This is a basic education of Multifamily Real Estate types for the individual who may just be starting in MFRE and doesn't have anyone close to them to ask.
Multifamily Real Estate is by ad far one of the hottest sectors in all of commercial real estate right now, with the housing shortage and low interest rate and increasing rents, investing in Multifamily Real Estate can be a good move if you know what you're doing and have an experienced team.
That being said, even in a good market can people lose money in any investment if they don't know what they're doing, so be honest with yourself as to your skill level, and employ professionals to pick up the slack where you fall short.
"The type of Multifamily Real Estate you buy is vital to the overall success you experience. Some types just don't do well in some areas, while others are a match made in heaven"
The first "Type" is the "grade" of property you want to look at. The grade is the letter A, B, C or D, which indicate the condition of the property. The condition can mean both wear and tear or modernization. A 1950's apartment in great condition physically is still an C grade apartment because the macro market demands modern style apartments in order to pay the market rent.
And A grade apartment would be a New build with top quality finishing's and appliances. Something could be so elaborate that it may be considered an A+, but this is rare unless you're in Manhattan as it would more than likely be considered over-improved.
Another level down would be considered a B grade which is more attractive to investors because they don't have to pay as much, there's still some life on the bones before having to modernize, and they'll get a high market rent. In fact, B grade apartments seem to be one of the highest sought after segments of apartment grades for investing.
Class A Multifamily
Generally, garden product built within the last 10 years
Properties with a physical age greater than 10 years but have been substantially renovated
High-rise product in select Central Business District may be over 20 years old
Commands rents within the range of Class “A” rents in the submarket
Well merchandised with landscaping, attractive rental office and/or club building
High-end exterior and interior amenities as dictated by other Class “A” products in the market
High quality construction with highest quality materials
Class B Multifamily
Generally, product built within the last 20 years or an older property recently renovated
Exterior and interior amenity package is dated and less than what is offered by properties in the high end of the market
Good quality construction with little deferred maintenance
Commands rents within the range of Class “B” rents in the submarket
Class C Multifamily
Generally, product built within the last 30 years or an older property recently renovated
Limited, dated exterior and interior amenity package
Improvements show some age and deferred maintenance
Commands rents below Class “B” rents in submarket
Majority of appliances are “original"
Class D Multifamily
Generally, product over 30 years old, worn properties, operationally more transient, situated in fringe or mediocre locations
Shorter remaining economic lives for the system components
No amenity package offered
Marginal construction quality and condition
Lower side of the market unit rent range, coupled with intensive use of the property (turnover and density of use) combine to constrain budget for operations
Different Style Types Fall into These Categories:
Low-rise Multifamily Buildings
This type of building is considered 1 to 3 stories and is usually located in a suburban area where there's ample land supply to build homes that sprawl out more. These types don't have elevators and many time act as housing for people who have disabilities or seniors.
Mid-rise Multifamily Buildings
This type of building has usually 4-9 stories and usually at least one elevator. Examples of Mid-rise building include: Condominiums, College dormitories, Senior Housing, or Apartments in Urban areas closer to the city.
High-rise Multifamily Buildings
A high-rise building is often 10 or more stories and has multiple elevators. They are often more luxury and have amenities like pools, gyms, even restaurants. They could be mixed-use and have retail stores at the street level as this is the highest and best use in a urban city area where retail rents per sq ft are far above what a apartment at the level would demand.
No matter how they're arranged, there's typical four main types, which include apartment buildings, condominiums, townhouses and mixed-use developments.
Some of the major Multifamily buildings are Apartments, Condominiums, Mixed-Use, Student Housing, Age-Restricted and Low Income.
The thing here to note, is that there is no cut and dry variation to all of these, you can have a senior high-rise or a senior low-rise. You could have Garden apartments, Townhouses or detached houses all as condominiums (a condo is merely a legal form of ownership and does not represent the physical attribute of the dwelling).
Two factors that decide what the styles are going to be are tradition and era. Typically people follow trends as much as they can afford to, so they will prefer to be as close to an A grade property as they can. However, people are forced to live within their means, as though they should, and often times settle into B and C buildings.
Some folks tend to want to be in a better building and settle for a worse neighborhood, while others would rather be in a better neighborhood and live in less of an apartment.
I hope this article may have helped you understand style and type a little better . If you have any questions, please message us and we'll try to help you the best we can.
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