You have been looking for ways to invest your money, and have decided to do so in real estate. When hunting for your real estate investment, you hear people talking about class B property. There are different types of commercial loans. You are confused and do not know what that means. If that is you, then worry not! You have come to the right place. Class B property will be discussed in detail below. Read on to find out more.
The building classes are usually broken down into three categories; classes A, B, and C.The higher the building class, the higher its value and rent. The class grades depend on several factors, such as the age of the property, the location, amenities, the appreciation rate, the growth prospects, and the tenant income levels. Before you get a commercial property loan you should understand first the three categories.
Class A Properties
Class A real estate buildings are usually the best of the best. They are the newest property in a particular area; therefore, the most modern. They are the most desirable properties; consequently, they attract the most influential tenants, such as banks and law firms. They also have top of the line mechanical systems and modern architectural designs. Examples of such buildings include skyscrapers. They have high-end amenities such as construction finishes and a high parking ratio. These properties usually provide the lowest yields. They also are prestigious; therefore, they will enhance the brand image of your business. However, since these buildings are in high demand, it may be challenging to secure a space in them.
Class B Properties
Class B buildings are the next best quality assets after class A. They are still in excellent condition and are situated in good locations. The only difference is that they are slightly older and will require some renovations. They are usually between 10 and 20 years old but still have an amazing visual appeal. It covers average and mid-grade properties. These properties offer more growth potential and will provide higher yields than class A properties. Class B real estate properties are riskier than class A; therefore, buyers who buy them will get them at a higher cap rate than a class A property.
Class C Properties
It is the lowest class of the three categories. It has the least desirable assets of the three. It usually includes buildings that are more than 20 years old and need substantial improvements, such as the addition of elevators. Their systems are also generally out of date, and they will need massive repairs. They are usually situated in working-class neighborhoods. They also are typically occupied by small family-run companies due to their below-market rent. Class C properties are usually an excellent option for riskier tenants, such as those with startups. They are also an excellent option for people with poor credit since they will not be able to be tenants in the other two categories.
Qualities Of Class B Buildings
Below are some of the qualities of class B properties.
- They Are In A Good Location.
- Class B properties still have good locations. They may not be in the central business district as class A, but they are not too far from them. You will not need to commute far from the city to get to a class B building.
- They Have Four Stories Or Less.
- Class B buildings usually have fewer stories than class A buildings. They are not the skyscrapers that dominate the skyline as class A does, but are the ordinary office buildings nearby. They are usually four stories or fewer.
- They Have Partially Attended Lobby.
- Class B buildings have security guards that patrol the property, especially after hours.
- On-Site Parking.
- Class A buildings require on-site covered parking, but class B only needs to have a parking lot.
- They Have Functional HVAC And Good Internet.
- Class B buildings have customizable temperatures that ensure that people staying there are comfortable. Also, the tenants have access to reliable and functional internet.
Why You Should Invest In A Class B Property
The best thing about class B buildings is that the investor can spruce them up and transform them into class A adjacent property. The value of the building can skyrocket, based on how much you renovate them. A renovated structure will command higher rental fees; therefore, you will be able to get good returns. Below are some of the other reasons why you should invest in class B property.
- The rental rates are usually more economical than those of class A buildings.
- These buildings usually have professional property managers that handle any concerns about the building. This ensures that there is a smooth running of operations.
- They can be bought and sold at lower prices, and also higher cap rates.
- They offer the best balance of risk and return; therefore, they are a great bet for any investor.
- They also have a higher growth potential than their class A counterparts. They also have more appreciation and yields than class A.
- You can achieve class A rental income through renovation once you invest in it.
- Class B properties attract good tenants that are willing to pay premium rents with no problem.
- In case the markets soften, these buildings will still hold and retain their value, and still perform well, which is great for any investor.
- The demand is usually lower for offices in class B buildings; therefore, you will be able to get a good place in areas where there is an office shortage.
- It is highly unlikely to have emergency repairs to the systems in these properties.
Drawbacks Of Class B Buildings
- The utility costs in a Class B building can be quite high.
- Class B buildings do not have the same prestige as their class A counterparts.
As seen above, class B properties have a lot of advantages. They are a great investment for anyone who wants to invest in real estate and will bring significant returns. With the information above, you will be informed and be able to make a good decision when it comes to your investment. If you have any problems, it is advised to seek the advice of a real estate investment company. They will guide you to learn the different types of commercial real estate and help you get a property that will suit your investment portfolio, strategy, and property type.