreciate in value but also bring in a consistent cash flow for investors.
As we move down the grading system, next is Class C apartments. Usually, Class C apartments are 20-plus years old. They need updates and maintenance for the building and the individual apartments. They may include basic amenities but renters should not expect amenities when renting Class C apartments. Located in mediocre neighborhoods, these apartments have lower rent prices.
With some work, these apartments could upgrade to Class B, which would allow investors to make a profit and have better cash flow.
Last on the list of building classes are Class D apartments. These apartments have visible wear and tear. They're more than 30 years old and have below-average construction and conditions. The majority of Class D apartments are Section 8 or subsidized by the government. They offer low rent prices but are usually in below-average locations with higher crime rates.
As we mentioned earlier, these apartment building classes are most relevant for investors. It's a universal language that allows real estate professionals to quickly characterize the apartment's condition. But keep in mind that the Fair Housing Act prevents discrimination by rental property owners.
This information can help set expectations for the apartment, amenities and the neighborhood. As a renter, apartment building classes can give you an idea about:
If you know the building classes, you can make a more informed decision about an individual apartment and whether you'll be happy there.