Ed McKnight: Should you buy the worst house on the best street?

The 'age-old' advice of property investment is to buy the best house on the worst street.

The idea of the advice is that property values have a higher ceiling in nicer areas, so renovating the worst home could bring in some good money

Ed McKnight of Opes Partners discusses with Jack Tame whether the advice stands in today's economic climate. 

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Episode Transcript

Speaker 1 (00:07):
You're listening to the Saturday Morning with Jack Teams podcast
from newstalks'b recording.

Speaker 2 (00:13):
To eleven non news talks. He'd be ed McKnight is
our personal finance expert from Obi's Partners. He's here with
us this morning.

Speaker 3 (00:18):
Good morning, great to be here, Jack.

Speaker 2 (00:20):
Are you counting down the days? Are you? Are you
a Christmas spirit kind of.

Speaker 3 (00:24):
Guy, son, I've been counting it down since mid November.
The tree is up, that ignog is ordered, and my
family aren't going to be leaving my house a couple
of kilos heavier come Christmas.

Speaker 2 (00:35):
I'm pleased to hear ignog. See do you actually do ignog?

Speaker 3 (00:39):
It is that?

Speaker 2 (00:39):
Are you actually into ignock?

Speaker 3 (00:40):
Yeah, but we'll we'll go and buy it. Right, We're
not going to be making that good stuff ourselves because
my grandma never taught me how to do that, you see, Jack.

Speaker 2 (00:48):
No, fair enough. I'm I'm into egnog in a big way.
And when I lived in the States, I used to
love a cheeky little bit of eggnog. But you just
don't see this much in New Zealand. I suppose because
it's warm, right, we don't necessarily want hot drinks. But yeah,
I don't mind a bit of eggnog, so I'm pleased
to hear that I'm not the only one anyway, No,
you were going to say something wrong.

Speaker 3 (01:08):
I was going to say, you could always have an
ice jack that'll keep you killing a nice summer's day.

Speaker 2 (01:12):
That's true. That's true.

Speaker 1 (01:13):
Right.

Speaker 2 (01:14):
Is it still a good idea to buy the worst
house on the best street. It always feels like that
is the kind of age old advice for anyone looking
for a bit of capital growth in their property.

Speaker 3 (01:25):
Well, that is one of the ideas that you're often here.
And I wanted to understand where did this come from
and is it still a good idea? And I suppose
the idea is that if you buy quite a cheap
house and a really nice suburb and then you do
it up, the kind of feeling for how expensive that
property could become is quite high, so maybe you'll get
some good gains there. I suppose. The other thing, if

(01:46):
you're buying a house for yourself to live, and you
can always change the house, or at least do it up,
but you can't really change the location. Now I've dug
in a little bit more into the numbers, and one
of the questions I had is, well, do house prices
go up faster in some of those hiring suburbs. Well,
if we look at some of the most expensive suburbs
and country like Herne Bay, over the last twenty five years,

(02:09):
house bruces have gone up there seven point three percent
per year. In ode Ark or remu Era, both really
nice suburbs, house bruce has gone up over the same
period about six point seven percent. But what might surprise
a lot of people is if we look at a
suburb like Otayler, which is a more lower socioeconomic suburb.
It's nice, but it's not as flash. House prices there

(02:32):
actually went up faster over the last twenty five years
than some of those nicer suburbs like Odak and remue Era,
at six point nine percent a year. Does that surprise
you would all, gene?

Speaker 2 (02:43):
Yeah. I mean it's funny because usually we kind of
average out across regions or cities. But you know, I
can imagine that in some of those suburbs like Ortata,
there might be more demand for housing. You know, the
population increase in those kinds of spaces will have increased
a lot. And whereas in some of those more affluent suburbs.
Perhaps is that, you know, the land values have increased

(03:05):
a lot, whereas the actual number of people living in
the suburb has increased by so much. So maybe there
are kind of different forces at play in different suburbs.

Speaker 3 (03:13):
That's definitely the case. The other thing I'd say is
you can't take that idea of buy the best at
worst house rather in the best street, because if you
take that literally, I found the most expensive street in
New Zealand. It's in Herne Bay, which might not surprise you,
the cheapest house on that best street quote unquote best
street still cost you three point six seven million dollars.

(03:38):
So buying the worst house on the best street probably
is an adoption for most of us.

Speaker 2 (03:44):
Yeah, that's something, isn't it. Oh my gosh, three point
sixty seven million. So when might it be a good
idea to go with the so called worst house on
the best street.

Speaker 3 (03:55):
Well, I think it can be a good idea if
you're going to live in the property, because, especially if
you're in one of our main centers. The school zones
often are zoned, and typically the schools that are thought
to be better often are in those more affluent zones.
So Let's say you've got a couple of kids our
primary school age. Now you're thinking about where they're going
to go to high school. It might be an idea

(04:17):
to compromise a little bit on the house to get
in the quote unquote better area. The other one is
if you are going to renovate it to do it up,
and you have the money to buy it and do
it up. Whereas I think if you're a long term
buy and hold investor, like a lot of people I
work with, you're probably going to buy a house that's
a bit cheaper, not the three point sixty seven million dollars,

(04:40):
because typically the more affordable the house, the better the
rental yield. Is. If we think about those really expensive houses,
there aren't that many people who are going to rent
a three point seven million dollar house or could afford to,
and because of that, the rental yield is pretty low.

Speaker 2 (04:56):
Yeah that makes total sense. Yeah, that makes total sense. Hey,
thank you, Ed. And that's really interesting about those different
suburbs as well, So thank you for digging into that
for us. Have a wonderful Christmas and summer break. Why
don't you.

Speaker 3 (05:06):
I'll be thinking about you as a chunk packed.

Speaker 2 (05:09):
The the Ice s Dignog, The Ice Dignog. Very good,
all right, thanks so much. We'll catch it in so
an Eve McKnight from Opie's partners.

Speaker 1 (05:16):
For more from Saturday Morning with Jack Tame, listen live
to News Talks ed B from nine am Saturday, or
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