Buy-to-let property buying has fallen off dramatically in the past year in response to very low rental increases in most parts of the country, but carefully selected rental property is still a good investment prospect over the medium to long-term.

The first thing to consider, says Realty 1 International Property Group chief executive, Hano Jacobs, is interest rates, which are currently at a 30-year low.

“From an investment point of view this means the monthly bond repayment on your rental property is now also at a new low and a sizeable percentage will be covered by the rent your tenant is paying. Second, lower rates don’t mean that everyone can become a home owner. The very strict credit criteria now being applied by the banks, high levels of debt and the recent return of home prices to real-term increases are going to keep a lot of people in rented home for the foreseeable future.”

It is also worth noting, he says, that property development and residential building are still at historic lows following the recession, which means the demand for moderately priced rental homes is likely to exceed supply for some time, especially in the large urban centres. This imbalance should result in rental increases.

Jacobs says during the next 12 months pro-active investors will also still find property purchase opportunities at below market value. Some will be created by developers with unsold inventories who want to avoid prolonged holding costs, and some by ordinary home owners still struggling to weather the financial storm created by the recession.

“Nevertheless, caution is the watchword, and potential investors do need to be highly selective when it comes to buying rental properties, and to be very wary of over-extending themselves financially. Even in a strong rental market, investors should have the resources to cover 25% to 40%of the monthly bond repayment themselves for at least the first few years of ownership – or even better, to put down a really substantial deposit on the property.

“In addition, investors need to be clear on their strategies, and be looking for medium to long-term gains from rental income and capital growth. This is not a market for speculators looking for a quick turnaround.”

Factors to be carefully taken into account when buying rental property, Jacobs says, include locality of the property with regard to convenience, consumer amenities and access routes. Also important to potential tenants are price, security, and proximity to schools and day care.