Uff: What are the sort of things I should be thinking about before deciding whether or not to get into buy-to let?

Socha: You could start by looking at your own career and whether you are going to become either a high involvement landlord or a low involvement landlord.

Low involvement is where you hire an agent, probably one of the ones from ARLA, the Association of Residential Letting Agents or the National Association of Estate Agents, to look after the property for you.

That will make it a lot simpler if your career does notallow you the time to look after the property.

Curwen: But how much time do you need to be a high involvement landlord?

Socha: That really depends on the type of property that you choose, how close it is to home and so on.

You could go to one of the letting agents that will find you a tenant.

This is what people seem to hate most. You have to go out, make appointments, people do not show up or you feel the people are not the right sort of people for the property.

You can engage the agent to just find you the tenant. A tenant-find service could take some of the hard part out of it, give you an introduction to it, and then later on you could move on to doing the whole thing.

That means advertising, meeting prospective tenants, interviewing them, showing them the property and then working your way through the process of getting the deposit, the first months rent, setting up the standard order, changing all the bills over into their names, all the bits and pieces you would need to do yourself.

Uff: Are you saying that it's not a good idea to become a 'high involvement' landlord straight away?

Socha: I know people who have started off having the properties fully managed for them, then have gone the first step to getting someone else to find tenants for them, then finally going the whole hog and actually doing everything from start to finish.

By the time you have advertised the property, shown people around, arranged a moving-in date, got them in the property, inspected it a couple of times, then when they leave, sorting out the cleaning, making sure it is back in good condition and returning their deposit.

There is more to it than you think.

Uff: How can you spot a potentially good tenant?

Socha: How long is a piece of string? My usual criteria are looking at why somebody would want to live in that area or live in that property.

It may be to do with work. It may be to do with family ties. It may be that the pricing is right for their income.

Transport links is another reason, especially in the big cities. If you have got a property near a tube station or a bus route, you will find that will attract people.

There will be a reason. People do not just move to a place at random.

Curwen: When would alarm bells ring in your mind?

Socha: Usually it is down to people skills, the feeling you get.

My advice to anybody is that you should only deal with people you can get along with. This is a people business.

The relationship with your tenant is going to last between six and eight months at the minimum, so they must be people you can do business with.

If you get the feeling that you cannot do business with the person then you should not take them on because you will regret that.

Remember you have got to manage the relationship right through to giving the deposit back and their leaving your property.

Uff: What makes a good buy-to-let property?

Socha: In sales it is always 'location, location, location', and in this market it is 'research, research, research'.

You must research the area first to find what the property prices are.

Can you actually afford to buy something there? What are the rent levels in the area? Are the rent levels high enough to cope with the mortgage or give you a reasonable return on the capital you have invested?

You also need to research likely tenants. Is it a community where there are lots of working people, or is it a place where lots of people commute from?

If you are entering a student market, is it within the catchment area for the university? Does the university bus pass that part of town?

Is it likely to be an area high in people who are not working? If it is, you are likely to get tenants on housing benefit. In that case you must find out the levels of rent that are paid in that area.

Uff: Right, so I have got a property and I am now a potential landlord. What do I have to do to be a good landlord?

Socha: Okay, you start from things that you must have.

First the house must be clean and tidy. You will find that, especially women will look at the bathroom and the kitchen. If it is not clean, I guarantee you it is much more difficult to let.

So you must get those things spot on.

If the house looks tatty or decoration is very old fashioned, you will struggle to find tenants for it.

People expect a good standard from the private rented sector. The days of Rigsby are gone, he is long dead.

People are looking for a property that is neutrally decorated so that they can move into it straight away. It will match with their furniture.

Avoid bright strong clashing colours because much as they seem like a jolly good idea, you will find it will not go with most people's furniture.

So usually the basic neutral white ceiling, magnolia walls, white paintwork, very simple and plain.

Curtains in the windows, because most people do not own curtains.

Lampshades because that makes it look like home and a cooker in the kitchen because most people do not possess a cooker.

So as an unfurnished property you would go with those basic things. But it must be clean, that is really important.

Curwen: Is there demand for unfurnished properties?

Socha: As I said before, go back to your research. In places like London it is almost all completely furnished.

It depends where you are and what the market is. That is where your research comes in.

Uff: If you choose to furnish the property, does it matter what those furnishings are like?

Socha: You have to make sure that furniture complies with fire regulations.

You cannot nip down the old auction rooms and buy a bit of cheap stuff, you have got to buy good quality furniture.

Uff: What are my responsibilities for the property on a day-to-day basis?

Socha: It depends. Let us start with the basic legal things that you are required to provide.

One thing you need to provide is a tenancy agreement. It should be written.

The law will allow you have an unwritten one but if something goes wrong you are going to have a struggle.

So my strong advice is always get a tenancy agreement in writing.

Curwen: What does that set out?

Socha: It sets out the responsibility of the tenants, such as to return the property to you in a clean state, that the property is vacant possession, that they return the keys to you, which is the act of surrender to terminate the tenancy.

Also that you do not want them to paint the house purple inside, they are not allowed to part with it or assign or sublet it.

Our organisation provides Standard Tenancy Agreements. They are also available from most stationers but the one we provide for our members is perhaps slightly more comprehensive.

Curwen: What happens if you do not have a tenancy agreement?

Socha: Then you might have to resort to the courts, and of course if you have not got a written agreement, it is your word against their.

If they are still living in your property and you have got to get the tenants out, due process will work.

But it is very, very slow. Most places in Britain, it takes two to three months to get a court date.

Then if they are still in possession and you win, they get another 28 days before you can send for a court bailiff.

Curwen: What else should you think about?

Socha: You should also look at landlord's gas safety certificate, which is a legal requirement. You must have that done.

Get the electrics tested by someone who is registered with one of the professional bodies.

You should have proper buildings insurance. Again you need to be careful because we offer a more comprehensive policy that covers things like loss of rent if it has been burnt to the ground.

A lot of policies do not cover that, so you could actually find yourself servicing a mortgage and it might take three to six months to rebuild a property.

So you need to have a property that would cover your loss of rent during that spell of reconstruction.

It covers malicious damage and things like students and people who are claiming housing benefit, because some policies do not cover that.

So you have to be ever so careful to get that right.

Then if you have got furnishings, you must make sure they comply with the furnishing fire regulations as well.

So you must do all those things before you start and get it right.

Uff: Should I ask for a month's rent up front or would it be better to go for two or three?

Socha: If you can find somebody who can pay you three months rent in advance that is great, but I think you will find that would put some people off.

If you take six weeks rent as a deposit and then the first month's rent on top, that should be enough.

Uff: So how does one actually work out the rent value. You said research, but where does one research?

Socha: Most areas have a local property paper and there is always a nightly paper, whichever day of the week.

If you have employed an agent, they should be able to set a rent that is in line with the market, rather than trying to get to squeeze the last penny out of it.

You will often find that if you charge an unusually high rent, you may get away with it once, but remember the tenants are also getting this free newspaper coming through their door.

If the tenants see their rent is substantially more than everybody else's for a very similar property, yes you will get your money but you will probably find that they will not renew the tenancy and go and live somewhere else.

Uff: So is what the agent recommends virtually written in stone?

Socha: No it is like anything else. If you feel you perhaps provide a better than average product for the area, then it is worth trying it.

But remember, for every week it is empty - say for example, a house is rented for �500 a month - you are losing �125 a week in income and you may only be asking for �20 a month more which will take you more than the length of tenancy to recover.

Curwen: So you are saying do not be greedy?

Socha: I am afraid so.

Uff: What do you do if you have a tenant and want to raise the rent?

Socha: My advice always is to work on the basis that most people's wages only go up once a year and you should only review the rent one a year.

I am aware of one chap who always puts it up every six months and for obvious reasons he has been losing tenants.

Curwen: So this is a competitive market. You cannot expect tenants to grow on trees.

Socha: The growth in buy-to-let has been quite phenomenal.

Research by FPD Savilles shows that buy-to-let produced about 183,000 new properties on the market between 1996 and 2,000.

But last year, according to the Council for Mortgage Lenders, around 65,000 new buy-to-let mortgages were granted.

So the thing has really ramped up quite substantially, which means that in certain areas there are actually pools of oversupply.

Previously, the Small Landlords' Association always recommended that people should budget on about 5% of the year for voids.

Voids are periods when the property is unoccupied. If you think about it, previously you would have the thing empty for about a week, maybe twice a year while you changed over tenancies.

Now it seems to be growing and it is much nearer 10%, almost a month a year.

You need to factor that into your figures. If you get a nice long-term tenant, no breaks in tenancy and the person stays for two, three, four years, then that is a nice extra bit of income you are going to get.

But you need to budget for the changes every six months and it will take slightly longer now because the market is more competitive. There are more properties about for people to rent.

Uff: How can you work out the true costs and benefits of getting into the buy-to-let market?

Socha: Okay I have got a piece of software that can help us do that and we will have a look at that now.

The trouble is a lot of people tell you, oh it is giving me x per cent return and they do not factor in a lot of the other costs, which are not quite as obvious.

If we just run our way down quickly from the start of the purchase price.

There is a property here for �62,500, then you have got stamp duty, which is 1% or �625.

Then you have got legal fees on top. Normally you expect to pay between �500 and �700 legal fees.

Uff: Is it more expensive legally going for a leasehold property rather than a rent-hold property?

Socha: From what I understand, yes. Talking to one or two solicitors that I know, they do charge about a �100 premium.

The figure will vary throughout the country, but they do charge a little bit more for a leasehold property because it is slightly more involved.

Then if you work your way down, there is a survey fee, which is about �180 on this one, an arrangement fee of �250 from the building society.

So the property does not cost �62,500 but �64,495 and we have not got off the launch pad yet.

Uff: Is the mortgage arrangement fee a standard charge?

Socha: It varies from lender to lender.

You should always ask the broker or the mortgagee what their arrangement fee is. Do they have any other fees?

Sometimes they have a reservation fee of 1%, sometimes there is a commission as well.

Pin those costs down because they add to the cost of acquisition of the property in the first place.

Then we work into the gross rental income.

Now this one is a monthly rent, we think it is going to rent for �400 a month, which is �4,800. So we divide the �4,800 by the �64,495.

Theoretically the gross yield is 7.44%. So it sounds like quite a good yield.

Curwen: So that is the return that you are getting on your money?

Socha: Not really. A lot of people will tell you that is just the warm afterglow.

You have to start factoring in all your unavoidable costs and that is what the next section does.

First, it takes in the mortgage, this one we reckon the mortgage is going to be �425 a month.

I put in a line for service charges, for flats, you have a service charge line there.

You have to buy buildings insurance. Say through ourselves, it will be about �89.

You can pay up to �200 depending on where you go for your buildings insurance.

There is also contents insurance. A gas safety certificate is about �40. Electrical safety certificate is going to be about �75.

Then 10% of the rent is a void period. So in fact we have got nearly �5,304 of costs.

If you work it out, this one is actually going to lose �504 a year, it will not actually make a profit.

It does not make economic sense because the gross yield looks good, but when you start factoring in some costs, it does not.

Curwen: So is it possible to make money because it looks fairly impossible looking at that?

Socha: It is getting your purchase price right. But also it depends on how much borrowed money you have got.

If you actually have net cash, then the mortgage figure would be stripped out and suddenly the thing will make money.

If we take this back up and strip the mortgage out, which is the largest cost factor altogether, I will just put that in as nil, suddenly it is now making money.

It is actually making about 7% because you have not borrowed any money at all.

But that is because that will be somebody who has got net cash.

But remember the concept of buy-to-let is to borrow the money, to pay the mortgage and buy the property in the process.

So you have to weigh up what you may have to put in to make this house pay.

Instead of borrowing say 85% which is the maximum, most new lenders will only lend you 70% or 80% maximum.

They are fairly conservative but then they do not have any bad debts in this market.

So they are looking at lending you about 70 to 80%. If you are borrowing 70%, then you would actually have had a problem making it pay.

On the other hand, somebody who say perhaps has only borrowed half the money would return a profit.

But that is what we are trying to do - get that factor in straight away, the mortgage factor, because if you are buying-to-let you are borrowing money and you have got to make sure the rent is more than the mortgage repayments.

Indeed some of the lenders stipulate the rent must be 130% of the monthly repayment and perhaps that is a thing to weigh up before you start.

Uff: So you have to look at working it backwards as to what is the monthly rent you can get to see if the house is worth buying, but then work it backwards to prove that figure?

Socha: That is right, once you know the two key variables, the cost of the property, plus the acquisition costs and then what it is going to rent.

That will knock some houses out of the water straight away, because they are never going to make money.

And also this is a rather unusual market in that if you get a great big expensive house, you will find say �100,000 �200,000 �300,000, you will actually find the rent on that is not the same as perhaps the rent from three houses.

Say a house of �300,000 will not fetch three times the rent of a �100,000 house.

Indeed the three �100,000 houses will not be able to achieve the rent of six �50,000 houses.

Of course we will look at the part of the country where you can find such a house, but it actually works in an inverse fashion. The smaller properties tend to give the better yield.

Uff: You would have thought having more properties meant more risk?

Socha: I have found the bigger the portfolio you have got, the less likelihood you are going to get caught out.

There is less chance you will have them all empty at once. The important thing is being able to spread your risk.

Curwen: But are you not piling up mortgages here?

Socha: Yes, but if you are doing capital and interest then eventually you are paying them off, and ultimately they will all be yours.

Eventually you will end up with a property portfolio which you own.

Curwen: What if there is a property slump and rents also decline?

Socha: Remember the private rented sector in the United Kingdom is the smallest of any developed country in the world.

Germany is 40% privately rented, Switzerland is the highest at 60%, Britain it is only 10% of the entire market.

70% of the market is owner-occupier and 20% is registered social landlords and state.

There would have to be an awful lot of properties bought from and rented out to make much of an effect on the market place.

Uff: What sort of mortgage would you advise me to get?

I can potentially borrow twice as much on an interest only mortgage. Do you think they are a good idea?

Socha: The interest-only option really has become an innovation in the market place.

To give you an idea, when I first looked for buy-to-let mortgages about six years ago, I think it was about half a dozen places I could look and now I think there is a couple of hundred.

It really has mushroomed, the number of people who offer buy-to-let is another innovation.

Personally, I have always worked towards the point of view that I want to own them because they will be mine and I will be insulated then from any slumps in the property market because I will own them anyway.

The danger with taking interest only is that you are working on the property market actually continuing to rise.

If it falls back, then you will be harnessed to those properties if you cannot dispose of them for at least what you paid for them.

So that is the only difficulty with that, and that is why doing capital and interest hurts a lot more, but it does give you something that is yours at the end.

But there is no reason why not, especially if you are trying to operate in an area of very high property prices and you want to get some income now, then that might be the way to do it.

But at some stage I would always say try and own them, because that is really the way you want to go, because then it is yours.

Uff: So there is no formula as yet, that you go so many years at this rate and then there's an optimum time to change over?

Socha: Not really because, if you think about it, we have now gone through a spell of property prices increasing, so of course all this formula works on property prices increasing.

But anyone who has been round the merry-go-round a couple of times will remember what it was like 10 years ago.

If there were a slump, remember you would then be tied because you have not repaid any of the capital and you would be tied to owning those houses and paying the interest.

But the flip side is the actual renting market, the private rent sector, is really very small. So there is not that much competition.

There is competition but it is nowhere near as much as there is in the selling market because 70% of all houses in the United Kingdom are owner-occupier, only 10% are privately rented.

Uff: If the market crashed again that would not necessarily mean that you should be panicked into selling.

Surely if you have got a tenant that is paying the mortgage via the rent, then you are ok?

Socha: You are quite right, you could weather the storm because, if anything, if there is a property crash some people will get repossessed.

They would require somewhere to live and there is a fair chance they will go into private renting.

Curwen: What are the worst things about being landlord?

Socha: The things that make it most difficult are things like when people do not pay.

You can now buy insurance against non-payment of rent but it still can be very slow.

The court system here is very slow at getting people out who are non-paying.

Indeed we are unique in business because we are the only business where we must actually provide the service and continue to provide it by law even though the customer does not pay.

If you go to Tescos and do not pay for your shopping you will get arrested.

But you have to allow the tenant to continue in your house until you can get a case to court to get the eviction order to get them out.

Uff: So John, from your vast experience now, are there any priceless bits of information that you wish you had when you started that you would be prepared to pass on to me please?

Socha: The first one will be that this is a people business and you have to be able to deal with the people.

If you do not enjoy dealing with people you are going to find this a very difficult business to be in.

Also you have got to roll with the punches, sometimes things will go wrong.

It may be that you get a breakdown and unseen costs that you just did not expect, you cannot whinge about it, you have got to get out there, get it sorted.

This is a customer service business, you have got to get the product right for the customer - who is the tenant - who is paying your rent and hopefully paying you some income. So you must get it right and get it sorted out quickly.

Finally of course it was actually knowing there are organisations like the Small Landlords' Association out there to give advice to landlords.

One of the strangest things is how many people think they are the only person in the world renting a property out, and yet there are at least 800,000 people in the United Kingdom doing it. A lot more than you think.