This is some terrible advice. Really terrible.
The Australian Financial Review was interviewing Alan Oster – the former Chief Economist at NAB.
He had some terrible advice for property investors:
Alan Oster’s 33-year run as chief economist at NAB ended in March. Three months later he sold the family home in the bayside Melbourne suburb of Brighton.
It was a rapid gear-change from three decades crunching macroeconomic data at a Big Four bank to a close-up experience of microeconomics. The five-bedroom home sold for about $5.5 million, roughly double its purchase price in 2012.
“Buy a good property and hold it, is basically the bottom line,” Oster said. “We’ve still got some property down in Portsea and we intend not to sell for about 15–20 years.
“Things go up and down, but if you buy a good property and you leave it for a long time, it goes up.”
Yeah, this is all fine if you’re happy working your whole life in a high paying job, and waiting until you’re 65 to retire, like Oster did.
If you’re happy with your life playing out that way, then sure. Buy something and hold it for twenty years. See what happens.
But if you want to get out of the rat race tomorrow, this is exactly not how to do it.
Does he have no good advice for investors?
Oster’s other big tip is to pick quality, if you can, because it pays off over the longer term. The economist noted what looked like a glut of listings priced between $2 million to $3 million across his suburb, many of which were bought during COVID-19 when interest rates were “nothing”, he said.
“Now, they can’t support it. So a lot of houses in that sort of area tend to be for sale, but at what I might call the lower level,” he said. “Depending on where you are in terms of your income, if you’re in an area that’s what I call mid-range, then I think it’s tough.
“There’s a lot of supply there, whereas if you’re in the top end, then basically you’re less likely to run into that problem.”
Wow. This is wholesale terrible advice.
First, the top 25% of the market is way more volatile than the rest of it. If you’re looking to defend yourself against market downturns, then buying into the premium market is exactly the wrong thing to do.
And sure, that volatility means there’s potential upside when the market lifts, but you’re probably going to have to tip in a lot of capital as a deposit. It’s going to tie up a lot of money.
And is it true that a $3m property is better than three $1m properties? Maybe, maybe not. It depends on what you plan to do with them. If you’re just going to hold on to them for 30 years (thanks Alan), then maybe it doesn’t matter.
But my suspicion ia that three cheaper properties will offer a lot more opportunities to manufacture growth (adding granny flats etc) than a premium market in a premium suburb.
I’m not here to bash Alan. But I think it’s interesting because this is exactly what the conservative wisdom looks like. Buy something boring. Hold it for 30 years until you retire.
But if you want more out of life, and there’s no problem with that, then you have to dream a little bigger.
DB