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How To Identify A, B, and C-Class Properties

Episode 022

John Larson and the Real Estate Cowboys talk passive income real estate investing.

Hear new episodes every Sunday morning at 8 a.m. The Cowboys talk how to identify A, B, and C Class properties.

Keep the #CowboyCoffee hot while listening to John, and the Cowboys talk about how to #BeACowboy and earn passive income in real estate.

Episode Transcript

Announcer: Have you thought about becoming financially free through real estate investing, but don’t have the time or knowledge to get started? Welcome to the Real Estate Cowboys podcast. Each week we discuss passive income investment opportunities in the red-hot Texas market. John Larson and the Real Estate Cowboys will show you how to leverage their team to build wealth in real estate through passive investment opportunities. And now here’s John. 

John Larson: Hello everyone, this is John Larson. Welcome back to another episode of the Real Estate Cowboys. Got a new week here, new positive outlook on life. A lot of great things going on for real estate investors. Uh, excited to talk about this topic today. Basically what we’re going to be talking about is how to classify A, B, and C class properties. How do you identify these properties? How do you know a property’s a C? How do you know a property’s an A? Pretty much, a starting a good starting point is knowing the market. And you hear me talking a lot about looking for the median value in the markets that you’re looking to invest in. And two good cities that I would use as examples would be, let’s say, San Francisco and San Jose. Those are probably the two most expensive markets in America right now, where the median home value is probably 1.2 million, around there.  

And then you look at a city like Detroit where the median home value is below $200,000. So when you’re analyzing a market and we analyzing an a d or c class property, I think a great rule of thumb to start off with is, number one, what is the median value in the market? Because a C class property in San Francisco at that price could be an A class property in a city like Detroit. Um, and with identifying A, B and C class properties, it’s really important to look at that median value. And another good example; let’s just use DFW here, because this is where I live, this is where I do a lot of my business, this is where I do a lot of my investments. The median value in DFW at this point is hanging around 225, maybe up to 250, um, in certain areas of Dallas. So an A class property for me would be something that’s 200K or above. You’re getting close to that median value for the market. That’s a good starting point. Now there’s other factors that go into it, but it’s a good starting point. Now on the flip side, $100,000 property in the Dallas market, because the median value’s two, let’s just call it 240; $100,000 property in Dallas, in my opinion, is going to be a C class property, even a low C property, and that’s just because of the fact because obviously a $100,000 property’s not going to be in the best neighborhood or best area or best city of Dallas. Because the median value as a whole is $240,000. Same goes for San Francisco and San Jose. If you’re close to that 1.22 million mark, you’re in a neighborhood, you’re investing in a building. You start to deviate too far below that $1.2 million, and now you’re getting into B’s and C’s.  

And I would say, uh, don’t quote me, I don’t know the San Francisco market totally, but I would say probably a $500,000 house, or a $400,000 house is not in the best neighborhood of San Francisco, and would not be considered, in my opinion, an A class property. So, not all markets are relative; that’s number one. We have to start off with what is that medium value in that market before we can really start to determine what the classification of the property is. So I hope that makes sense. But with A, B, and C class, the classifications and I feel like a lot of investors out there, they feel like they know what an A, B and C class property is. I don’t think that many people do know because I think there’s a lot of turnkey providers out there, a lot of gurus out there who are telling you that, you know, a C class property is still a $50,000 asset in a certain market, when really I would consider that probably a D. That’s borderline. That’s not even C, you know. 

But then again, you have to go back to look at what is the medium value in that area before you can make that judgment call. But investors, lenders, and brokers; we have developed the property classifications to make it easier when communicating amongst ourselves about the quality of a property. For investors. Property class directly affects the projection of risk and return. So it’s very black and white, right? A C class property is going to come with more risks. An A class property is typically going to come with lower risks because they’re in better neighborhoods. In many instances, they’re newer properties or new construction homes, so there’s lower maintenance, but in nicer neighborhoods, you have less crime, no crime, better tenants, so on and so forth. And obviously with any investment opportunity, the higher the return is on paper, is generally associated with higher risk.  

Lower return on paper is generally associated with lower risk. Just like with stocks. Blue-chip stocks are going to have a lower return. The riskier stocks are going to have a higher return. Oil and gas, if you’re investing with a company, um, to explore for new oil opportunities, it’s going to be a higher rate of return if they find oil. Um, it’s speculative, right? It hasn’t been found. If you want to invest with a company that already has proven wells that are already generating, are bringing oil up from the ground, your return is going to be less. Okay? The same thing goes for real estate.  

And now the grades of these properties, they are identified by different characteristics. It’s a combination of location and physical characteristics that factor into determining if you’re dealing with an A, B, and C property or maybe even a D property.  

Okay. And the first thing would be the age. That’d be the original built year. Um, location plays a huge role. Tenant income plays a big role as well. Uh, obviously, like I said, if I’m going to invest in $100,000 property in Dallas, I obviously know that the location’s not going to be as good. There’s a good chance the age is going to be older, um, and there’s a very good chance and very good likelihood that the tenant income is going to be below whatever the median household income is for that city in that market. And that’s another thing that you want to take into account if you’re investing in single family homes, in any cash producing property, um, know your median income, median, household income for that area, too. And try not to put yourself in investment opportunities that are going to attract tenants that make far less than the median income in that area. You’re just going to be setting yourself up for trouble in the future. Trust me.  

Um, area growth projections. Because another thing that’s important. Now there’s many markets in America that are identified as quote-unquote cash flow markets, but they don’t have very good growth projections. Um, we can go through another recession, and you can see those areas become very depressed because there is no growth, there is no population growth, there is no job growth. And those are typically the markets in America, especially in today’s market where we’re back up to the prices that we were seeing before the last recession. In order to find a good cashflow market, you’re investing in some of these areas that have really no growth or no strong growth, right? Not like a DFW, not like a Texas in general, where you’re seeing tons of people moving in and tons of jobs moving in. And that’s what’s driving the economic growth and population growth, right?  

It’s a business-friendly states here in Texas. It’s affordable real estate still today, I don’t know about in the future, but still today there’s a lot of land to develop, a lot of developable land I should say, and this is continuing to bring people in. I think I said on one of my past episodes, DFW had the second most new construction apartment buildings built in 2017, only behind New York City. So what does that tell you? I mean that’s pretty amazing. So that just shows all the people that are moving into the city year over year. That to me shows a good growth projection, which makes me feel that DFW is an A class market. Appreciation or capital growth is another thing I look for with A, B, and C class properties when I identify them. Typically with A class properties, high B properties, those are gonna be the ones that appreciate over time because you have a lot of retail buyers buying in those areas as well. They’re not just renter-occupied neighborhoods, investor-owned neighborhoods where you see properties being traded on the cap rate. You don’t have a bidding war in these areas which is driving up pricing. You want to see retail demand in the markets that you’re investing in, the areas that you’re investing in, neighborhoods and you’re investing in. You want to see retail home buyers buying there, too. If you’re not getting appreciation, in my opinion, then I mean, I don’t believe that single family homes are the best option. Cashflow is speculative, just like appreciation is. If you’re buying a property in a bad neighborhood that’s going to consistently attract bad tenants, there are many variables that are going to affect your cash flow; evictions, vacancy, extended vacancies; and then when the property is vacant, the possibility that the property gets broken into, things are vandalized, things are stolen. That happens in these neighborhoods, these C class neighborhoods where crime is just more prevalent. A class neighborhoods don’t see this. If they do see this, it’s very rare, So you don’t have to worry about when you’re investing in A class, even high B class neighborhoods, a lot of times you don’t have to worry about your property getting broken into when it’s vacant, okay? 

And so you know, with older construction, older homes, you’re also going to see more, I would say, ticky-tacky maintenance issues that pop up. Um, in my experience with c class properties and dealing with the tenants that move into C class properties, I’ve found that they make more maintenance requests. They don’t take very good care of the home while they’re living in it. And now this doesn’t go for everyone, but off the data that I have compiled in my career and the numbers that I’ve seen in my career, in C class properties, I’ve always dealt with more maintenance. I’ve always dealt with more troublesome tenants. So that’s something that you need to think of as well. And like I said, appreciation in capital growth is definitely something you need to be factoring it. It’s not just all about the cash flow. We’re in a market today where there is not, there’s not a lot of cash flow, especially if you’re taking out a loan, especially with the Fed raising the rates. There’s not a lot of cash flow in today’s market with single-family properties. So I see a lot of investors reaching. And they’re reaching into markets that they wouldn’t normally have invested in five, six, seven years ago, but they’re going there today because they wanna keep growing their portfolio. They want to get their first rental, but they’re trying to buy a property that has the highest rate of return on paper. And in today’s market, I’m sorry, that’s going to be a C class investment, and you need to know the risks that are associated with it, okay? You can’t use C class and passive, in my opinion, in the same sentence. There’s going to be issues. They’re just tougher properties to manage.  

Amenities is another thing that I look for when I’m seeing A, B, C class. Uh, what, what does the surrounding area have to offer? Um, why is this going to be a good area for a retail home buyers, um, to continue to want to move in for years to come? You have to pay attention to that kind of stuff. You know, are there really nice parks around? Are there good schools available? Is there a beautiful community center nearby? What is going to attract tenants and homeowners alike to move into these neighborhoods? If you’re in a C class area, you’re not going to see a bunch of really nice amenities available. Uh, A class areas, you are going to see nicer amenities available. You’re going to see better school districts, so on and so forth, cleaner areas, nice parks.  

Um, and then the rental income is a very important thing to consider. Um, I would want to know what the median rents are in certain areas where I’m investing. And it’s pretty easy to do this math. If the median income in an area is $60,000 a year, medium household income, and any good property manager is going to want, and that’s going to translate to what, $5,000 a month? Correct. Any good property manager is going to want to make sure that their tenants make at least three times the monthly rent, gross. So somebody that makes $60,000 a year and makes $5,000 a month, they can qualify for rents at, let’s say $1600, right? Let’s just say $1,600’s the mark. So I would say, then, if the median income for the city, for the market is $60,000, then the median rent there should be about $1500, $1600. So those are the types of properties that you should be looking for. If you’re looking for rents that are even higher than $1600, well, then you’re really hanging in that A class territory. If you’re right at that $1500, $1600, I would say you’re really at that high B to getting into A class. Anything below that $1500 to $1600, you’re now starting to get into low B to C. So if the median rent for the area based on the median income is $1500 and $1600, then a thousand dollars rent is probably starting to get into a c class neighborhood. Because if those people are only able to qualify for a thousand dollars a month rent, it means that they’re only making $3,000 a year or a month. Sorry, $3,000 a month, which means that they’re making $36,000 a year, which is well below the median income for that market. So, those are the kinds of things that I’m factoring it when deciding is this an A, B, and C class property and what markets should I invest in? So very, very important to consider all of that stuff.  

Now let’s start with C class properties. How, what is considered a C class property? And with C class properties, generally you’re going to see that they’re older than 20 years, they’re going to be located in less desirable areas. It’s extremely common that they require renovations. I’ve seen C class homes that are, what I would call the lipstick renovation. They’re not changing the mechanicals out, making sure that they’re brand new; they’re just painting walls, changing carpet, uh, not really doing that extensive renovation that you’d see at an a class property. And that results in lower rents obviously, right? People will pay top dollar rent or above market for rent if it’s got the granite countertops, the nice tiled back splashes, the nice tile bathrooms and kitchens and you know, have good curb appeal.  

So that type of stuff is going to attract better tenants, and it’s going to also command higher rent. But with C class homes, you know you never want to over-renovate property. And if it’s a C class property in a C class neighborhood that’s going to generate $700 in rent; just because you put in granite and do all this extra stuff does not necessarily mean it’s going to command higher rent. You got to think about your tenant profile. They just can’t afford to pay higher rent in those neighborhoods. People willing to move into those neighborhoods can’t afford to pay higher rent just because you have granite in this house. So I see that a lot with, like C class turnkey providers. They do very good renovations. Some of them do excellent renovations. They do the granite; they do all the really nice stuff. But, I mean how much extra rent is it gonna get you? I feel like it’s almost a sales tactic. Well, look at how beautiful this houses, but the neighborhood it’s in is terrible. And the investor gets all caught up with, oh wow, the renovation came out really good, but what is that really doing for you? It’s not getting you any extra rent, and you’re going to get the same type of tenants that, there’s a good chance we’ll take care of that nice renovation that you just purchased with this property. So be mindful of that. With C class properties, you’re going to see that they usually have the highest rate of vacancy as well. You know, these are areas that, there’s no retail buyers that want to move in there. You know, it’s just a different demographic, um, in terms of income and things of that nature. So generally with C class properties, you’re seeing a higher rate of vacancy, late or missed rental payments and deferred maintenance are very common. This makes it very difficult to maintain cash flow. It looks good on paper, but when you get into actually owning the property in year one, two, three, four, five, you will see that the vacancies are more common than you thought. Uh, the maintenance and repairs are more frequent than you thought. And that eats into that cash flow. And hopefully, you don’t run into a situation where you have an extended vacancy, and the property gets broken into. So, every time your property goes vacant in a C class neighborhood, D class neighborhood, you have to be nervous that there’s a chance for theft. There’s a chance for a break in.  

So in my opinion, C class, they’re not ideal for investors who expect a passive investment. We talk about passive a lot in this type of investment model, passive this, passive that because a property management companies watching your asset, but it doesn’t matter. The greatest property management company can be managing a property in a bad neighborhood, and it’s still not going to perform. You’re still going to run into situations where you’re receiving negative cash flow for the year. And in my opinion, these investments become very hands-on due to that, because you’re always having conversations with your property manager. There’s a new problem that popped up, sir, or ma’am. Um, here’s a new problem that we have here. Here’s another maintenance request here. It starts to become more of a job than you would like, just with the updates and the follow-ups with your property management company. And then when you have to start taking money out of your own pocket and putting it into the investment, it doesn’t make it passive anymore. With rental properties, the reason why they’re so great and can be so great is because they can generate passive income, but you got to let help your property manager help you invest in areas and in properties, in neighborhoods that are going to set your property manager up for success too. If you give your property manager a crappy property in a crappy neighborhood, there’s only so much that they’re going to be able to do. It’s not like they’re going to be able to get a middle-class tenant to move into these C class neighborhoods and these C class houses. So be very mindful of that too. And as I’ve said before on other shows, it’s rare that you’re going to really find a truly professional management company to manage lower grade assets. They’re going to be a mom and pop type operation.  

Now, that’s just what I’ve seen in my experience. I’m not saying that this is everybody. I’m sure there’s some investors who are listening to this show that have had good experiences with c class investments. Well, that’s great. I did it. Um, and many other investors that I know have not. And many other investors that I know got what I would say duped into buying a c class property because the numbers look good. The rehab looked good, but they didn’t fly out. They didn’t go check on the neighborhood. They didn’t really meet the property management company face to face. They didn’t properly vet out the management company, and the investment just started spiraling out of control. And we talk a lot about properties that grow tails around here at American real estate investment. And it’s tough to cut that tail off When a property starts to grow a tail, it’s really tough to cut that tail off.  

And by growing a tail, I mean eviction, results in extended vacancy, results in a break-in or theft, results in more damage, results in longer time that the property sits vacant. And so on and so forth, and it’s hard to get that property back stabilized. So we’re going to take a quick break, and when we come back, we’re going to talk about a b class property. Uh, so stay tuned. We’ll be right back. 

And welcome back to the Real Estate Cowboys. This is your host, John Larson. Today we are talking about how to identify A, B, and C class investment properties, especially on the single-family side. We’re pretty much focused on single family. So we already talked about c class, kind of some things to look out for with C class. Obviously, many of my savvy investors out there, my sophisticated investors, they know the position that we’re in in the market here in 2018. Uh, pricing is back up to where it was before the last recession. We’ve also seen markets like DFW really grow over these past decades and we’re seeing higher median home prices in some of these growing cities across America that we didn’t see before the last recession. And so many investors are, you know like I said, they’re reaching for cash flow, they’re reaching for the best-looking spreadsheet, which is putting them in a position where they’re buying a riskier investment. And many investors I see in today’s market are going to the C class route because they’re having a hard time finding cash flow in the better neighborhoods, in the better markets across America.  

So now let’s get into B class. So B class is obviously going to put you right between C and A. Um, they’re going to provide decent returns in today’s market, uh, but they’re also going to limit your risk. Um, the common risk that you’re going to find with C class properties, evictions, you know, damage to the property, high crime, possible break-ins, you know, no appreciation. B class, you can see some appreciation. Um, so it’s right smack dab in the middle. And a lot of investors I know really love the B class model because it’s just what they feel like is the sweet spot. They have an opportunity to see some appreciation, although those neighborhoods can still see some major fluctuation in appreciating values. You do start to get into some neighborhoods where you start to see some more retail buyers. It’s not all rental-occupied properties and investor-owned properties. You’re starting to see more of a good mix of retail home buyers as well, which is what you want, you know, retail, home buyers. If you own your house and are living in your house, you’re going to look out for things like crime. You’re going to look out for, you know, the neighbor that’s dirty, um, you know, that’s leaving garbage around and things like that. You’re going to pay attention to that kind of stuff. And so that’s why you’ll also see that B class neighborhoods, they generally look better. The yards are maintained. The homes, they’re cute. The people that are living there, they’re planting flowers and, you know, taking pride in ownership. And so I, you know, really like B class properties. I own personally, uh, quite a few B class properties even in the Detroit area, and some other areas across the US and I’ve had a good experience with them. I generally can say I’ve had a good experience. Um, and when they are occupied, I have good solid cash flow. Um, and like I said, the tenants just seem to be easier to deal with, less problems, less maintenance requests, just less issues. And I know my property managers enjoy managing those homes. They’re much easier to manage. Not like with the C class and D class properties, where they’re just, it seems like there’s something every day. So now with my B class portfolio, I still run into some vacancy. I think for a good B class property in today’s market if you’re going to get a solid rate of return and solid cash flow, you’re probably not going to be in a Dallas market. I mean, I don’t think that you really get greater cash flow in the Dallas market because it’s a B. it’s almost pretty much on par with what you’re going to get with an A. it’s not much better. And so when I’m looking at investment opportunities, I got to weigh the risk and reward all the time and in my opinion, due to the property taxes being what they are in the Dallas market, it’s not like a B class property’s really getting me that much greater or a return, um, based on assuming some extra risks that I won’t get with A. So, typically with my Dallas investments, I’m really only going A class here, um, and I’m not seeing much cash flow, I will be honest, but my vacancies are very low, and my appreciation; my properties have appreciated, and we just had Graham Parham on the show. We did an investor spotlight on him, and we highlighted how his two Dallas properties that he invested in with us and his other Dallas properties have gone up in value. Um, and, and really the two he purchased with us went up $30,000 or more in just the past 18 months. So really, really impressed with that. So I’m seeing that as well. Um, really solid appreciation on properties that I only put 10, 20 percent down. Um, so with B class, uh, they’re generally going to be a little bit older properties, too. Um, not as old as C. You still are dealing with tenants with a little bit lower median income than what the average income is for that market. Uh, in some cases, B class properties, you will have a professional management solution, more of a professional solution instead of like a mom and pop solution. Sometimes you can turn a B class property into an A; sometimes there’s a B class; uh, a neighborhood in a city that I would consider as A class, but there are some areas that are still considered B in terms of the actual, just area itself. But there’s good properties there, and if you go in and you do an extensive renovation, you could bring a B class property to an A or A minus. I’ve seen that before. And there’s good value-add opportunities when you’re looking for those type of opportunities in markets across America. Now you also will see a lot of fix and flip outfits out there that, that’s what they’re looking for. They’re looking for a B class property, something that’s older, it’s in an a neighborhood, but it’s a B class property due to the age, and due to the renovation, it hasn’t been renovated in years, It’s outdated. They’re looking for that value-add proposition, but it’s more hands-on, right? It’s not really what we’re looking for as passive income investors. Uh, it’s not what I’m looking for. I do flips as well, and I’ve said many times on my show, it’s a full-time job. We just want passive investors to be able to buy a business in a box, and hopefully it performs well, and we have less problems, and hopefully, the rewards outweigh the problems, right? That’s what we’re looking for as passive investors.  

But, you know, B class, like I said, it’s just gonna be right smack dab in the middle. I think that there’s great opportunities with B class homes. Your tenant profile is going to be better, tenants that make better money. You’re going to see more amenities in the neighborhood. You will see some better school districts, some better parks, uh, better community centers, a better overall feel for the neighborhood, right? So B class; solid option.  

Now let’s get into A class properties. These properties are the highest quality buildings in their market. They’re generally new builds or newer built homes usually built within the last 20 years. Now I won’t say that I’m not going to just pigeon hole an A class property on a property that was built in the late nineties. Um, there’s A class properties that you can get that were built in the sixties, seventies, eighties as well. It’s really going to depend on the neighborhood. It goes into the location, the tenant income, the growth projections, opportunity for appreciation, and obviously the better amenities, and the higher rental income. It’s going to check those boxes. Just because it’s a little bit older home does not rule it out as being A class. But generally most institutional buyers, they’re going to want to target newer construction homes as A class. That’s going to fit their bill. We, as non-institutional investors, we can find very good A class opportunities that are even older building as well. They come with Iran finishes, obviously A class buildings, typically you’re going to find a class, single-family homes. They’re going to have what I would call retail finish-out; a more high-end finish-out. You’re going to see the granite countertops. You’re going to see, you know, the nice tile backsplashes, the nice kitchens, nice bathroom remodels the good curb appeal. You should see that sort of stuff. You should see better school districts. Um, the crime rates are going to be low. You’re not going to really have to deal with crime. Don’t get me wrong, it still can happen, but the chance that it happens is a lot more slim than when investing in a C class property. Uh, A class buildings are almost always professionally managed. Uh, you’re generally going to see the big property management, big professional property management companies. They’re going to be targeting these A class properties. These are the types of properties that they want to manage. Um, all the major hedge funds and REITs are going to be going to the big boys to manage their portfolios, which are usually comprised of the high B to A class inventory. That’s generally what you see funds purchasing. They’re going to demand higher rates. Of course, they’re going to be in neighborhoods where you have a strong demand from retail home buyers as well. Uh, you’re probably going to be investing in properties in A class neighborhoods that are predominantly owner-occupied neighborhoods; which I think is great, right? And that’s what’s going to drive up values, the continued retail demand for years to come, so if you ever do want to exit out of your property, you should easily be able to place it on the MLS. Hire a Realtor. They should be able to sell it for you pretty easily. Now with A class, you’re going to see lower returns on cash flow, but it’s not all about cash flow. There are six ways that real estate pays you and we’ve had episodes that talk about those six ways; appreciation being the largest one, the tax benefits and writing off the depreciation is another big one. The fact that you have a business professional tenant with an A class property who’s on a salary position, paying down your principal balance each month consistently is another way that you’re getting paid. Vacancies tend to be less because these are highly sought after neighborhoods. These are neighborhoods with better schools, neighborhoods with better amenities. People want to live in these neighborhoods. They want to buy homes to live in themselves; they want to rent homes as well.  

So, it’s okay that an A class property is going to have a lower rate of return and lower cash flow than a C. It’s supposed to. But I believe that you have more upside with A class, and you’re going to receive a more passive experience. For my passive real estate investors out there, A class is the way that you’re going to want to go because you’re going to have less problems. Now I know the cash flow isn’t necessarily going to be there, but like I said, there’s more ways that you’re benefiting from real estate investing. So I just want everyone to take that stuff into consideration. Now we’re going to take a quick commercial break. When we come back. We’re going to wrap up this week’s episode. 

And welcome back to the show. We’re talking about A, B, and C class property classification. How do you identify an A, B and C class property? Uh, we just got through a class. Um, I hope that this opened some people’s eyes. I do have a lot of investors that come to me, and they don’t know what an A, B and C property is. Or they live in a market like an Indianapolis and are trying to compare a class property in Indianapolis to an A class property in Dallas or a C class property in Dallas. Not all markets are relative, so you really need to pay attention to, one, what is the median value in the market? What is the median income in the market? And that will really help you identify if you’re working with a D or C class property because that’s going to be able to tell you, you know, obviously age, that’s easy to identify. Um, the location, you can see where the property’s located. But when it starts getting into tenant income, growth projections, appreciation, the chance for appreciation or capital growth, the amenities and the rental income, you must know what that median value is, okay? And that will also help you with location. But also what is the median household income there. So, I hope that provides a little bit more insight on how to accurately identify an A, B and C class property in the markets that you’re investing in. And so it’s very important with your investment strategy, uh, to know how to identify these A, B and C properties in these markets because you need to make sure it fits within what you’re looking for. If you’re an investor that’s truly looking for passive hands off, don’t want to deal with a lot of problems, then you need to go A class. Um, if you’re an investor that can take that risk and kind of roll the dice and hope that you see, you know, a lot of rewards when the properties are working well, then you know, maybe C class properties are good for you.  

If you’re someone that manages your properties yourself, maybe C class properties can work for you because you’re actually managing them. But that’s not passive. That means that you’re taking full control. And so I have seen some investors and some of my own friends who invest in C class homes, they’re managing themselves, and they have a successful experience. But it’s their job to look after the properties, and obviously no one’s going to look after your own properties or your properties like you would your own, you know. Everybody’s going to take more care; you’re going to start to build relationships with your tenants. You can start to see some real positive income and have a positive experience with owning C class properties and A class portfolio if you’re kind of handling the day to day management or at least overseeing it. So I wouldn’t rule that out.  

But like I said, if it’s someone that’s looking for, you know, I want the tax benefits, I’m in a tax bracket where I make quite a bit of money. I’m in a higher tax bracket. I’m just trying to get my money to work for me in real estate. But I don’t want to have to think about it; A class is a great way to go. You know, each strategy bases itself on return objectives and the amount of risks that you’re willing to accept to achieve those returns, right? So A class, less risk, lower return on cash flow. Remember on cash flow; appreciation can be great, right? You could get 100 percent returns on your money by only putting 20 percent down, and your property appreciates 20 percent over the next three years. It’s happening. It’s happened in many markets across America, Dallas being one of the main ones. With C class, higher risk, higher returns on cash flow, but really virtually no appreciation upside, okay? You’re in a harder exit strategy; you’re not easily going to be able to exit out of a c class property unless you want to sell it to another investor and that investor is gonna want a discount to take it off your hands, I’m sure, okay? Investors typically don’t like to buy at market value. They just don’t, and especially if you have a property that grew a tail and it’s not in rent ready condition, investors are going to beat you up. They’re going to want a huge discount to take that property off your hands. And so dependent on what you’re looking for as an investor, you need to identify and match it with the correct property class. Investors are looking for capital preservation or appreciation in their market, we recommend A class. 

So I hope that this episode was helpful for you. If you’re interested in hearing more episodes on Real Estate Cowboys, go to Real Estate Cowboys, DFW DOT com. We have a list of our past episodes. Really great information there. We also have access to some great blogs that myself and my team have written with great real estate education on there. My book, The Passive Income Guide: What’s Your Return on Life? Um, the foreword was by Keith Weinhold that just came out. That is on Amazon. You can go buy that now , r you can go to the Real Estate Cowboys, DFW website and purchase the book from there. I think it’s only selling for $3, $2.99 at this point. So go ahead and get your copy. There’s some great information in there. It’s a very easy read. It’s only about 50 pages, but there’s great information for investors who are looking to get started in real estate and start earning and building passive income streams in real estate, whether it’s through single family rental ownership or private lending opportunities.  

Like I said, many times in the show, I love the private lending model, especially through the IRA or 401k self-directing those accounts, getting that money working for you in real estate or lending that money out to people like myself, real estate developers and lending it in good markets like Dallas, very strong market, strong economies. You can see very solid returns, double digit returns, and the returns are going to be fixed. You know what you’re getting each month, so very passive, and a great way to grow your retirement account passively, which is what we’re all looking for. Or if you’re interested in vacation rentals, you know we dabble in that as well. We do stuff down in Belize. I believe Belize is one of the best areas right now to invest in for vacation rental properties, especially in the Caribbean, so we have more information on those opportunities on our website.  

You can join our mailing list and sign up on the website, and you can get access to all these off market opportunities. Stuff that not everybody can get their hands on. You can also visit our website,, that’s American Real Estate Investments website. There’s tons of opportunity on there as well. If you’d like to speak with someone on our team on how to get started earning passive income through real estate, we can help you. You could go to either one of those websites and put your information in. Um, but yeah, definitely check out the book. Also, very cool investor quiz. If you don’t know what option is best for you, you can take a short quiz and it will give you a basis to go off of. It will tell you whether you’re a single family, rental investor, private lending investor, or vacation rental investor based on the answers that you provide. So really cool stuff. Hopefully ,you go check out the website and tune into us next week for another edition to the Real Estate Cowboys. Have a great week everyone. 

Announcer: All opinions expressed by the host of the show are the opinions of American Real Estate Investments LLC and do not reflect the opinions of guests or sponsors. No personal or professional advice on this program should be considered an endorsement to follow a real estate financing or investment strategy. Before acting on any information, seek advice from your financial tax, mortgage or real estate advisor, as the information is not guaranteed and investment strategies have the potential for profit or loss.