Buying Investment Property Is a Class C Property a Good Real Estate Investment? by Alex Karani August 28, 2019August 28, 2019 by Alex Karani August 28, 2019August 28, 2019 There are many types of multi family real estate properties available to investors. That’s why it’s important for you to understand the different property classes so as to make an investment in the right property type that suits your investment strategy and goals. Property classification represents different levels of risk and potential return for multi family real estate. The classes are based on a number of factors such as the property’s location, age, amenities, rental income, and more. More than Class A and B properties, investment in Class C property has been on the rise throughout the United States. This is due to a number of factors, including the rising cost of homes for sale. In the midst of this trend, Class C properties are attracting a wide demographic of investors. However, is a Class C property a good real estate investment? There is a lot of information out there about investing in Class C properties, some of which are quite misleading. Before we find out the truth, let’s first have a good understanding of this property class. What Is a Class C Property? Class C properties are usually old buildings that are more than 30 years old with minimal amenities and outdated systems. In fact, they usually have most of their original appliances and systems. Many of these investment properties show visible deterioration and often have deferred maintenance issues. Due to their poor condition, they tend to have lower upfront costs compared to the other property classes. However, they will often require extensive renovations and hands-on maintenance. As a real estate investor, you have to invest some money in repairing the structure and mechanical systems. Some properties will require significant renovation work before they can be expected to provide steady cash flows. Despite its apparent wear, a Class C property itself can still be habitable. A Class C property will often be located in a less desirable, low-income neighborhood. Class C locations usually have high crime rates and lack amenities such as good schools, restaurants, and good infrastructure. The tenants in these areas are more likely to be on government subsidies or work low-wage jobs. This may contribute to vacancies, high turnover, and evictions. The properties usually net lower rental rates compared to Class A or Class B properties. The rental rates will often be below the average for the area. Related: What Is a Class B Property and Should You Invest in One? What Are the Benefits? With all the negative characteristics of Class C properties, you may be wondering why an investor would want to invest in a Class C property. One aspect that makes a Class C property a good real estate investment is the low acquisition cost. They are cheaper than Class A and Class B properties and the rental rate is usually more than 1% of the acquisition cost. Therefore, the return on investment when investing in these properties is higher in terms of cash flow and cap rates. Out of all multi family asset classes, these properties offer the potential for the highest cash flow. Since areas with this type of rental property tend to have low-wage tenants, homeownership is usually a big challenge. Therefore, you will have a deep pool of renters if you decide to buy Class C properties for investment. If your real estate investment strategy focuses on cash flow, then Class C properties may be a good investment. With the right strategy, it can be very lucrative. Related: What Is Cash Flow and How Does It Let Real Estate Investors Make Money? There are some real estate investors who seek out Class C properties because of the amazing potential in renovating and upgrading them. They allow real estate investors opportunities to enjoy a significant return on investment by making small improvements on the property. With proper upgrades, they can realize larger returns. Related: How to Find the Cheapest Real Estate in the US with High ROI What Are the Drawbacks? Even though a Class C property has an opportunity for strong cash flow if managed well, its potential for natural appreciation is usually very low or not to be expected due to the location. If you are looking for a capital gain, then investing in a Class C property may not be a good idea. This type of real estate investment also carries higher risks since it will need more extensive improvements and ongoing management. One mistake many investors make when buying a Class C property is underestimating repairs and maintenance expenses. This can hugely affect their rate of return. With the type of tenants, property management will need to be more intensive. You will require greater oversight to deal with tenant problems, perform maintenance, and collect rent. Financing can also be a problem when investing in this property class. Due to the poor condition of these properties, an investor often has fewer options for investment property financing. This can make pursuing a deal quite challenging compared to buying Class A or Class B properties. You may be forced to look for alternative sources of investment financing. The Bottom Line Is it worth investing in a Class C property? Well, that’s up to you and the investment strategy you have set. With the right strategy, Class C properties can be very lucrative real estate investments and offer unique opportunities to investors. However, it is important to understand the relationship between risk and return when buying multi family homes for investment. If you are looking for real estate investments with strong cash flow but real estate appreciation is less important to you, Class C properties would be the best fit. However, they carry the highest risk of any property class. Before you invest in a Class C property, you must factor in the costs of renovating and managing this type of real estate. To learn more about how to invest in residential real estate, be sure to visit Mashvisor’s blog. You can also use Mashvisor’s tools to find and evaluate investment properties across the United States. To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here. Start Your Investment Property Search! START FREE TRIAL Multi FamilyRenovationsRental Management 0 FacebookTwitterGoogle +PinterestLinkedin Alex Karani Alex is an entrepreneur and an experienced content writer focused on personal finance, business, and investing. For over six years, he has contributed to a number of publications, both online and print. When he's not writing or working, Alex enjoys reading, traveling, and the outdoors. Previous Post How to Quickly Become the Best Rental Property Management Company in Your City Next Post 2019: The Right Time to Sell Investment Property and Buy Another? Related Posts The Donald Trump Way of Making Money in Real Estate 5 Tips for Buying Multiple Investment Properties Real Estate Investment Opportunity Analysis: Choose the Best Real Estate Investment Strategy How to Find a Good Rental Property for Investment Foreclosed Homes for Sale: How to Identify a Good Deal Investing in Rental Property Is the Best Way for Making Money in Real Estate What’s the Deal with the Cash on Cash Return Calculator in Real Estate Investing? How About Buying an Investment Property in the Dallas Real Estate Market in 2018? Top 10 Tips to Buy a Rental Property for Sale Orlando Real Estate Market 2018: Wondering Where to Invest? Invest in Real Estate Now as Investment Property Mortgage Rates Are Rising Investing in Renovated Properties for Sale: Is It a Good Idea? Leave a Comment Cancel Reply Save my name, email, and website in this browser for the next time I comment.