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What does it mean for a Multifamily Property to have Good Bones?

Many investment brokers state in their offering memorandum that the property has good “bones”. What does that mean and why does it matter for you as a multifamily investor? There are some things in a property that you cannot change or it is very cost prohibitive to change. If you want to move up from one class to another (C to B or B to A), these are items to consider before investing significant capital into the exteriors/interiors of a property. In this article, we are going to cover the key physical characteristics to have if you want to move up a class.

Summary:

If you are looking to purchase a Class C property and upgrade to a Class B, ideally you would have 9 ft. ceilings, pitched roofs, individual HVAC and water heaters, concrete slab, and washer/dryer connections. With these property characteristics you can spend money on the exterior/interiors and amenities to turn a C class property into a B. In the picture below, notice how the listing broker highlights ceiling height and washer and dryer connections on the offering memorandum. The property was being marketed as a Class B property.

If you are looking to purchase a Class B property and upgrade to a Class A, you must have 9 ft. ceilings, pitched roofs, individual HVAC and water heaters, concrete slab, and washer/dryer connections. Attached garages are not necessary but highly preferred. Example of class A unit amenities in a recent property in Plano, TX:

While the physical characteristics of a property might be a key factor in what class the property falls within, the sub-market and surrounding location is also a strong factor. A property can have all the physical characteristics of a Class A property, but be in the wrong neighborhood and the rents and value will be comparable to a Class B property in a better neighborhood.

If you have any questions on your next acquisition or refinance, please reach out to James Eng at jeng@oldcapitallending.com or 214-300-5035.

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