Which property grade is right for you? - October 2018
I vividly recall that childhood feeling of nervous anticipation in the final week of term, when the teacher handed out report cards. I’d have a quick scan to see what the damage was, before taking it home to my parents.
An A result was met with much celebration. The hard work and effort had paid off! Any B grades were good, but a sign that I could’ve done better. And a C? Well, it wasn’t exactly a fail, but it wasn’t a stellar result either.
While old-school grades on handwritten report cards appear to be a thing of the past, the scaling of quality by the alphabet’s first three letters has proven timeless.
Property in Sydney is an asset that slots well into the categories of A, B and C.
These investment types perform differently to each other and their potential prospects rely heavily on the state of the broader market.
An A-class holding will always get you by, a B can be a mixed bag and too many Cs when you’re failing elsewhere can spell disaster.
Here’s a guide on remaining top of the class when it comes to selecting the appropriate real estate grade.
The college dux of property is obviously A-Grade. These types of investments are a prime get for purchasers.
They’re well-positioned and in highly desirable areas. They’re close to attractive amenities, including lifestyle, entertainment and community facilities. They have a stack of convenience that comes with them too, whether it be easy access to the city or major nodes, or excellent transport.
A-grade property types are in hot demand and have all of the features a buyer could hope for. This really is where all the ‘cool kids’ want to hang out. As a result, they go for top dollar.
Think a picture-perfect apartment in Bondi, a character-filled terrace in Paddington or a funky flat in Surry Hills.
B-Grade properties are good. I know the idea of an ‘adequate holding’ doesn’t light your investment heart fires, but don’t discount B-grade’s potential either.
These are the places that will suffice. The properties themselves may be a little out of fashion, or need a bit of TLC but you won’t have to drop an absolute bomb on making them liveable. Their position isn’t top of the hill or waterfront, but neither is it among the industrial sheds.
B-grade does tend to be located further away from the action, usually in middle ring suburbs, but nearby to some level of service. They don’t have quite as much convenience and amenity, but they’re not in the sticks either. As investments, they enjoy moderate demand that can fluctuate with market forces.
And as for C-Grade properties, they’re inclusions will fill out the bottom third of most lists. They’re a decent trek from amenity and services and don’t enjoy convenient transport links.
They could be also located in undesirable areas, whether it be on a busy main road or within ‘fume distance’ of light industrial facilities.
Demand for C-Grade properties is often low, and drops in the broader market can see any interest from buyers completely dry up.
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What should you target?
This is a tough question and depends entirely on what you can afford, your long-term investment goals and what you’re willing to sacrifice. Obviously, we all dream of owning an A-Grade property. They are the Rolls Royce of the real estate world. But are very expensive investments to acquire. Even in the currently softening market, these premium properties tend to hold pretty steady because there is often a ‘flight to quality’ which keeps their values firm.
A-grade can sometimes take longer to sell because of price or general market conditions, but the discounting required is often small. In addition, given their top-notch status, some vendors are comfortable taking their property off the market and holding on for the inevitable upswing in value.
These attributes make them a solid investment. The plus side of an A-Grade investment, apart from all of the lifestyle and ease you get to enjoy, is that they hold their value the best and, in the long run, give the best chance of capital gains.
B-grade properties seem like the logical alternative for many buyers, but they can also be a mixed bag of success.
B-grade investments are more affordable but their cons and pros often balance each other out – and occasionally they’re at the extreme ends of the scale. For example, you might find something in an up-and-coming area that has absolutely woeful transport links, or something near a train line that’s in a suburb with a high crime rate.
It’s all about juggling the positives and negatives, knowing everything you can about the opportunity and making an informed choice. You’ll get in for less than the price of an A-grade property, which can be the difference between investing or not investing, but you must understand the downsides too.
Buyers on a very tight budget, especially first-timers, often go for C-grade properties because it’s the best bet they have of stepping on the property ladder. Some are willing to live further out with less positives for the sake of getting a foothold. As an investor, you might conclude it’s time to make a start on your journey and C-grade is your only option.
But as the old adage goes, you get what you pay for. Prepare to be either far away from the action, without services and amenity and not near transport. Or, if it’s closer to the CBD, brace yourself for a big renovation project or having to put up with something unfixable, like traffic noise or a dodgy area.
If A-grade is out of your league, consider a B-grade property that has potential to add value – be it a renovation or small development – or is in a suburb that has good mid to long-term prospects due to population growth or gentrification.
My final big tip on making the grade
Whatever type of property you’re looking to invest in, take note of what is changeable and what isn’t. You can fix up a house, but you can’t correct a lousy location.
In my experience, buying a C-grade home in an A-grade suburb is far smarter than the reverse. Buy with your head and think long term.
If you need assistance with picking the best fundamentals of any property option, then contact us at Propertybuyer so we can ‘home tutor’ you into a better result.
Making the grade is bread-and-butter stuff for our team. Why not take advantage?
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