BRICK FIELD STUDIOS

Lender Ratings of Residential Investment Properties

Lenders have developed general classifications of apartment buildings so that they can communicate amongst themselves and other members of the industry with some level of uniformity. The classifications are Class A, Class B, Class C, and Class D.

Grade 1. Class A…..Newer, Institutional
Grade 2. Class B…..Older, Institutional
Grade 3. Class C….. Older, Declining Area
Grade 4. Class D……Older, Declining Area, Poor Condition

Class A Apartments – Institutional buyers like new, larger apartments in prime locations because of low deferred maintenance. These properties are typically occupied by white collar workers and have amenities such as garages, in-unit washer/dryers, pools, spas, exercise gyms, the latest technology, etc. They are typically between 1-10 years old. Typically they are in the path of progress and as of this writing (July 2008) can be bought at cap rates of 7%. They will likely have less cash flow than properties with higher cap rates but will have greater appreciation potential.

Class B Apartments – Class B buildings are in good areas with many of the same amenities as Class A properties, but Class B buildings are 10-20 years old and occupied by both white and blue collar workers. Class B properties are often owned by investment groups, such as limited partnerships and limited liability companies. As of this writing (July 2008) they can typically be bought at cap rates of 8% – 9%. These properties will have decent cash flow and decent appreciation potential.

Class C Apartments – These apartments are older properties built within the last 21-30 years in working class areas typically occupied by blue collar workers and even some Section 8 tenants(please see my article on Section 8). The properties may be in declining areas but not necessarily dangerous areas. The units in Class C buildings are smaller than those in Class A and B buildings and the projects have fewer amenities. The occupancy rates are typically higher than Class A 0r B because they are more affordable. Individuals usually own Class C properties, which as of this writing (July 2008) can be bought at cap rates of 10%. These properties will have decent cash flow but little opportunity for appreciation.

Class D Apartments – These buildings are older, in declining and even dangerous areas and as a result may have high vacancy rates, deferred maintenance, functional obsolescence and demand a high level of hands-on management from their individual owners. As of this writing, they can typically be purchased for cap rates of 12% but may generate less income than other properties despite their higher cap rates because of higher maintenance and management demands.

Rules of Thumb:

1. Class A & Class B properties are purchased for appreciation potential.
2. Class B & Class C properties are purchased for cash flow
3. Unless you are an experienced investor, don’t buy Class D properties.

The goal is to buy a particular class of property in the same area class. In other words, buy a Class B property in a class B area. Alternatively, buy a lower class property in a higher class area. In other words, buy a Class C property in a class A area or one in the path of progress. The reasoning is so that you can possibly change the Class B property bought at higher cap rates (lower in price) into a Class A property which can be sold for lower cap rates (higher prices). This “infill opportunity” is typically only possible if the area is better than the property. For a better understanding of cap rates, please read my numerous other articles which give detailed information on the subject.

Renters looking for an apartment home in Dallas, TX can look forward to one of the most vibrant apartment markets in the United States. With recent population estimates close to 1.3 million and a median resident age of 30.5 years, Dallas is considered one of the most vital apartment markets in the country and is the flagship sub market of the north Texas region. Check out the Dallas apartment statistics below.

The city of Dallas has over 1,063 apartment communities with more Dallas apartments being built every year. Throughout 2008 and 2009, Dallas rental developers built an additional 35 apartment communities in the Dallas market. This explosive development gives Dallas renters access to a diverse range of apartment listing options. One bedroom apartments in Dallas, TX start as low as $345.00 per month and can go as high as $7,399.00 per month. Two bedroom Dallas apartments start with rents as low as $379.00 per month and can go as high as $10,111.00 per month. Such expansive rent ranges illustrate just how diverse the Dallas apartment rental market can be. These rates are referred to as “market rents” and often go down for renters that utilize a rental agency to negotiate on their behalf. Many Dallas apartments offer incredible amenities and fantastic rental specials. For example, the city is home to over 746 Dallas apartments with secured gated access. Looking for great parking options? There are 526 communities that offer covered parking, and 111 that offer detached garages. Interested in luxury unit amenities? Renters interested in walk in closets can experience this amenity at over 1037 apartment communities in Dallas. Over 254 communities even offer over sized garden tubs. The list goes on and on when it comes to Dallas Texas apartment amenities and rental options.

With so many vast apartment selections available in Dallas, TX, renters have several options for searching for an apartment home in a community that meets their exact needs which usually includes apartment size, rental price, and/or community location and amenities. As with other products or services, prior to the convenience and ease of using the internet to explore their spending options, consumers were limited to the traditional methods of calling and/or visiting (also known as “walking-in”) the retailer or service provider in order to do comparison shopping. Not only is this process time-consuming in most cases, consumers searching for their next apartment home also found this traditional method even less efficient for searching for an apartment because other consideration such as property management’s business hours and/or the availability of viewing a unit comparable to the one they are searching for has to be considered. Renters looking for an apartment in the Dallas area have followed the same trend as consumers in other industries and the internet has rapidly become the most popular method used to search for available apartments.

Dallas renters have a number of channels that can be utilized to find apartment information online. One option is to search on internet listing service websites such as Rent.com. These websites list only apartment communities in their database whose property management were willing to pay an advertising fee. While these websites may have a relatively large number of apartment listings on a national scale, local apartment searchers, such as the renters in Dallas, can sometimes have as much as 80% of available apartments be eliminated in the apartment listings on these sites.

Renters have also attempted to find neutral sources to compare apartment deals and specials by visiting websites that are set up as online classified listings, such as Craigslist. While these websites can have content that is more up-to-date than internet listing service websites or other apartment search websites, the process to list an available apartment requires that the apartment’s property management and/or landlord personally and actively list and maintain their apartment information. Because many property management companies and landlords find this process very time intensive, the majority of properties in the Dallas area are excluded from these types of websites, again, leaving the renter searching for an apartment without a conclusive list of their renting options.

In most cases, renters in the Dallas area find the best combination of updated content and comprehensive inclusion of apartment listings by using an apartment search website – such as those created by apartment locating companies. UMoveFree Apartment Locators, the state’s largest apartment finding service, helps more Dallas renters than any other website or store front locating service. UMoveFree maintains exclusive listing data with nearly every apartment community in the Dallas, Texas metroplex and are able to make this data available on the UMoveFree.com website for potential renters. Any apartment searcher is able to register for free to search apartment listings which include pricing, floor plans, and photos. Additionally, because these types of apartment search websites are typically maintained by apartment locating companies, they can offer searchers an additional value proposition of personalized reports and assistance from experienced, licensed real estate agents who specialize in helping the renter understand their local apartment options and provide up-to-the-minute information on specials and apartment availability.