There’s something that doesn’t get talked about enough in property circles. Most conversations about buying a house come down to one of two questions.
Capital growth: Which suburb is going to double? Or Cash Flow: What yield am I going to get? Fair questions. But there’s a third question hardly anybody asks, and I’d argue it’s the one that ends up costing people the most when they get it wrong. Exit risk: How easy will this be to sell if I ever need to?
A property’s quality isn’t only determined by how much it appreciates, but by how liquid it remains when markets deteriorate. This borrows from finance, where investors value assets that can be sold at a fair price during periods of stress.
I think about property value as having two dimensions, not one. There’s return potential, which is what everyone focuses on. And there’s what I’d call liquidity resilience, which is how reliably a property attracts willing buyers, at a fair price, whether the market’s booming or falling in a heap. Most buyers only look at the first. The good investors look at both.
A tale of three properties
|
Property |
Boom market |
Falling market |
|
Standard 3-bed family home |
15% |
Sells in 2 weeks with modest discount |
|
Luxury architect home |
25% |
Takes 9 months to sell with 15% discount |
|
Lifestyle block |
18% |
May sit for a year |
Have a look at the table above. Three different homes, all bought in a strong market. A standard three-bedroom family home in a decent suburb goes up 15 percent. A luxury architect-designed home goes up 25 percent, comfortably outperforming it. A lifestyle block goes up 18 percent, sitting somewhere in between.
Then there’s the falling market. The standard family home sells within a couple of weeks, with only a modest discount. The luxury architect home takes nine months to shift, and the seller ends up wearing something like a 15 per cent discount to sell it. The lifestyle block might sit for a year with barely a nibble.
Suddenly that 25 percent gain doesn’t look quite so clever, does it? The highest returning property in a boom is not necessarily the best one to own if there’s ever a chance you’ll need to sell in weaker conditions. And there’s always a chance. Recessions happen. Divorces happen. People lose jobs, get sick, face interest rate shocks nobody saw coming. In every one of those situations, the question isn’t whether your house will eventually sell.
Technically, everything sells eventually. The real questions are how long it takes, what discount you end up wearing, how much stress you’re under, and whether you run out of money before a buyer turns up.
Why this deserves its own name
I’d been calling this idea liquidity volatility, borrowing the term loosely from financial markets. But the more I’ve turned it over, the more I think liquidity resilience is the better way to frame it. Volatility describes how much something swings around. Resilience describes whether it holds up under pressure. And that’s really the point. You’re not trying to predict how volatile a property’s saleability will be. You’re trying to buy something durable enough to always have a buyer queuing up for it, in good conditions and bad.
You could even score it like this:
9–10
- 3–4 bedroom family home
- Good suburb
- Standard construction
- Close to schools
5–6
- Lifestyle property
- Character home needing work
- Large rural sections
1–3
- Ultra-luxury home
- Highly specialised design
- Leaky building
- Mixed-use property
- Very unusual floor plan
Every agent already knows this instinctively. There are properties that pull 25 interested buyers whatever the market’s doing, and properties that scrape together one buyer in a boom and none at all in a downturn.
What this looks like in practice
I saw it play out properly when a friend got her own house ready to sell. She didn’t do a full renovation. She replaced the deck and relined the pool, and that was more or less it. Buyers don’t want a project, they want to walk in, put their bags down, and get on with their lives. Every dollar she spent on presentation was really a dollar spent on liquidity resilience.
I’ve also got two clients right now who couldn’t be more different in how they invest, but who’ve landed on the same underlying logic without ever naming it. One is a renovate-and-flip investor who’s turned around 15 properties in two years. His whole model depends on being able to sell fast, so he only ever buys and improves properties that will move quickly. The other is a buy-and-hold investor who never sells at all. He refinances instead, pulling equity out of what he owns and recycling it into the next purchase. Different strategy entirely, but he still chooses properties that hold their value and stay easy to finance against, because if a bank ever reassesses his portfolio, he wants properties that won’t cause a fuss.
Capital growth creates wealth. Liquidity resilience is what preserves it. Next time you’re weighing up a property, ask yourself not just what it might be worth in five years, but whether it would still find a buyer on the worst day you can imagine.
If you want to talk through how this applies to your own situation, whether you’re buying, selling, or just working out where your portfolio sits, get in touch with the team at Hastie Mortgages. We’re always happy to talk it through.