Did you know that not all apartment investments are created equal?
In this post, we discuss why investing in multifamily apartments is so valuable, but it’s important to know that there are different commercial real estate asset classes and you want to make sure you’re choosing to invest in the class that’s best for YOU specifically!
Keep reading to learn about the different classes of multifamily apartment investments so you can strategically add to your investment portfolio.
Class A apartments are newer (<20 years old) and they offer high-end finishes like granite countertops, stainless steel appliances, and hardwood floors.
With this class of properties, maintenance is also performed immediately.
Class A properties are conveniently located in cities near mass transit or downtown hot spots that typically attract affluent renters with high price tags.
Bottom Line: Class A Properties typically have low cash flow compared to high initial investment. The cash flow is highly sensitive to recessions (when tenants will often move to Class B or Class C Apartments). Traditionally, only accessible to Institutional Buyers.
Class B apartments are between 20-40 years old and offer standard furnishings like laminate countertops and black/white appliances.
With this class of properties, there is often some deferred maintenance.
Bottom Line: Class B Properties typically have Cap Rates of 5%-6% and there’s a higher cash flow than Class A. Open to Private Buyers as well as some Institutional Buyers.
Class C apartments are typically much older than the other two classes – at least 35 years old.
These type of properties are in constant need of maintenance and are often located in less desirable locations.
Bottom Line: Class C properties typically have Cap rates between 6%-8%. With these, there are lots of value-add opportunity for investors and there are high cash flows due to low initial investment, but lower cash flow in the long run.
Note: We do not recommend Class D / Warzone Apartments, which are often risky and have very heavy management load.
Double-digit returns are quite common for multifamily investments, as long as you choose the right opportunity for your liquidity requirements, cash flow needs, and available investment capital. It is important to work with your financial advisors and investing team to make sure potential investments are a good match for you.
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