In the real estate world, insiders classify properties in one of four ways: Class A, Class B, Class C or Class D. The classifications indicate the level of risk you may assume by investing in a certain property.
If you are new to the investment game and see a property for sale with a Class C designation, you may wonder what, exactly, it means. Roofstock details the most common characteristics of Class C properties.
Class C properties are older, between 20 and 30 years of age. Even older properties in good condition may qualify as Class C because they are less desirable than newer builds.
High-crime areas or areas with below-average school districts often receive two- to three-star ratings from market analysts and inspectors. Homes within these neighborhoods often have Class C designations.
Class C homes typically have outdated or low-quality fixtures and furnishings. They are also often victims of deferred maintenance and require extensive repairs to bring them up to code or to make them sellable.
Class C properties are typically far from desirable shopping amenities, such as malls, outlet stores, grocery stores and entertainment centers. Instead, tenants and residents are usually within walking distance of pawnshops, check-cashing outlets and liquor stores.
Unless major changes occur within an entire community, Class C homes rarely appreciate in value. Likewise, though, there is little chance of them depreciating in value. This is because rehabbers typically focus on Class A and Class B properties, keeping the supply of Class C homes stable.
The most positive characteristic of Class C properties is their ability to generate cash while requiring little of it. Though they have little to no appreciative value, Class C properties make great rental properties, hence why so many investors have an interest in them.
As a new investor, it is important to understand the classification system. With a solid understanding, you can make sound investment decisions without any regret.