What Are The Multi-Family Real Estate Asset Classes?
Multifamily real estate investing is considered one of the best and safest asset classes to invest in.
For centuries commercial real estate investing has allowed investors to achieve significant tax benefits, steady cash flow, and strong asset appreciation.
Each of the perks can vary based on the type of real estate asset class you invest in. In multi-family real estate, assets classes are broken down into 4 distinct categories, class a apartments, class b apartments, class c apartments, and class d apartments. Multi-family assets are evaluated primarily based on their location, age, amenities, and level of rental income.
As a real estate investor, it’s vital to understand each real estate asset class to determine which property type fits your investment goals.
Let’s Get Into Property Types!
Class A Apartments
- Newest and most luxurious apartment complexes built within the last ten years
- Located in popular and desirable areas
- Class A apartments have the highest price per door
- Market cap rates are generally lower than any other multi family real estate asset class
- In most cases, investors purchase for appreciation
Class B Apartments
- Class B assets have generally been built within the last 15-20 years
- The asset class is well maintained but less luxurious than class A apartments
- Cap rate is between class A and class C apartments
- In most cases, investors purchase for property appreciation over cash flow
Class C Apartments
- Typically over 30 years old
- Class C apartments typically incur below-market rents
- Class C assets will typically have outdated interiors, exteriors, and require a higher CAPEX budget
- Most tenants in class c buildings rent out of necessity
- Class C assets generally provide the best cash flow for investors
- Most real estate syndicators use a value add strategy and will force the appreciation of the asset through operational efficiencies, renovations, and rebranding.
Class D Apartments
- Class D properties are generally over 40 years old
- A class D asset could be considered a run-down apartment
- Typically located within high-crime areas
- Tenant profile includes many government-subsidized tenants
- High vacancies may occur
- More challenging asset from the property management front
Which One of the Following Investments Offers The Greatest Liquidity?
Interested in learning which of the following investments typically has the largest potential growth?
Generally, Class C investments offer real estate syndicators the highest cash flow and the greatest opportunity to force appreciation. Class C can be top-performing properties for many real estate investors.
Class C apartments can also be the first to appreciate if they are purchased within a rising market.
Overall when analyzing which multi-family real estate asset class to invest in, location is everything. Here’s a blog on how to identify a good market for your investment.
Each real estate asset class comes with its benefits, before investing analyze your asset classes to determine if it fits your desired risk and return!