There are 3 types of commercial real estate property the Class A, B, and C. As we see in our daily lives, there are a lot of properties that were set up for business purposes. Gas stations, salons, and your favorite restaurant are some examples of a commercial property. It is a commercial property if it sells something or earns money through it. If you are planning to own a Class A real estate you must know the basics and how to identify one.
The Best Of The Best
Class A real estate buildings are always new complexes that are in mint condition. The infrastructure, architecture, and layout of the interior are to the highest standard. While this is almost always a new building, an old building can be considered a class A real estate if it has undergone a lot of expensive renovations.
There is more than building quality that makes a class A property. Location is extremely important. Let’s say a property is in the middle of time square, this would be the epitome of a class A building. It is one of the most visited real estate centers in America.
These locations have extremely professional management teams. They do all the planning, marketing, and any other task that has to do with the upkeep and care of the property.
What It Needs To Be Outfitted With
Class A buildings all share these features inside that help it qualify for its rating. Having these things does not make a building automatically class A. Class A is a difficult distinction to get. Here are some mandatory components of a class A building:
- HVAC System
- Technology Features
- Top Of The Line Fixtures
Is Height A Factor?
Yes! Height is a definite factor when it comes to making it into the class A group. In some situations, a building does not have to be tall if it is famous or has historical significance. For instance, The Strand, a famous bookstore in New York City, is a rather old building that’s only three stories tall. Because of its historical significance and popularity, it is considered to be class A property.
The Rental Rate Difference
The rental rate of a class A property can vary. For instance, a class A property in Houston is going to have a much lower rental rate than a class A property in San Francisco. There are also different degrees of quality and other factors that affect its worth. With that said, renting out a class A property will be higher than the average cost of a rental in the area where it is.
The Selling Rate Of A Class A Property
Some choose to buy old buildings and flip them. They can decide to make a class C property into a Class B real estate. To be daring, they could try to turn a C into an A. Typically, investors choose to turn a class B property into a class A property. It can be flipped for a bigger profit as less is spent on renovation costs. In some situations, investors do not have the money for either the renovations or the property. There are also situations where it can be both. In such instances, it is necessary to get a loan.
A Hard Money Loan
The most common form of loan used by real estate investors aside from commercial building loan is a hard money loan. These loans are fast to get; however, they need to be paid back quickly after they are taken out. Typically, this can be done as these properties just need to be renovated and flipped. For most hard money loans, the term is a year. This is typically enough time for most renovations. In instances where it is going to take more time, the loan will have a 5-year term at most.
The property’s value is taken into concern with a hard money lender. A class B building will receive a smaller loan amount than a class A building. The buyer’s credit score is not used as these are investors who are lending the money. Typically, bank loans use the buyer’s credit score.
There are several ways to find reputable hard money lenders. Looking at reviews and accreditation is an excellent sign that it’s okay to establish trust.
Buying A Class A Property To Start A Business
Some wish to start their own business. While it is perfectly possible to do so at any location, class A locations tend to have the best chance of succeeding. A hard money loan can also be used to purchase a building if the owner is not intending to flip it. The building can be purchased with the intent of making it into a business. Some purchase class A buildings to convert them into apartment complexes. This has become a smart business venture for a lot of people. Instead of having to worry about inventory and overhead, the owner simply collects rent every month.
Typically, only established businesses can buy class A property out of pocket. For instance, if Macy’s wanted to open up a store location in Union Square (NYC), they would be able to pay out of pocket for it. If you were looking to open up an ice cream shop there that was not a franchise, you would need a very expensive loan. In such cases, there are other options besides hard money loans. You can choose to get a secured loan from a bank where the collateral is the building itself. This type of loan can only be obtained by showing them a business model and having a decent credit score. You can also look for a different types of commercial loans so you can start your own business.
The Bottom Line
Class A properties are an excellent investment. Whether you plan to open up a business in one or make a B into an A, it is sure to pay off. The two main factors are location and quality. Other than that, historical significance and fame can play a role. Class A properties turn into a class A profit.