Buy-to-let investors need to do some research before they make their move, writes Laura Slattery

Many prime-time television programmes talk up property investment as everything from a lucrative hobby for the well-off to the ultimate ambition for everyone else.

Even pokey hovels with non-existent plumbing and interior walls seemingly made of plywood can produce wonderful returns in a good location, given the right love, care and timing, we are told.

"It's an aspirational thing. People see themselves hanging up their boots in their late 50s," says Mr Peter Bastable, chief executive of Simply Mortgages.

"People aged 30 years, if they have a mortgage term of 15 to 25 years, can quietly build up a smallish portfolio of properties. When they want to retire, they have mortgage-free properties."

A rental income of, say, €12,000 a year in today's money can be used as their pension, he adds.

Or, at least, that's the plan.

But things don't always go to plan. People with expectations of rapid capital appreciation and a rental yield that matches or exceeds their borrowings may find their new-found love of DIY diminishes once the hard work begins, while rents don't just automatically flow into their bank accounts.

Overborrowed and under pressure, homeowners who bought a second property as an investment are abandoning the market prematurely, according to Mr Bastable.

"They're so highly mortgaged, they don't really feel like they're gaining anything," he says.

Not all escape from their buy-to-let dabble unscarred. "People sometimes decide to sell the place they bought within a few years, but they might find it difficult if they bought in a place where there is a lot of supply."

People who wouldn't dream of placing bets on the stock market often view property investment as a way to build family wealth: the chance to pass a self-financing apartment or house onto their kids seems too good to miss.

As a mortgage intermediary, Mr Bastable says he doesn't want to deter residential investors and lose their business. "But you do have to sit down and ask questions," he says. "Do you know how much you want to pay? Have you considered the cost of furniture?

"Do you realise you might not get that much rent? If you are stuck without tenants for a few months, how long can you keep paying the mortgage?"

Another question Mr Bastable asks is whether or not the prospective borrower has budgeted for the management services of a letting agency. "Most people are crappy landlords. They don't really want a call at 3 a.m. saying the bathroom tap has fallen off," he says.

But the most important question some residential investors will ask themselves will be: "Is now the right time to be buying - and borrowing - to let?"

In recent years, property investors have been "spoilt absolutely rotten", says Mr John Lowe, managing director of Providence Finance Services.

But the days of double digit appreciation have gone, he believes, with this year's growth simply a bonus for investors.

Buy-to-let investors should not rely on rental incomes to cover their mortgages. "No matter what income people are on, €20,000 up to €100,000, you can be sure they will be living up to it," says Mr Lowe.

"They may have to wait three to six months before they can get tenants, then they may find themselves dropping their rent. Why hold out for €1,500 and leave the place empty for another few months when you could get someone in for €1,200?"

Those who cannot survive financially without rental yield for at least a few months should avoid buy-to-let, agrees Mr Bastable.

"There are more vacant periods now, because it's harder to let. You could be carrying the cost of a mortgage for a couple of months."

First-time buyers will have little sympathy for the first-time investor who gets burnt in a buy-to-let experiment gone wrong.

Most are happy to get just one rung on the ladder, without stretching themselves between two at the same time.

Some may wonder exactly what salaries others are earning to be able to buy to let one property, much less plan to build up a "smallish portfolio of properties" before they retire.

In short, who are these people?

They are the people who, either by accident or design, got their timing right.

Mr Lowe says he has clients in their early 30s who are already exploring buy to let. "They bought their first property 10 years ago and it's now worth three times the value." Twelve years ago, he says, one-bedroom apartments in Dublin 4 sold for €37,000. They are now worth €290,000.

The property boom has given this generation of first-time buyers the equity to play landlord just a decade later.

So what about people considering their first buy-to-let in 2003? They are "thin on the ground" says Mr Bastable.

If would-be property investors were susceptible to the hype of the boom, with its accompanying rash of television property gurus and their spin-off books, they are also attuned to this year's more pessimistic commentary on the future health of the market.

"After the December 2001 budget, we kept hearing this phrase 'pent-up demand'," says Mr Bastable. "Up to April 2002, everything was selling off the shelf."

But with economists speculating on when growth in prices will fall off, people are being more cautious, he adds. "There's a nervousness among developers. Last year, 20 to 30 per cent of buyers were investors, this year it's maybe 10 per cent."

According to Bank of Ireland economist Dr Dan McLaughlin, the argument that falling rents will push buy-to-let investors into selling up misses one point - investors are acquiring equity in their properties.

"Take a simple example of a two-bedroom apartment in Dublin costing €320,000," Dr McLaughlin writes in the Irish Property Review.

"The gross monthly cost of servicing a 25-year mortgage would be €1,600 against a rent of say €1,200. So the owner is paying a net €400 per month for the mortgage, which would pay for a €80,000 loan. In other words, the investor in this example is effectively acquiring a €320,000 property for €80,000.

"This is not to say that the retail market is particularly attractive as an investment vehicle, but to highlight the fact that the supply of property from disenchanted investors may not be as great as some feel."

According to Mr Lowe, more seasoned investors will go after properties with Section 23 or Section 50 tax breaks attached and won't worry about a shortfall between the rent and the mortgage.

There are still bargains out there, he adds.

"People are coming back to added value. They build an extension onto their property or they buy a dilapidated place and do it up. That kind of added value has really come to the fore."

Maybe it's not quite time to erase those recordings of Location Location Location, Property Ladder and How I Made My Property Fortune just yet.