There are many different classification systems for buildings. The appropriate one will depend on your intention. The main types are:
- use based classifications
- residential investment based classifications
- commercial based classification systems
We’ll go through each below.
Use Based Classifications
The classes of buildings are important because they dictate the type of materials used in the construction process, how much insulation you will need, and what types of documents your contractor needs to provide.
There are many different classes of buildings which include…
- Public Facilities
We’ll review each in more detail and provide examples below.
- single-family houses
- multi-unit dwellings such as apartments and condominiums
- retirement homes.
Residential buildings have much stricter building codes and regulations than other classes of buildings so be sure to let the engineers know if this is your intended purpose. Along with their needing to be more durable, you’ll also need to deal with minimum burn times, insulation in some climates, and more.
Next up on the list are commercial buildings which serve a business purpose with their primary function being to generate revenue for the company that owns or rents them. Commercial buildings can be subdivided into:
- retail stores
Industrial buildings are primarily used to manufacture goods and products in order to produce revenue for the company that owns them. These classes of building all serve a different purpose but they also share something in common: it is important that you know what class of building it is and what the classes of buildings are so you do not get confused.
There are also public facilities such as:
- government buildings
that require code considerations than any other type of building.
Lastly, there are miscellaneous structures that do not fall under one of the above categories such as:
This class of buildings have the least amount of regulation in regards to building codes but this does not mean they should be ignored or overlooked during construction.
Investment Based Classifications of Residential Buildings
Investment classifications are an important thing to consider when investing in real estate. Often you’re investing in a REIT across multiple properties so these simplify the holdings that an investment holds. Investment properties are most commonly divided into:
- Class A
- Class B
- Class C
Class A Properties
Class A buildings are the most desirable properties. They have high rents and low vacancy rates, which means that they offer good cash flow to investors. As a result, these investments require higher down-payments than other classes of property but can also allow for shorter time-frames in order to recoup investment costs through occupancy while maintaining profitability.
Class B Properties
These properties may be slightly older and not have 100% occupancy. You likely won’t need to put in too much work right off the start to get them occupied, but there may be more maintenance down the road. They may also be slightly nicer properties in less desirable areas.
Class C Properties
These are residential properties that may be described as “fixer uppers”, have bad existing tenant relationships like squatters, or be in undesirable areas. They may pay off longer-term, but you should expect to have to put some work in to really make your investment grow.
Commercial Investment Classifications of Buildings
Commercial investment portfolios will again often break down their types of holdings into different classes for transparency. They typically follow along the lines below.
Large office spaces that are high quality and have a lot of amenities, such as libraries or conference rooms. These properties are the most expensive to rent but they offer top notch service.
These properties can be anything from small offices with one tenant to commercial storefronts for retailers. These properties are medium-priced and offer basic amenities, such as a phone line and space to store supplies
These buildings are usually warehouses or office spaces that were once used by single tenants but now the building is divided up into small sections for multiple businesses. The price will be lower than B class though some of these places may have parking.
These properties are usually buildings that have been subdivided to create small starter offices for entrepreneurs or artists who need a low-price and flexible space.
This category is reserved for all other commercial real estate, such as vacant land and parking garages. These spaces can be very affordable but may require tenants to bring in utilities such as gas and electricity.
Now that you know a little more, let us know if you’d like to price buildings for your needs!