If you’re new to real estate investing, you may have heard the terms “A Grade,” “B Grade,” or “C” Grade to describe particular properties. But what exactly do these classifications mean?
A Grade: These properties are the highest-quality buildings to be found in their market and area. Typically built within the last 10-15 years (or having received a major renovation during that period), Class A properties are well located, feature top amenities, are usually professionally managed, and have very low vacancy rates when overall economic conditions are strong. Rents for A Grade properties are the highest in the market, and there are few if any deferred maintenance issues.
B Grade: These properties are older than A Grade, but are mostly well maintained and feature good-quality construction B Grade apartments generally offer opportunities for adding value through renovations or common area improvements, which often have the effect of upgrading the property to a B+. While Rental income for B properties is lower, buyers can typically acquire a B property at a correspondingly higher cap rate.
C Grade: C Grade properties are usually over 35 years old, located in less desirable areas, and in need of renovations. Sometimes, substantial updates to the building’s infrastructure are required. In a market with other Grade A and B properties, C Grade buildings command the lowest rental rates. They may also require significant improvements in order to generate consistent cash flows.
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