How does a residential property investor plan for the ‘worst-case-scenario’ of being forced to sell an investment property quickly due to unforseen personal circumstances?
Most residential property investors are in for the long haul; they intend to hold their purchase for a minimum of ten years and usually for a lifetime because their main motivation is to provide financial security for their retirement. At the same time their long-term success is based on planning for a downturn in their personal circumstances.
Long-term success investing in residential real estate means paying special attention to buying criteria that will maximise the security of an investment and minimise its risk.
While security criteria often vary from location to location, the main consideration stays the same: investors with security uppermost in their minds buy in a price range from twenty percent below to fifteen percent above the median price. This price range is called the investors’ security bracket.
To determine the security bracket for the area where you intend to buy, start by working out what sort of property is the most often sold in terms of age, construction, number of bedrooms and land size. Depending on the location, the typical security bracket property might be a twenty-year-old three-bedroom brick and tile property on a nine hundred square metre block. Or it might be a high rise, strata title, two-bedroom unit.
Interestingly, most residential property investors buy within eight kilometres of their principal place of residence. The reason for this is quite personal – they like to be able to see it. In fact, research shows that only three percent of investors own a property in another state or country.