Is The Cheaper House Always The Better Buy? Cheap vs Good

We all know more expensive food is usually better. But with houses, most of us don't have that instinct. So, how do you tell the difference between a low price and a genuinely cheap one? In this episode, Ed and Andrew break down why the cheaper house isn't always the better deal. You'll learn: The difference between a low price and real value (and why it matters)The hidden reasons one house is cheaper than the one down the roadThe one question that tells you if a discount is actually a discountThe lesson? A discount is only a discount if you can remove the reason for it. Otherwise, it's just the price. Let us know your thoughts by leaving us a voice message on the Property Academy Hotline⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ https://www.speakpipe.com/PropertyAcademy For more from Opes Partners: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Sign up for the weekly Private Property newsletter⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ https://www.opespartners.co.nz/newsletter-sign-up⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Instagram⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ https://www.instagram.com/opes_partners/⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠TikTok⁠⁠⁠⁠⁠ https://www.tiktok.com/@opespartners

• 0:08Speaker 00

  Hello, welcome along to the Property Academy Podcast by Opes Partners. I'm your host, Stephen Knight.

• 0:12Speaker 01

  And I'm Andrew Nichol.

• 0:13Speaker 00

  And this is the show that helps Kiwis go from zero to five investment properties. So you could be financially free and stick around for the next 15 minutes because you're going to learn cheap versus good. Is the cheaper house always the better buy? How to tell if a discount is real or if it's just a worse property? And how to know what you're actually paying for when you do pay more? Now, Andrew, I have got three things in front of you and we are going to do a little bit of a blind taste test.

• 0:42Speaker 01

  Do you want me to take my contacts out?

• 0:44Speaker 00

  No, no, no. At one point I'll get you to cover your eyes, but I've got chocolate, peanut butter and Coca-Cola. And I want you to tell me, without looking at the labels, without looking at the prices, just a wee taste, we're going to see if you can pick them, right?

• 1:00Speaker 01

  This sounds like my daughter Eliza's ideal dinner. So hang on. So you want me to close my eyes and trust you to put something in my mouth? I've fallen for this twice already. I'm not going to do it again.

• 1:10Speaker 00

  Not the first one. So, okay, this is your first Coca-Cola.

• 1:14Speaker 01

  Okay.

• 1:15Speaker 00

  Is that cheap or expensive to you, Akon?

• 1:17Speaker 01

  I think that's cheap. I'll go and see the next one though. I need a barometer.

• 1:22Speaker 00

  This is the full sugar version too.

• 1:23Speaker 01

  Is it?

• 1:24Speaker 00

  Both of them.

• 1:26Speaker 01

  I think the second one's better.

• 1:28Speaker 00

  Okay. So the second one's expensive.

• 1:29Speaker 01

  Yeah.

• 1:30Speaker 00

  Correct. He can tell by taste. That's right. The first one was the cheaper one. Okay. But I've got two more for you.

• 1:35Speaker 01

  Okay.

• 1:36Speaker 00

  Next, we will do the peanut butter. You can keep your eyes open.

• 1:39Speaker 01

  Oh, I can feel, I can feel the sugar hit already. Do I keep my eyes shut?

• 1:43Speaker 00

  Either. Okay, keep your eyes shut. Here is the first one.

• 1:48Speaker 01

  Eyes shut.

• 1:49Speaker 00

  Open wide.

• 1:53Speaker 00

  Nom, nom, nom on that, please.

• 1:54Speaker 01

  Okay.

• 1:55Speaker 00

  Is that cheap or expensive to you, Akon?

• 1:57Speaker 01

  Quite hard to just feel some love.

• 2:00Speaker 00

  He's gone back to the full sugar car, has he? Come on, quick game's good game. Cheaper expensive, do you think?

• 2:08Speaker 01

  I reckon that's, I'm going to go with cheap so far. Hang on, let me get the next one and say, hang on.

• 2:13Speaker 00

  Open wide.

• 2:15Speaker 01

  Go on.

• 2:22Speaker 00

  Oh, he's messy. He's got it all on for him now. He's like Augustus Gloop.

• 2:33Speaker 00

  Oh, he's had to run off to the bathroom.

• 2:36Speaker 01

  Yeah, that's quite a messy game. That one's definitely the most expensive and it's full of oil that's now all over me. First one was cheap, second was expensive.

• 2:45Speaker 00

  Correct.

• 2:45Speaker 01

  Yeah, yeah.

• 2:46Speaker 00

  Correct. Now, close your eyes, close your eyes.

• 2:51Speaker 00

  I'll let you grab it from here.

• 2:53Speaker 01

  Where am I?

• 2:56Speaker 01

  Hmm, that's expensive.

• 2:58Speaker 00

  Here's the next one. I didn't even touch it with my hands.

• 3:01Speaker 01

  That, that is the beautiful cheapness of some Cadbury chocolate. First one must have been lint or something.

• 3:11Speaker 00

  That is correct. And the reason that I wanted to do this with food is A, because it meant that I could shove teaspoons into Andrew's mouth with peanut butter, get him on a sugar high, even though he's cut his own daughter off sugar at the moment. But to show that with food, it's pretty easy to tell which one's cheap, which one's expensive. We can taste it. We kind of know what we're looking for. We've got a lot of experience. Like eating, we do it at least three times a day. If you're a little piggy like me, sometimes even more. And the other thing is that the stakes are relatively low. Now, if I think about houses, on the other hand,

• 3:54Speaker 00

  it's quite hard to pop a house in your mouth, right?

• 3:58Speaker 01

  It was quite hard to put the peanut butter in my mouth, but yes.

• 4:01Speaker 00

  And I suppose the other thing with food is because it's so low stakes, you can decide whether you want to pay the extra price for that additional taste. And we kind of can make that judgment. With a house, it's a lot more difficult. Not just to figure out what the exact price is. We can't walk into a countdown and just see, see the price on the shelf. But on top of that, you might not know, or it's a bit more difficult to know, whether that additional price is worth it as a property investor, because we can't just pop it in our mouth and have a little nom, nom, nom.

• 4:32Speaker 01

  Yeah. And I think investors have kind of got it backwards sometimes. Like, we're used to buying food at the supermarkets and we've got some experience. We do it all the time. And we generally know, oh, that seems a bit expensive, but you know, I'm happy to pay for that expensive steak because I'm happy that it's going to be better. I'm pretty confident that it's going to taste better. But with property, we don't have that same day-to-day experience. So if you don't know what you're looking for, you might just start looking for the lowest price. And the lowest price might be a good deal, but you've got to remember, low price and cheap are two very different things.

• 5:05Speaker 00

  What do you, what do you mean? I thought, I thought cheap and low price were the same thing.

• 5:10Speaker 01

  Let's think about something other than what you've just forced for me. Think of a bottle of Lindor, right?

• 5:14Speaker 00

  That's that sparkling wine my mum used to drink.

• 5:17Speaker 01

  I could just imagine Ellie having a nice Lindor on the lawn. And I'm pretty sure, like to buy a bottle of Lindor, it might be 12 bucks, right? Now, if someone tried to sell it to you for 50, you'd probably think, I'm not paying that. That's too expensive. Let's compare that to some champagne. Like, let's work on Moet or something, right? That might cost you typically $75. Let's say someone was also trying to sell me that for $50. And you think, okay, well, that's cheap. Now champagne, generally speaking, is going to be a higher price. But in this example, they're both the same price, but the Moet is cheap. That's good value.

• 5:57Speaker 01

  Whereas the same dollar value for the Lindor, well, actually that's expensive. It doesn't represent good value.

• 6:04Speaker 00

  Yeah, it's because you're trying to sell me a cheaper wine for a higher price. And in the other one, you're trying to sell me an expensive bottle of wine for a cheaper price.

• 6:12Speaker 01

  What about if I give you a cash back?

• 6:14Speaker 00

  And look, somehow, through some convoluted way that we've cooked up in our heads, I do think this applies to investments, because if we had two houses, both side by side, one is 700K, the other one's 800K, that's what you're going to pay for them. Is the 700K property the better deal? Well, it depends. If the 700K property is worth, quote unquote, $680,000, well, it's a bad deal because you're paying more than it's worth. If the 800K property, you can buy that and it's really worth 820K, it's more expensive, but it could be a better deal because it's actually worth more.

• 6:55Speaker 00

  And I think the trouble is being able to see what the differences are. Because if you can't see why something might cost more or be more valuable, it's easy to default to just looking for the cheapest one.

• 7:08Speaker 01

  Yeah.

• 7:09Speaker 00

  And it's easy probably when you are buying your own house, right? When you're in homeowner mindset, because you're out there looking at where am I going to live? You know, what am I going to enjoy? As an investor, it can be a little bit more difficult. Oh, you like that full sugar coat, do you?

• 7:25Speaker 01

  I'll give it another go. And I do see this with investors all the time. So like, if I'm working with an investor and they're, they're looking at an investment property and then they start having, we look on Trade Me and they see something down the road and they go, oh, I've found one. It's slightly cheaper down the road. But then like, if you actually go into the details and you pick apart what's included, what's not included, and the reasons why it might be cheaper, it could be that we're looking at investing in something that has a double garage and actually the other one has got a single garage, or it might be a different type of product, like maybe a townhouse, you know, one down the road is $25,000 cheaper. But actually it's got a really weird layout and it's got no car park. And so now I'm not going to be able to rent it out for as much and I'm going to have more vacancy.

• 8:10Speaker 01

  And so, well, actually it doesn't actually represent better value. It's just cheaper in terms of a dollar amount.

• 8:16Speaker 00

  But if you're on Trade Me and you're looking for, okay, well, I'm looking at four bedroom properties and oh, this, this four bedroom property is cheaper than this four bedroom property. And they're in the same suburb, you know, why might that be the case? We sometimes just need to dig down into the detail. Sometimes I think property investors are guilty. If you're scrolling through your phone at 10pm at night, because that's when you've got a moment to yourself after putting the kids to bed, working all day, going to the gym, doing everything you've got to do to keep yourself sane and keep your family going for the day. You might be there at 10pm at night, just scrolling and thinking, oh, well, why is this the case? Why I don't have the time necessarily to do the homework that's necessary? Now, obviously at Opus, we specialise in new properties, right?

• 9:01Speaker 00

  And if I look at some of the common reasons we see as to why a property might have a lower price, it might be because if we're thinking about bedrooms in New Zealand, the minimum size is six metres squared for it to count as a bedroom. But for a standard double bedroom, it's usually going to be eight to nine square metres, right? So if I think about my own house that I live in, my office is legally a bedroom, but it's a long skinny room.

• 9:28Speaker 01

  Yes.

• 9:29Speaker 00

  And it would be a single bed for a kid. And it's probably not really practical as a bedroom because it doesn't have a wardrobe. It's got a bit of a cupboard under the stairs. Now legally, when I bought it, they could market it as a bedroom and they did. But as I was going through, I'm like, yes, it's not really a bedroom. It's an office.

• 9:47Speaker 01

  I tell you, the other thing that I see all the time is you might look at a, say a house and land package. You might be paying for an all-inclusive turnkey package where you pay your 10% deposit and the rest of it at the end. Or often you'll see a developer advertising something and they'll be talking about the land plus the build cost only, not the interest you pay during construction, not the landscaping, not the driveway, not the heat pump, not the blinds. And all of a sudden, when you add all those things back on, it could be even more expensive, but you thought you were getting a cheaper property.

• 10:20Speaker 00

  Yeah, that's where some of the, the hidden costs might not be obvious at the start. So sometimes, just back to the bedroom example, what's a three bedroom house? It could have three standard double rooms, or it could be two plus an office or two plus a single kid's room. And that might be one of the reasons why the price is different.

• 10:41Speaker 01

  One of our financial advisers came to me the other day asking if I knew about a particular development that was cheap, that one of her investors had brought to her and said, hey, this one's really cheap. I might go with this because it seems cheaper than the one you recommended for me. And I immediately knew the developer, bit of a pain in the butt really. So, so if you take that aside, if you take the fact that you're probably actually going to have a few more hassles along the way, or historically, that's what our experience is, take that aside and say, well, I'll put up with that for a 20 year investment. But then I said, I guarantee you, this is a project where the layout is horrific. So they had two bedroom townhouse with a bathroom. The bathroom was downstairs,

• 11:23Speaker 01

  the bedrooms were upstairs. Now imagine trying to rent this property out.

• 11:27Speaker 00

  You've got a trapez up and downstairs.

• 11:28Speaker 01

  So weird. And actually, the investor was a property manager and looked at and said, I don't know how I missed this. That's not a good deal. This is actually.

• 11:37Speaker 00

  Just a worse property.

• 11:38Speaker 01

  Correct.

• 11:39Speaker 00

  And the reason I wanted to talk specifically about new properties today is especially if you're buying off the plans and just looking at the floor plan, it can be really easy to miss some of these things, including like your example with the property manager. Full size pantries is one that often comes up. Increasingly, if you are a developer and you want to keep your costs low, you might not actually put in a pantry. You might just put in some cupboards above the sink and below the sink without having like a normal pantry, like a full cupboard like most people have. Linen cupboards are things that is something else that can often get missed if you're trying to cut costs and you might not see it on the floor plan. If you're buying an apartment or like maybe

• 12:19Speaker 00

  a middle unit townhouse, or especially one that's a middle unit, skylights are something that are really easy to miss. Otherwise, sometimes the middle units can be quite dark as well. Or sometimes I see developers charging a bit more, but putting that money into giving the property a bit more of like a unique design to it so that it doesn't look like every other townhouse that you've seen. That can make the property have a higher price and be more valuable. But for some people, that's going to be worth it. But I mean, that doesn't mean that the most expensive property is always the best one though, right?

• 12:54Speaker 01

  Yeah. And what we're really talking about here is paying more to get more. Now, sometimes you do pay more, but you don't necessarily get more. Like I have seen plenty of instances where often a big brand developer or a particular, they might do a particular style of development and they say, well, well, this style is unique. And so therefore you pay a bit more for it because that's going to be worth more in the future. And then, you know, it might look a bit nicer on the outside, but actually on the inside, it's the same as every other property and it might just be a bit of a fad. Also, you're kind of seeing a little bit in the moment of kind of this pricing up to price down model. Like sometimes developers or property sellers might price up to price down. So

• 13:38Speaker 01

  they'll, they'll, they'll say, okay, we've listed this property at $600,000, but you're going to get a deal at 580, not the asking price of $600,000. And then let's say we give you a cash back of $10,000. We'll give you a rental guarantee for a couple of years. Now you might think, wow, what a generous deal. This developer is so nice and generous. And then you find out, well, actually someone else paid $550,000. So you didn't get that good a deal at all.

• 14:05Speaker 00

  The way that I kind of think about whether something's a discount or like a good deal versus just a cheaper price is for me, it comes down to can you change it? And what I mean by that is if a property is cheaper because the bedrooms are smaller, if a property is cheaper because some of the bedrooms or things that advertisers bedrooms are actually not really double bedrooms at all. To me, that's sort of, that's sort of discount. That's not necessarily a better deal. That's just a cheaper property. If it's location, right? So you can't change location. You can't change the bedroom size necessarily, which is certainly not very easily. If we're thinking about a property being in Massey out in West

• 14:47Speaker 00

  Auckland as opposed to Remewera, which is much more central, much more expensive. Well, it's not that the Massey property is automatically a better deal. It's just a cheaper property because it's in a cheaper location. But let's say I was negotiating with a vendor who really has to sell and is very motivated. Oh, I might genuinely be able to get a better deal here. I might genuinely be able to get a quote unquote discount here because it's about the vendor as opposed to the property itself.

• 15:18Speaker 01

  And it is interesting to me that we kind of get more lured into these kinds of thoughts when we talk about property, but not really with other investments. So let's think about shares, right? Go back in time five years. Spark at the time was $4.77 a share. Now Fisher and Pickle Healthcare, they were $32 a share. Now, at that point, that price was at a record high on a big multiplier and everyone said, it's expensive. Now today, Spark is down to $2.08. So it's down 56%. Fisher and Pickle are $44. They're up 37%. Now, of course, if a company's share price goes down, that could actually represent

• 16:03Speaker 01

  a buying opportunity. But what I'm trying to get across here is that nobody looks at shares and says, show me the share that has the cheapest price. That's what's going to make it a bargain, right? Imagine if you went out and they just bought a whole bunch of the cheapest shares. That's not necessarily representative of a good deal. It's just representative of low price. And I think we need to do the same when we look at property.

• 16:29Speaker 00

  And the same with shares. I mean, there are so many things that will drive the price of a share up and down. One of the big ones is how many shares are available, right? You know, if there's a company with not many shares on issue, the price will be higher than if it was the same company and there were more shares on issue. We never look at shares necessarily and say, as you said, show me the ones that have a low price because they might not be good deals.

• 16:50Speaker 01

  Do you think that's because no one, like no one has an emotional attachment to a share the same way a house?

• 16:55Speaker 00

  Now, what I reckon it comes down to is that when it comes to property, there is a higher bar you've got to climb, like minimum investment. It might be $300,000, $400,000, $500,000, whatever it happens to be. And so sometimes people gravitate towards cheaper houses because they think, okay, that's more achievable for me. I can get in there. And maybe there's an element of, well, I can see how, how that might go up in value because it seems really low. The thing that I'd say as well is sometimes the price of these houses are low because nobody really wants to purchase them.

• 17:30Speaker 01

  I always say like, whenever someone's like, oh, well, you know, that's a really good deal. You know, it's valued at $20,000 more. Yeah, okay. If you think that the seller is being so generous and just giving you a $20,000 discount to a person that they don't even know, you're dreaming.

• 17:47Speaker 00

  Well, I bring it back to how do we tell if something is more expensive? I always think it comes back to it costs more because of what? And if you can find a reason, you can't find. The Swiss chocolate you talked about, what is it called?

• 17:59Speaker 01

  Lint.

• 17:59Speaker 00

  Lint, that's exactly what it was. It was lint chocolate. It's more expensive because it's got more cocoa. It tastes better. They've, they've worked harder on getting it right. It's not just about a better brand or something like that. The full sugar coke tastes better than the knockoff version that I got you. And there's probably some reasons behind that. We can, we can tell that. With property, I think you've got to say, okay, well, why is one house more expensive? Why does it cost more than the other? Is it because the bedrooms are better? It's on a better street. It's got a better location. Has it got double glazing? And it's not trying to say to you guys, always buy the more expensive house. That's not what we're saying. It's just, we shouldn't always think, what's the cheapest house I can buy? Okay, I'm going to go and buy that one. And in the last 15 minutes, you've learned cheap versus good. Is the cheaper house always the better buy? How to

• 18:42Speaker 00

  tell if a discount is real or just a worse property? And how to know what you're actually paying for when you do pay more? Right, let's wrap it up there. But please don't forget to rate, review and subscribe to the podcast. Really does help us get the message out to more people.

• 19:01Speaker 00

  Thanks for listening to the Property Academy Podcast. I'm your host, Tim Atknight.

• 19:04Speaker 01

  I'm John Nichol.

• 19:04Speaker 00

  We're going to be back here tomorrow with even more daily strategies, tactics and insights to help you get the most out of the new selling property market. Until next time.