When you go shopping for a car or a dress, do you look for the cheapest item you can possibly find?
What about grocery shopping or travel? Would you prefer to buy a better cut of meat or the one that you will have to trim? Would you go travelling with the cheapest airline?
Correct me if I’m wrong but I believe that most of us look for VALUE. Of course, no one wants to overpay but we also understand that if we do go for the cheapest price, other aspects such as quality, service and urgency may be compromised. Therefore, we tend to buy the best we can afford.
When it comes to property investment though, our rational thinking can go out of the door as we all try to hunt down the bargain of the century. In this crazy chase to trim off every dollar we often forget things like maintenance, tax advantages, appeal to tenants and re-sellable value.
I’m sure you have heard the saying that “quality lasts” or “quality is remembered after the price is long forgotten”.
When you are looking to buy a brand-new property, ask yourself are you buying value or are you overpaying?
Unfortunately, in Auckland and in New Zealand generally we do have high construction costs. Our labour is expensive, there is also a severe shortage of it. The land in Auckland is also expensive, but the price varies. For example, the site in CBD will be twice the price of the site in South Auckland. Thus, it is vital to compare apples to apples. If you want your property to have nice features such as tiled bathrooms, granite benchtops, designer kitchen, wooden wardrobes, top appliances etc. be prepared to pay for it. You can purchase brand new 2 bed apartments in the city for $800k and you can purchase a 2-bedroom apartment for $1.5m. Even if we keep the location constant, there will be a big difference in specifications, size and subsequently target market when you decide to let or sell.
I would encourage you to question everything if the property appears or is cheap. There is a possibility that you are dealing with a developer/builder that will cut corners in order to deliver the product. If there is little margin for error, then there is more risk and the development may not be completed at all. Delays and mistakes ALWAYS happen. It is important to build in the margin to accommodate that. Also consider the location you are investing in. if you are investing in the area where the average price is $1.5m it would be unrealistic to expect a brand-new apartment built for anything below $600k.
As a rule of thumb, if you are investing in a brand-new product, don’t go for the cheapest and don’t go for the most expensive. Buy in a middle of the road and pay for value.