According to an experienced realtor, properties are categorized based on their locations and there are three basic types of locations. There are A-class areas where you will find A-class properties. B-class properties are located in B-class areas while C-class properties are located in C-class areas.

As a landlord or an investor in real estate, you should strive to play in B-class areas. This articles describes all the three categories of locations and also explains why B-class areas are the best for investment.

Features of A-class properties and A-class areas

These areas are definitely the best areas and it is dominated by the rich. Of course, the cost of properties in these areas is very high. In addition, these areas have the best of amenities. Whether it is hospitals, malls, restaurants, schools, and even public transportation, these areas offer the best of them all.

This is why most of the residents of the areas are the owners of their homes. As attractive as they are, the areas are not so good for real estate business because they offer low returns on investment. The returns on them are not commensurate with the amount of hard work that goes into the maintenance of the properties in the areas. You will earn about 3 to 5 percent annual returns on them.

It is not that the figure is so bad but some banks will match the return on your deposit. So, why will you buy a property and take so much pain in maintaining them just to make a profit that banks can pay you without doing anything? Apart from banks, there are several other types of investments that will fetch you more returns without giving half of the trouble that you will encounter in real estate.

Do you have any idea how many calls you will receive from your tenants for you to fix one problem or the other? In fact, most landlords dread these calls. In addition, A-class areas may not offer you sufficient cash flow. The few tenants in these areas usually pay huge rents that cover a long period. In short, A-class areas are the best areas to live but they are not the best for investment properties.

Features of C-class properties and C-class areas

C-class areas are the worst category. The biggest problem with these areas is volatility. As a landlord, your cash flow may not be consistent in this areas. When your tenants pay up promptly this time, it will take a long time before they are able to pay again. It is needless to remind you that consistent payment is the key to success in real estate business.

A lot of properties in C-class areas are begging for renovation. Even the crime rate here is not encouraging. It is higher than average. However, there are very few profitable C-class areas but the majority of them are in the condition described above. If you are ready to be dedicated to your properties on these areas, you should get sufficient cash flow but it will take regular visits to your properties. Some landlords who want to get busy will enjoy these areas because of its low but consistent cash flow.

Features of B-class properties and B-class areas

These areas seem to take a middle position between the other two classes in several terms. For instance, about half of the residents in these are areas are owners while the other half are tenants. The areas also offer necessary amenities even though they may be of a lower category to the ones offered in A-class areas.

You can get several elementary schools, high schools, colleges, and other higher institutions in these areas. What B-class areas offer better than others is consistent cash flow. The tenants in these areas usually pay their rents as and when due and so this takes care of landlords’ cash flow. This is why it is the best category for investment.

Most importantly, most of the tenants here usually remain there for a very long time. This is not to say that C-class does not also offer cash flow. The problem with the category is that the cash flow is volatile. It is not steady. A year may be a good one for your tenants and the next year may be bad and it will affect their rents. Secondly, the cash flow in C-class is low since the rents therein are relatively low.

So, B-class areas are the best for landlords because:

  •  They offer consistent and relatively higher cash flow.
  •  You don’t have to be physically present all the time.
  •  They offer passive income.
  •  They are also great locations for you to live.

Based on the analyses above, you need to aim to buy properties in B-class areas if you want to make good, steady, and easy returns on your properties. However, a few other areas are in between the categories. They are neither here nor there. You need to be able to spot those areas and avoid them.