Throughout our country and also the world, low cost apartments and flats are everywhere. These buildings basically cater to the lower income population whereby a very basic place to stay can be obtained for a fraction of the price of condominiums and landed property. However, being the sole option sometimes to those who cannot afford a more decent place to stay, most low cost apartment residents tend to be tenants rather than owners.
This brings up a very curious question; if so many of these residents are merely paying rent and not housing installments, does that mean that there is investment potential in low cost apartments?
Low cost apartments are definitely very affordable properties to purchase; most lots do not even cost beyond RM100,000. Naturally, these prices sound like a good base to start investing upon. However, being low cost residencies, the apartments will almost always be built in undesirable locations and the living quarters themselves would be extremely minimal and catering to only the very basic living needs. Hence, the valuation of the property itself may not appreciate very much over time and in some cases would even depreciate.
Of course, value depreciation can happen to even the fanciest condominiums but with low cost apartments, the risk is even higher considering that the values of these properties were not sizeable to begin with, making the prospect of having your property price double over the years more of a fantasy than an optimistic chance.
As an investment that grants owners steady sources of income from rentals, low cost apartments are definitely to be avoided if possible. This is due to the hard truth that most people who rent low cost apartments are poor and just skating by with whatever they are earning.
Therefore, the chances of having a tenant that will consistently cause troubles in producing the rent is rather high and in really bad cases, owners would probably not get paid forcing them to take serious measures such as eviction. Rental collection aside, another ugly truth about low-income tenants is that some may be irresponsible and may cause damage to the property which they might not be able to make up for financially.
Of course, not all tenants are bad but when you factor the chances of these occurrences happening in low cost residences as opposed to higher end property, you run the risk of owning a liability rather than an asset.
Overall, low cost apartments are incredibly cheap options of investment but there is plenty of risk in investing in such property. Even under ideal circumstances, investing in low cost apartments may pay off but due to the low property cost and very likely cheap rental prices to begin with, returns from investing in low cost apartments may not be very significant.
Maybe in rare cases, the area around the property may encounter intense development out of the blue causing residential prices to double or triple but considering how low cost apartments are built in relatively undesirable locations to begin with, the chances of this happening is incredibly minute.
Quite simply, there may be financially attractive characteristics about low cost apartments as investment possibilities but its expected returns and potential risks means that it is not usually a top choice when investing in property for a very good reason.