We’re back this Friday with another bonus episode from a YouTube video we just released!
Let us ask you a question… would you rather invest in a brand new, fancy, apartment building… or a building that’s 10+ years older with nothing super special about it?
What’s the difference? Oh, just higher returns, recession-proof cash flow, and a whole lot more. And we’re not talking about the class A building! So listen in, or go watch the video, to see why we prefer to stay away from class A buildings!
All of this and more in another bonus episode of Multifamily Investing Made Simple!
“We don’t want to have an asset class that’s going to be susceptible to the whims of the market.” – Anthony Vicino
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Why We Don’t Invest In Class A Propertys
[00:00:00] Anthony: All right. You know, me, you guys, I am all about real estate, but with that said, there are certain types of real estate. I just won’t touch with a 10 foot pole
I am in the new casino of Invictus. Capital is the author of passive investing made simple and the co-host of the podcast, multifamily investing made. So, what do I mean, there are certain types of real estate that I just won’t touch. That’s not really probably the ones that you think it’s actually the really pretty properties, not the ones that are dilapidated and falling over and need to be knocked down so we can build something new.
Yeah. Those buildings are scary. We call those class D opportunistic. Uh, But they don’t scare me nearly as much as the really pretty class, a brand new builds that you’ll see going up all over the town. Now, what do I mean by class? A first of all, [00:01:00] class a is really nice brand new ground up development that the really hoity toity apartment buildings that you see in the coolest areas of a city, when you drive through Nashville and you see all those sky screens building stuff, they’re building class, a class B by, uh, extension is.
Usually 10, 15, 20 years older, still living still in a pretty good neighborhood, close to a target Walgreens, um, in a whole foods, all that stuff, but just not as nice and not as pretty, as classy and classy. One step down from that, we’re looking 30, 50 years old. These are assets that are generally workforce housing.
So people who are working in service industries, teachers, you know, they’re living in these buildings and they’re, they’re usually old. There’s some, uh, Deferred maintenance. So there’s a lot of opportunity for us to go in and make improvements. All right. So why don’t we like class a here? Here’s the big thing for us.
There’s just not enough returns in it. And it’s not to say that these are bad investment vehicles. It depends on the type of investor that you are in what you’re looking to get out of them. Generally, when you go, when you build a class, [00:02:00] a building or you go and buy it, you’re buying right at the top of the market.
And there’s just not much room for the rent to go from there. And for us, when it comes to recession resistant asset class, When we go into a recession when people are out of work, when they get hit hard and they have to downsize their living, they move from class a because they can no longer afford that really, um, swanky condo, or that really nice high rise.
And now they need to downsize into that class B um, inventory. And so we like that. We don’t want to have an asset class. That’s going to be susceptible to the whims of the market. The other thing is. This is the stuff that everybody’s building. You can’t go out there and you can’t buy, I’m sorry, you can’t go out there and build a class B or class C building.
And so all the stuff that’s going up around your building, our other brand new things. So very quickly, your shiny new trophy building within a year or two is no longer going to be the shiny new trophy building. Cause there’s going to be a lot of competition coming in. We all have. We like to have a little bit more of a hedge against competition, and we want to have an, uh, an asset or [00:03:00] inventory.
That’s always going to be in demand regardless of what the market cycle does, which is why we go to class B in class C for the price. You just simply can’t go out there and build a class B or class C building without giving, uh, getting heavy government subsidies and short of that. That means that there’s a cap on the amount of supplies.
And with ever increasing demand. That means if you can own a class B or class C building, the chances are it’s only going to continue to improve in value over time. Assuming that you can maintain its quality, um, and not defer maintenance. You know, you keep the building in tip top shape. It’s going to probably be worth more in five years than it is today.
So that’s why we like class being clear. But the other reason that we really, really, really like it is that when we go into a new asset, when we’re acquiring a class C asset, for instance, it’s usually from mom and pop owners that have had this thing for a really, really long time. And they may not have run it as well as they could have maybe for whatever reason, they weren’t driving up rents on an annual basis or they were [00:04:00] deferring maintenance.
So the expenses of. So when we come into this asset, there’s a lot of potential to force appreciation. That means we can go in there, increase the revenues, and we can decrease the expenses, which gives us a ton of control over improving the value of our building. As a result, we can go into these assets and while still maintaining a really good hedge against risk, because this is a product that’s always in demand.
We can also generate really strong returns. Due to operational prowess. So largely we’re seeing returns north of 20%, which is just something that you couldn’t get on a class, a pretty acid. Maybe you’re getting five, 6% over the life of the hold. That’s not terrible. If you comparing it to keeping your money in a, like a high yield savings account or putting your money into the stock market, but for us on a risk adjusted basis, we prefer a class B class C value add multi-family.
And again, guys, this is not investing advice. This is just our personal opinion on the matter. It’s what we [00:05:00] like to do when it comes to investing in real estate, your, your path might be a little bit different, but I would love to hear what do you invest in? Do you prefer classes because. Depending on where you are in your investment life cycle, you might lean one way versus another.
That doesn’t mean one is right, or one is wrong. If you’re getting up there in years and you’re getting close to retirement, then the class a asset might be the better choice for you because you put your money into it. It’s a good hedge against inflation. It’s not going to devalue horribly over time. And it’s consistent cashflow.
Compare that to class B, class C if you’re young and you’re looking to get your equity ball going so that you can actually get enough. You know, to make a meaningful impact on your life, then you might be willing to take on the extra work or the extra risk associated with owning an older. So again, different strokes, different folks, just understanding what’s your investment profile and where are you on that spectrum is going to go so far.
So get down to the comments and let me know, where are you in your life cycle of investing? Are you looking just for cashflow? You’re looking for big appreciation. You’re looking for tax benefits, let us know. And if you enjoyed the video, don’t forget to [00:06:00] hit the light button and subscribe so that you can.
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