Multifamily Properties: What You Need to Know About Class A, B, C and D

More than a century ago, Andrew Carnegie said it best when he said “Ninety percent of all millionaires become so through owning real estate”. Nevertheless, most people who want to create passive income with real estate find themselves lost in a sea of confusing information and constant market changes.

We’re here to help. In this article, we’ll go over the different multifamily asset classes, and give you our opinion on which are the best to invest based on your financial goals.

Multifamily Asset Classes

First of all, we have to understand what real estate syndication is. Sometimes there is a really good investment that is very costly for one individual person to get into. A syndication is when people team up to pool their talent and resources to purchase real estate in a deal that would otherwise be almost impossible to get into on their own.

When this happens, the ‘General Partners’ (GP) organize the syndication, find the property, secure the finance and manage the property. On the other hand, the passive investors or ‘limited partners’ are the people who contribute their financial resources to the pooled investment. They receive an equity share along with the proportional profits from the investment.

One of the most common real estate syndications is multifamily assets. These are any residential buildings with more than one family. It can be a two-story house with 2 families, or a complex of 2,000 different apartments. More commonly, real estate syndications are used for higher-value commercial real estate, which can provide substantial returns, passive income and tax benefits. From duplex to triplex, townhouses and apartment buildings, there are many different options for each budget and expected returns.

There are four primary classes of properties that can be acquired through multifamily syndications:

Class A

Class A apartment communities are typically newer buildings, strategically located near higher-paying employment opportunities, offer top-quality amenities, and attract high-earning tenants. Vacancy rates and non-payment are lower than other class assets as these tenants tend to be more reliable and responsible with their rent payments along with having a steady income. Rents are higher than Class B, C, or D apartments relative to the area, and the building is typically stabilized, meaning it’s well maintained with no deferred maintenance.

While there is no established formula to qualify a property as Class A, it could be said to be the category for very high-quality investments. Although it sounds perfect, there are some nuances that make this type of property not always the best for investors, as will be explained by the end of this article.

Class B

These types of properties tend to have a longer period in the market, lower-income tenants than Class A, and some deferred maintenance issues. This can make investing in Class B slightly riskier than Class A, but can also provide higher returns.

Class C

These properties would be considered very risky, as they need lots of renovation and upgrades. They tend to have low rents, be at sometimes problematic locations and are more than 20 years old.

Class D

Properties in this category are typically the riskiest due to the age of the building, deferred maintenance, problematic neighborhoods and low-income tenants. This asset class can be very challenging to own and manage.  It requires an experienced operations and property management team along with investors that have a higher tolerance for risk.

Which Property Class Is the Best One to Invest In?

It all depends on your risk tolerance and expected results.  As an investor, what you need to understand is that this is an informal classification that helps you make a more informed decision. 

It may seem counterintuitive, but here at Titanium Investments we prefer to focus on Class B and C properties. Why? Because this asset class holds opportunity to add value through renovations and upgrades, thus increasing rents and the overall return on the investment. 

This means that, although a Class A property can be an “easy” investment for investors, the potential upside may not be as strong as other asset classes. With Class B and C, there can be overall improvements to buildings and communities that force massive appreciation to the value of the asset thus giving greater returns to investors.

And while it would be too overwhelming for a single person to manage all the improvements and day to day operations of Class B & C properties, with the use of real estate syndications investors can leverage the experience and connections of knowledgeable partners to create zero hassle returns in whatever asset class they feel most comfortable with.

Leverage Our Expertise to Invest in More Profitable Deals

If you’d like to benefit from the higher returns of Class B and C multifamily assets without all the hassle of managing tenants and fixing toilets, we’ve got you covered. Our experience in real estate means that when you decide to invest with us you’ll be able to benefit from increased peace of mind and cash flow, all without the work that comes with managing an apartment complex.

Put simply: you can build wealth and earn passive income in real estate while someone else does all the work. Wanna know how? Connect with us here and get expert help today.