The different building classifications (A, B, C), and which is the best to invest in.
( Guest Contributor: Neil Stenberg, Real Estate & Finance Graduate, TCU 2019)
For an investor, it is important to understand the different building classifications. Each classification has its own risk and potential return associated with it. The classification given to a building depends on physical, demographic and geographic characteristics. They are listed from most to least expensive.
These buildings are usually newly developed. They are located in good areas with low crime rates, have good school districts, have good shopping nearby, and are in higher income areas. For investors, these buildings have fewer issues and lower upkeep costs, because they are newer.
These buildings are a little older than Class A buildings. They usually already have tenets that occupy them, and as a result, are income producing. The occupants usually have lower incomes than Class A occupants. Class B buildings offer an investor the ability to renovate and add value to them.
These buildings are typically older, even sometimes deserted buildings. They are located in areas with higher crime rates and are occupied by tenants with even lower income levels. They have potential for big returns on investment but come with more risk than the other classes.
In conclusion, an investor must be knowledgeable about the different building classifications. Each classification has a different amount of risk associated with it. Investing in Class B buildings is a very good investment strategy.
While they do have a certain amount of risk, Class B buildings have a good potential return on investment. In an economic downturn, Class B buildings can still survive, because tenets in Class A properties, many times, downgrade into them. This acts as a safety net, in a climate of economic uncertainty.
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