Soap box: It's a good time to buy but be very selective

WITH thousands of newly built flats across Britain being repossessed last year and many of the surviving landlords who rushed into buy-to-let deep in negative equity, it might seem that only the brave will dare venture into residential property investment in the next year.

However, courage is not a prerequisite for taking the plunge into property, not even at this highly uncertain time; what it requires, rather, is a good measure of common sense.

If there is compensation to the property price slump, it is that the sector has at least rid itself of the "herd". The fault with these amateur investors did not lie with their entry into property, but their conviction that almost any stone and mortar would do.

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Thankfully, the relative few considering property investment this year will carefully pick and choose, a strategy that seems perfectly sensible.

But surely there will be assets with an underlying value that can be picked up cheaply in the next 12 months?

Yes, there is no shortage of repossessed properties at below-market prices, but this is because of their dubious merits as investments in the first place. .

Prices across the board have dropped considerably from their peak, in the autumn of 2007, but landlords in proven locations have been cushioned by a sustained period of regular rental income. Few landlords will have any immediate need to sell and will wait for values to recover before even thinking about doing so.

Even so, there remain several good reasons to get into property because, without this, any investor will struggle from day one. For this reason I see a reasonable level of demand for "traded" investments – rental properties already tenanted and with a good record of regular rental income. We are seeing a gradual increase in approaches from people with cash savings who see this type of property as providing them with an annual net return of 1 or 2 per cent above what they can obtain on deposit.

This buyer might put down half the cost in cash and borrow the remainder, giving even the most cautious lender a sound equity "safety net".

But potential investors should clearly not base "affordability" on today's base rate. Any common-sense investment plan partly involving borrowed money will build in a rise in interest charges somewhere down the line.

• David Alexander is proprietor of Edinburgh and Glasgow-based estate and letting agency D J Alexander.