Class A Apartment Investment Goals

February 13, 2017 - 3 minutes read

One of the considerations every investor should contemplate is:  what are my true investment goals?  This question and its associated answer will naturally direct you to the right class of apartment buildings if you understand the benefits of investing in a particular class of building.  Let’s explore your Class A apartment investment goals.

Class A Buildings

Class A sounds like the very best of the best and of course we have strong associations to letter grades in school, so class A sounds awesome!  That is, if you are familiar.  If you are new to large apartment investing and do not understand the definition of Class A commercial multifamily buildings, spend a couple of minutes getting familiar before we move on.

Financial Highlights of Class A Apartment Buildings

It may surprise you to learn that each class of apartment building has financial benefits that are specific to that asset class.

Class A commercial multifamily investments are no exception.  Investors may have noted that Class A assets are typically more costly to acquire and to keep updated.  The flip side is that they are less expensive to maintain and maintain a fairly stable rental base if positioned correctly.

Investment Benefits of Class A Commercial Multifamily

The net result of these highlights is that Class A buildings are very low risk.  Consequently, they will trade at very low CAP rates and for very high pricing compared to other classes within a market.
Because the pricing as compared to the net operating income is very high, if debt is used to acquire, cash flow will be light.  This could result in low positive, or even negative cash flow over the course of the hold period.

The upside is a true Class A asset in a Class A neighborhood will appreciate.  And some Class A assets can be forced to appreciate through strategic upgrades to units and/or amenities.

The investor will benefit from appreciation over time and tax benefits in the form of depreciation.

Class A Apartment Investment Goals

It is especially important to match this asset class with your philosophy.  Are the investment benefits of Class A buildings what you are after for your portfolio?

Risk is minimal in established Class A assets.  Does this risk profile satisfy your risk appetite?

Cash flow is lower than with other asset classes.  Are you comfortable accepting less cash monthly or quarterly over the course of your hold period?

Tax benefits are plentiful.  Class A assets may offer you a greater opportunity for tax benefits than other asset classes.

Well-located Class A assets continue to improve in value because appreciation is generally high.  If high appreciation is important to your investment philosophy, then Class A assets will be a good fit.

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