As you move forward with real estate investing, you will hear about a location A, B, C, or D; or high, middle, and low-class locations, or other types of properties. This classification will be based on objective and subjective aspects, without clear rules, and may differ in the opinion of various investors. You can consider a zone A (the best) while another investor might consider the same zone as B (second).
Class A Properties
The A-rated location has the best buildings, the best shops, or malls and restaurants, the best schools, the wealthiest people, and the most expensive real estate. This is simply the best location in town, and it will attract good quality tenants who can afford it. In the same way, a class A building is newly constructed, less than ten years old, and a perfectly maintained investment property. The construction has quality materials and the house has finished such as parquet floors, granite countertops, automatic blinds, or a hydromassage shower. These types of properties generally obtain a high rent, but a relatively lower cash flow, due to a high purchase cost.
Class B Properties
A type B location will be somewhat older than the previous areas, with good restaurants, schools, and neighbors in general. It can be located in residential areas or upper-middle-class areas, near the city centers. In the same way, a class B home will be between 10 and 25 years old, with some characteristics of the previous class, but without all the elements that distinguish them. Leasing income will be lower than in Class A homes, and maintenance costs somewhat higher due to the age of the home. Of course, the costs of buying these properties will be lower than in the previous class.
Class C Properties
A class C location or zone will be a neighborhood with high unemployment rates and low income, with houses, older than 30 years, and with improved conservation. These areas will attract people who have some type of subsidy or with medium-low salaries. For its part, a class C property will be older than 25 or 30 years. Many repairs and high maintenance costs will be necessary. Electrical, plumbing, window, or blind systems may need a facelift. These types of properties will have a much lower rent than the previous classes, but they will be much more affordable for an investor.
Class D Properties
A type D location can be an area that you would not enter alone because there are security concerns. Not all cities or municipalities have neighborhoods of this type, but you will recognize one when you see it. Even the police are nervous entering these areas, and crime and drugs are common. For its part, a type D construction will be an old building with poor maintenance, practically in ruins, and may need major reform and rehabilitation. These properties will be exceptionally cheap. If you do not know very well what you are doing, it is not recommended to consider this type of investment property.
The class distinctions are not very rigid, but once known they should give you a general indication of how real estate property investors classify properties and zones. There is no right or wrong answer to the question: “What types of properties or areas should I invest in?” You will likely find investors who only buy A, others who only buy B, others who only buy C, and others who only buy D. Each real estate option has pros and cons. In general, the best properties are the ones that cost the most and tend to offer somewhat lower profitability, but they can save you a lot of headaches.