The rise in urbanization in Pakistan has given rise to vertical housing, especially the concept of studio apartments (also known as studio flats). They are attracting an increasing number of renters who wish to live in a small but elegant apartment at a lower, convenient cost. It is essential to explore the different advantages and disadvantages of studio apartments before deciding to invest in one.
There are numerous benefits to investing in studio apartments, like lower purchasing costs. However, like any other apartment, there are some drawbacks as well, such as a lack of liquidity and the difficulties of collecting rent from tenants.
For various reasons, studio flats have become increasingly popular among renters as compared to different types of apartments. Graana.com, Pakistan’s smartest property portal, looks at the pros and cons of buying a studio apartment.
What Constitutes a Studio Apartment?
A studio apartment is also known as an efficiency apartment or bachelor apartment. It is a self-contained living space with a bedroom, living room, dining area, and cooking area or kitchenette all in the same room. However, the layout of studio apartments might vary.
For example, some may include divider walls that provide privacy by separating the bedroom/sleeping area from the remainder of the property. However, many studio apartments consist of merely one room with no separate rooms.
Factors to Consider When Buying a Studio Apartment
Whether you are buying a studio apartment for yourself or you plan to rent it out, you can consider the following factors to make a safer investment decision.
Apartment’s Location
Numerous factors determine your property’s resale value, and at the top of the list is the property’s location. The area where you intend to buy the property should be in demand. This will appreciate the property’s value a few years down the road.
Furthermore, it is important to keep in mind that tenants are looking for a place that provides access to multiple amenities. You should ideally look for an apartment close to malls, schools, restaurants etc.
Apartment’s Maintenance
If you are looking for a studio apartment, it is advised that you survey the market and invest in an apartment that either requires little maintenance or has no ongoing repair work at all.
In addition, you should inspect the condition of the apartment’s wiring and fittings and ensure that everything is in good condition. If the property has little repair work, you will be able to maximize your profit.
Initial Costs
Whether you plan to purchase the property in installments or a single payment, you should determine whether you can afford the property in the first place. Therefore, develop a realistic budget and ensure that the purchase will not leave you penniless.
Rental Return
In today’s competitive rental market, it is important to set a rent amount that is not too low as it would not bring in the required return on investment, and neither should it be too high as it will reduce the demand for your property.
Therefore, you should survey nearby properties and check the rent at which they are available. This will allow you to set the optimal price tag for your property.
Property Appreciation
If you plan to purchase a studio apartment, it’s critical to buy in desirable areas and at the right time. You should look for studio apartments in places where the property’s value will not depreciate over time. In this manner, you’ll select a property that generates profits rather than losses when you sell it.
Property Management
The last factor that you need to take into consideration before finalizing your purchase is the management of the property. If the apartment was recently constructed or furnished, little management would likely be involved.
However, if the condo was built several years ago, it may require hands-on management. You can also decide on these terms with your tenant.
Ideal for Young People
Because they are less expensive than one and two-bedroom flats, they are chosen by young professionals, students, those who have recently shifted to the city, or anyone on a tight budget. For instance, many young professionals looking for a studio apartment in Islamabad to rent or buy.
This is a practical option for them as they won’t have to spend a ridiculous amount of money, plus they would have easy access to amenities.
The Option to Short-term Lease
Studio apartments are a suitable option if you need to rent a studio apartment in Lahore or Karachi for a short amount of time because many of them provide short-term leases.
The Pros of Buying a Studio Apartment
Whether you plan to use the apartment yourself or you plan to rent it out, a studio apartment presents the following advantages.
High Rental Rates
Studio apartments fetch high rent rates. This is due to the fact that they are cheaper to buy and high in demand. As a result, you can capitalize on the demand for studio apartments by charging a higher rent per square foot.
You will end up making more money than if you invest in flats with more rooms.
Global statistics prove that investing in studio apartments might yield a rental income that is up to 1.5 percent higher than a larger apartment.
Rental yields for larger units range from 3 to 4 percent, compared to 6 percent for studio flats. Furthermore, studio flats retain their worth for lengthy periods of time if they are of good quality and located in convenient areas.
Cheaper than Multi-Bedroom Apartments
Due to their smaller size, studio flats are often less expensive than one or two-bedroom apartments. They are thus appropriate for investors with limited funds looking for low-cost investments.
In addition to being less expensive to acquire, studio flats are less expensive to design and furnish as well. You won’t have to spend a lot of money to make the apartment desirable to potential tenants.
Low Maintenance Cost
As mentioned above, studio apartments are less expensive to maintain than larger rental units because they have less square footage. The low cost of maintenance might even have an impact on the property’s value.
This indicates that a studio apartment is more likely to sell quicker than a one-bedroom apartment because it requires less care. However, keep in mind that the quality of the property has a significant impact on the cost of upkeep, so you’re better off choosing high-quality studio apartments.
Furthermore, because of the smaller size, it is easier to clean and debris is less likely to build. When you live in a studio apartment, you will also save money on furniture.
Available in Prime Locations
Studio apartments are constructed to maximize the use of space. Therefore, they are more likely to be found in large urban centers. As a result, you have the opportunity to purchase property in a prime position within or near the city center at a discounted price.
Due to the vast demand for studio apartments, developers are progressively incorporating them in different cities, so you’re likely to find one that meets your needs in an ideal location.
Price Appreciation
Studio flats are significant assets that have the potential to appreciate over time, allowing you to gain profit if you decide to sell. This is due to the rising demand for such units, which has attracted a large number of investors. This is especially true if the property is in a desirable area with a strong local housing market.
In Demand
Studio apartments are popular among tenants because of their convenient location and practical living space. As a result, the risks and losses associated with vacant apartments are eliminated for you as an investor.
The Cons of Buying a Studio Apartment
With rising demand and high rental returns, studio apartments are a lucrative option for investment. However, investors should be mindful of the cons of buying a studio apartment.
A Non-Liquid Asset
Studio apartments, like any other real estate asset, lack liquidity. Liquidity simply refers to the ability to sell anything quickly when cash is needed. Stocks, mutual funds, and bonds are examples of liquid investments.
This is one of the most significant disadvantages of investing in real estate holdings because it means you may not be able to access the money gained from selling the property for a long time.
This is amplified when it comes to studio apartments because it may take a long time to sell one as you must first find an investor before negotiating and agreeing on a price. If you are in a hurry to sell, you may sell your home for less than its current market value or even lose money.
Pricing
Because of the modest size, investing in a studio apartment as a business may seem like an expensive risk. Increased demand for studio apartments in large cities does not always imply increased capital growth.
In reality, studio apartment capital growth is typically slower than other properties, so you’ll have to wait a while to see a return on your investment.
Risks of Investing in Property
Taking into account the appreciation of real estate in Pakistan in recent years, it is easy to overlook the risks of investing in real estate. When compared to owner-occupied buildings, investing in real estate holdings such as studio apartments typically requires larger down payments and higher interest rates.
This is a significant risk, especially because the monthly rent you charge your tenants is not guaranteed. You will also need to maintain the flat, which will require spending money you may not have on maintenance charges. As a result, it may take some time before you see a return on your investment.
Tenants Take up a Lot of Time
When you decide to rent out your house, you may have to deal with tenants that may cause problems when fulfilling their part of the contract. Even after thoroughly vetting potential tenants, you may run into unexpected issues. For example, a tenant may be perpetually late with rent payments or refuse to pay rent at all.
This instantly disrupts your source of income and may be even more troublesome if you are still paying installments on the apartment. Furthermore, you bear most of the obligations to keep the unit in good repair. This implies that you must be available to address any difficulties that may emerge in the unit.
Even if you hire a property management company, you must account for the fees charged for their services.
To read more on the pros and cons of different types of properties in Pakistan, visit Graana.com.
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