Investment in flat vs plot – which one is the better option?
Real estate is a vast field where different types of investors invest and diversify their portfolios. Two of the most common types of investment in real estate in Pakistan include flats and plots.
Investors often ask about plot vs flat investment – which one is a better investment opportunity in Pakistan?
If you are an investor and confused between investment in flat vs plot, this blog is perfect for you.
In this blog, we bring you a concise yet informative guide that will help you make well-informed decisions regarding your next real estate investment.
Pros of investing in a flat:
Investing in a flat is a great way to increase your income if you do it responsibly. Similarly, it represents a good investment for those who want to actively grow their capital rather than passively putting their money in a managed account.
Buying a flat is one of the best investment strategies for those who want an additional source of monthly income with a slow but steady appreciation. Some of the pros and cons of buying a flat in Pakistan are discussed below:
Reliable income stream
Always consider the useful life of the investment. In the case of flats, these are the safest option. These provide regular and reliable income that produces positive cash flow that is higher than typical stock returns. While investing in stock can be unsafe or uncertain, a real estate investment has a much higher overall ROI (return on investment) over time.
The property has value, as does the structure itself, and the income it produces has value to future investors. Income-producing real estate investments don’t have red and green days like the stock market.
Flats in Pakistan provide excellent value appreciation that meets and exceeds other types of investment. For example, by constantly increasing rental income, making property improvements, and being located in the best areas, the value of your flat can multiply over time.
Remember, you must maintain and care for your property so that it keeps its long-term value. The grounds must be maintained, and minor repairs must be made on an ongoing maintenance plan. The result should be a clean and safe home.
Portfolio in less time
Properties such as flats are suitable for investors who wish to build an extensive portfolio of rental units. For example, acquiring and managing one flat is much easier and more efficient than buying different types of stocks on the stock market.
There is a tremendous unsatisfied demand that is expected to accompany us for a long time. The millions of millennials and baby boomers will be your target group of potential tenants. The flat investment is poised to perform better than any other asset class due to this strong demand. Many more families are choosing to rent compared to previous years.
Historically, real estate investments have shown the highest correlation with inflation compared to other asset classes. As countries worldwide continue to print money to stimulate economic growth, it is essential to recognize the benefits of owning income-generating real estate as a hedge against inflation.
Generally speaking, when inflation occurs, the price of real estates, such as flats, will also increase.
Multiply the value of assets through leverage
Another essential feature of investing in flats is placing debt on the asset, several times the original capital. This will allow you to buy more assets with less money and significantly multiply the value of the assets.
Cons of investing in flats:
Some of the cons of investing in apartments are:
High initial investment
To start with, a significant initial investment is necessary. In contrast to the initial investment in a mutual fund, which can be made from relatively low amounts, purchasing a house costs much more money. In addition, it will take a long time to recover the initial investment through the rental.
It is a less liquid asset
What if you need your money first? Another problem with housing is that it is not a very liquid asset. This means that it cannot be sold overnight. The average sale time is 9.5 months, according to Tinsa. You can sell a fund whenever you want and get your money back in a few business days.
More complicated valuation
Being an investment with so little liquidity causes the valuation to be more complex or has an associated cost. In many cases, it is necessary to resort to an appraisal by an expert who, in addition, is likely to be subjective. In an investment fund, all you have to do is check the fund’s net asset value to find out, which is usually updated daily.
It is an asset that allows more negligible diversification
Finally, buying a house to rent involves taking a significant risk. If you have the bad luck that your tenant is a defaulter, you will stop collecting, and the same can happen if the neighbourhood you have bought falls into disgrace. Also, since buying houses is so expensive, your chances of diversifying are almost nil unless you can have more than ten houses in different neighbourhoods, cities and countries. In the end, you are playing it all to one card.
Pros of a plot:
There are many reasons why investing in plots is a good idea, but these are the main advantages:
With the surge in urbanization, we have witnessed a peak in real estate as well. The demand for real estate products, including residential and commercial plots, increases by leaps and bounds.
The goal is to find an environment that allows you to connect with nature, away from the city’s noise, quiet and where you can breathe fresh air. At the moment, there are facilities to find plots with internal regulations, quality of urbanization and good connectivity, but, naturally, it is a constantly growing market that, at some point, will be limited.
For this reason, if the acquisition is made on time, it is considered a safe investment, and of course, it also depends a lot on the type of project and its prospects.
As more people decide to move to areas in natural surroundings, the land is scarce, and the site is gaining popularity; therefore, the property also appreciates. In this way, when the ground is sold again, it has already generated capital gains. On the other hand, a parcel without any construction, one hand, does not generate income flows, but neither does it cause significant cash outflows over time.
Investing in parcels is a low-risk investment instrument that can be accessed more efficiently and profitably than choosing a bank. All you need is to find a place with a good location, which will offer greater profitability in the future.
The plots are used to build a house to live there, but, from an alternative use point of view, they can also be used for weekend walks implementing barbecue areas, swimming pools and sports fields, or for summer events and activities.
Undoubtedly, investing in plots is one of the great opportunities offered by the real estate market and, considering the effects of the pandemic on the consumer, the time to start is today.
Cons of investing in actual plots:
Some of the disadvantages of investing in plots are:
Transfers that take longer
Since it does not own anything but the ground at the time of acquiring land, you will not be able to move to your new home so soon, since first, you will have to build your house.
Related to the previous point, although one of the advantages is the accessible costs, the cost may increase when it is dedicated to carrying out the construction since you will have to look for an engineer to develop the plans to purchase materials and labour.
Find a suitable type of soil
As explained at the beginning of this article, it is essential to pay special attention to the type of land you are going to buy, since the activities you are going to carry out depend on this, for example, the construction of a house. If you do not take these details into account, you can make mistakes and buy unsuitable land for your needs.
Few payment facilities
When looking for financing through a bank or some other financial institution, you may not find established financing for land since there are more for purchasing houses.
So, these are some of the pros and cons of investing in flats and plots in Pakistan. Please go through them and make a well-informed decision that is best suited for your investment needs.
If you have any questions or queries, let us know in the comment section below.