This blog will discuss the factors determining a particular area’s class rating. You will see that the regions are classified from A to D. and A doesn’t necessarily mean it’s better, or D doesn’t mean it’s worse. When I started buying property, people asked me if I would buy in A, B or C categories, and I had no idea what they were referring to. Basically, there are certain factors that you need to consider, in order to rate the area that you are looking at. So what are the factors that determine these ratings? Each one of these areas has specific characteristics, and some investors decide to invest in areas that do very well. In a city, you may have different parts of the city, and that particular city would determine the rating. Today, we’re going to discuss the factors that determine each area.
Here are the significant factors to consider. You will have the home condition of the property, incorporating any renovations and landscaping. You will be looking for these factors to determine the class rating. The way to look at classifications from A to D is high to low. What I mean by best to worst is usually A-class-ready neighborhoods are newer and in better condition than D-class neighborhoods. This is what I want you to think about. The strategy does not necessarily mean that if you invest in D communities with a lower rating, you will perform poorly with your real estate investing. The same applies if you invest in A-class neighborhoods, it doesn’t mean you’re going to do well; as I said, each of the homes would be rated on the number of renovations required in Class A neighborhoods.
We don’t usually have many of these as they are generally newer neighborhoods. So having to undertake a lot of renovations is probably not bad. However, some neighborhoods may include homes that are made up of various ages. They might be gentrifying, so you have a mixture of older dwellings and newer homes. When evaluating the property’s condition, investors will look at the home’s overall condition in the neighborhood to see if they are poorly or well maintained, including the number of renovations. It also incorporates the number of repairs that you need to complete. If you have an older home, you might need changes even if the house is in good condition. If a sizeable number of newly renovated properties are already present, this can be considered an upgraded neighborhood. Sometimes we see a mixture of homes, especially in gentrifying areas, which include landscaping. Neighborhoods with attractive landscaping and well-designed front yards with natural features like mature trees can differ significantly from areas without landscaping design and curb appeal.
Now we’re going to discuss the property features, the area amenities, employment and crime rates. Regarding property features, we’re talking about the home’s conveniences—air conditioning, high-end finishes, granite countertops and various upscale appliances in the kitchen or bedrooms. You will find these more in the A and B neighborhoods and not so much in the C to D neighborhoods. So all of these factors will determine what type of class it is, the more features you have in the property, the higher its rating. If you are planning to invest in a property as a rental, then its area rating would be higher if there were an abundance of grocery stores, restaurants and coffee shops. Sometimes, an amenity like a golf course would suit a specific demographic. So this may be a determining factor for somebody renting if it’s a high end neighborhood.
Nearby facilities that could appeal to people include malls and large office complexes because they offer employment opportunities. So determining that will inform you what kind of class it is. The employment situation is an important factor to consider. The property may be located near a mall employing a large workforce. The demographic of that workforce will help determine what class of properties are close by. If there is a factory nearby, there will be a sizeable concentration of people in that area close to where they work. The crime rate is also a key determining factor when selecting a property. In most cases, Class A neighborhoods will have a lower crime rate than B, C, and D. Usually crime can be a problem due to the condition of the properties.
The final thing I want to touch on today is the appreciation versus cash flow factor. In this case having an A property, may not imply it’s a good strategy for you. In general, from A to D, you will have a bigger appreciation in A and more appreciation in D, then obviously, you go along with that way. However cash flow is the opposite of A; you will have less cash flow to larger cash flow. This is due to the amount of money you need to spend in each one of those neighborhoods. These factors determine a class rating and the important thing to remember is that A is not always better than D. Usually, Class A is a higher spend compared to a D neighborhood that doesn’t need to have all the bells and whistles the A neighborhood has. Having a balance in between those things is very important.
So, in conclusion, you will be considering the home’s age, then the property’s condition, renovations that require landscaping, property features, area amenities, area jobs, and crime rates. When you have all these factors together, remember to look at the area’s appreciation versus the cash flow if renting this type of property. And that will give you the type of strategy that you’re going to be following. Okay, so I hope that helps, and I will see you in the next one.
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