Location, location, location is still the best mantra - David Alexander

My attention was recently drawn to an advertisement on ITV for an online course which claimed to inform about the finer points of property investment and, presumably, how this could be used to financial advancement.

Now links to such courses are common on Google but this was the first time I had come across one advertised on a mainstream television channel. Not having investigated further, I cannot make any claims as to the veracity of the content nor to the skill of their presentation but no doubt some – the better ones that is – could prove useful to someone desirous of becoming involved in property investment but with no idea where to start.

Having said that there are just two basic principles that apply to property investment which are – or should be – fairly obvious and need not involve parting with one penny.

First of all is the need to focus on where not what a property is. This does not mean, of course, that any old pile will do; it needs to have – or potentially have - sufficient appeal to secure an investment sale or earn rental income but location will be instrumental on achieving this.

That old mantra, “location, location, location” is as relevant today as it was when coined by a now forgotten American real estate broker almost 100 years ago. It is also probably why “Location, Location, Location”, the Channel 4 reality show with Kirstie Allsopp and Phil Spencer, is one of the longest-running programmes on terrestrial television. The latest series – 20 years after the first was broadcast – has several examples of house-hunters prepared to go that extra mile, financially, to live in their district/area of choice. Only then do they get round to thinking about what property to buy (or rent for that matter).

People are drawn to a particular location for various reasons – it could be no more than a “feel good factor” about a particular area or for more practical reasons like proximity to good schools, local shops and services, buses and trains or ease of access to the motorway and trunk road system. But they are all key factors in making a property investment stand up.

Perhaps understandably, some investors consider good locations beyond their price range but that is not always be the case. Affordable properties (e.g. houses in need of TLC or flats with limited space) can still be found if you are prepared to look hard enough. Pro rata these are likely to provide a better overall annualised return (i.e. rental income plus capital growth) than something larger or more outwardly attractive in somewhere that might be termed “average”.

If the intention is to produce rental income rather than hoping for a quick capital gain, choosing a tenant becomes almost as important as picking place and property. Serious tenant arrears is the one downside potentially facing all investors. Statistically, it doesn’t happen very often but when it does can cripple a landlord financially, in terms of financial loss and the expense and stress of regaining possession. While a bona fide management company can never guarantee a trouble-free tenancy, it should have a vetting system good enough to minimise the chances of letting to an unsuitable individual.

There are even reasons for accepting below “market rent” when, otherwise, a lease ticks all the right boxes. A typical situation might be that involving a corporate client, renting on behalf of an executive employee transferred from another part of the country; not only does this mean reduced wear and tear because the tenant lives quietly and is often away at weekends but an ongoing rental income stream is virtually guaranteed.

There are, of course, other factors necessary for success but without the two basic points outlined, any investor will struggle for the start. Whether they wish to follow up with online instruction is, of course, up to them.

David Alexander is managing director of DJ Alexander