1 Location, location, location
Scotland's three principal cities have long offered fertile residential market opportunities for buy-to-let (BTL) investors and with the exception of the annus horribilis of 2008, landlords are still doing all right. Edinburgh, Glasgow and Aberdeen rentals are all moving upwards.
2 Profitable properties
The better the area, the higher the potential rent. Edinburgh boasts average monthly rentals of 789, with the highest averages at 856 in the New Town, 813 in the West End and 741 in Stockbridge. Overall, two-bedroom flats proved the best rental investment, having appreciated by 4.6 per cent over the year, according to lettings website Citylets.
Even after the credit crunch the presence of a strong financial services sector in Edinburgh means the city is a favoured location for BTL landlords. This is also supported by "time-to-let" stats - Edinburgh rented properties take an average of 33 days to let, an improvement of 11 days on 2009.
4 A bargaining environment?
There has been a property price decline in all three cities with average prices in Edinburgh down by 3.7 per cent over the latest year. When prices are on the slide, it should be time for tenants to resort to tough bargaining. But rented property is regaining popularity and supply is being outpaced by demand, with annual rental growth on a two-bed property of 4.6 per cent.
5 Use a letting agent
The temptation at the outset for most landlords is to do it themselves. But are you able to act dispassionately when the new carpet has clearly absorbed a litre of red wine and there is absolutely no sign of any effort to clean it? A letting agent will probably charge in the region of 10 per cent of monthly rent, but for that they will handle everything from disputes, collecting the rent, selecting the tenant, conducting negotiations and ensuring you have all the regulatory certificates and inventories.
6 Do the numbers
You may pretend to be a tenant on the phone and even visit a couple of properties. You may also be a bull of the residential market and with prices not expected to recover for perhaps four years, you've decided to rent out your flat. Your target annual rental should be a minimum of 5 per cent of total property value to take care of letting costs and maintenance, although robust capital values in prime Edinburgh are likely deliver even less. The arithmetic is unlikely to be favourable if you have a mortgage but that is likely to change…
7 Eye on the future
With the rental market forecast to appreciate considerably over the next few years, going into to BTL may be a shrewd call. With very little new home building, residential property may indeed offer less volatility and more long-term security than equities. But you dare not overlook the possibility of an eventual sale of the property. You are very unlikely to be in BTL for ever, so make certain your property has the right resale features.
8 Housing benefit
Serious landlords will tend to avoid tenants who are beneficiaries of housing benefit, which was cut back in the last budget to 30 per cent of the average local rentals, meaning the tenant will have to make up the difference. More changes are probably on the way.
9 Tenant references
If you've taken the uncomplicated route of using a letting agent, this will all be taken care of. If you decide to do it yourself, beware that it is a minefield. Just like employing someone in a business, you will ask for two or three references. The potential tenant is most unlikely to pass you a reference from anyone who will not write glowing words.
10 Stay on your Toes
Your BTL portfolio is just as important as stocks and shares, so resist taking the laissez faire approach that too many people take to their occupational pension. Keep abreast of tax changes, development close to your property and any obvious change in demographics.