EP048: What Are A, B, and C Neighborhoods?

Have you ever been confused by the different classifications of properties? Do you wonder what the difference is between A, B, and C neighborhoods? I know many of you are curious, because I receive emails about this topic frequently.

On this episode of Investing in Real Estate, I’ll give an overview of how this measurement tool is used, and how to distinguish between the three classifications. I’ll also talk about how this topic ties into the most important investing metric: ROI. If you’ve ever wondered about A, B, and C neighborhoods, this episode is for you!

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The classification of neighborhoods is not an exact science. There is no formula; it’s a subjective measurement tool. Investors, lenders, and brokers created this concept in order to simplify communication.

The classification system allows investors determine the level of risk and return in properties. It’s a way for investors to determine whether or not a property fits within their investing strategy. Sometimes investors only purchase properties in certain neighborhoods, because there are certain criteria they look for in an investment.

In general, if you want to purchase a class A property, you’re going to pay more. If you’re looking at apartments, a class A property tends to be a high-rise building in a major city. In terms of single-family homes, a class A property would have four or five bedrooms, in addition to features like central air, or a two-car garage. An A neighborhood is typically new, as well as expensive.

As for the B classification, I like to think of it as a neighborhood in transition. This neighborhood is typically slightly older than an A neighborhood. In terms of demographics, a B neighborhood has a lower income than an A neighborhood. The houses themselves are not dilapidated, but they might need some updating.

Lastly, a C classification is older than 20 years old, and in need of some heavy renovations. These neighborhoods consist of a hardworking, blue-collar population. Although C neighborhoods will collect the least rate out of the three classifications, it’s not a substantial difference from a B neighborhood. Additionally, the properties can be acquired for much cheaper than in A or B neighborhoods.

On today’s show, I’ll go over specific examples of what each classification looks like. I’ll also talk about the importance of ROI, and how much rental income you can expect from each neighborhood.

If you're ready to take the first actionable step toward building a passive income,

We’re ready to talk about your goals and want to help you learn more about earning legacy wealth for you and your family.  

On this episode you’ll learn:

  • Which class of properties has the lowest vacancy rate?
  • What kind of repairs might a B property need?
  • Which class of property is the cheapest to acquire?
  • Are B & C properties risky?
  • And much more about buy and hold real estate!

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