Before you start, you need to have a clear idea of what type of rental property you're looking for. If you want a small family house, say a two-bedroom terraced house, don't be persuaded to look at unsuitable properties such as studio flats or rambling six-bedroom mansions. By focusing on exactly what you want and avoiding countless unsuitable properties, you can save yourself time and money.

While staying focused is good, don't be too narrow-minded. If you're looking for a two-bedroom house for your rental business but then stumble across a slightly cheaper two-bedroom flat in the area, you may decide that the flat is perfect for renting to tenants. If you stick too closely to your original plan and don't evaluate alternatives as they present themselves, you could find yourself missing a good opportunity.

Ask dedicated letting agents — not estate agents — for advice on renting property. Estate agents want to earn their commission and get the sale, so they are unlikely to be completely unbiased. The letting agent should provide more useful opinions on location and a particular property.

Big or little: Size matters

Letting agents will all tell you that the easiest properties to let to tenants are studio apartments and one-bedroom flats. If you opt for a huge, grand house in the hope that it will generate lots more rent, you are likely to discover that finding tenants is much harder. This fact is partly down to demographics: More people are living on their own than ever before. And with property prices out of the reach of many first-time buyers until later in life — the average age of a first-time buyer in the UK is now 33 — many 20- to 30-year-olds are being forced to rent until they have saved enough for a deposit.

If you have £300,000 to invest, consider using it to pay deposits on two or three small family homes rather than put all your money towards one big property. Doing so is advantageous in a couple of ways:

• The smaller properties are usually easier to let than larger ones, making life easier for you. In fact, demand for properties with three or more bedrooms is diminishing. You are better off choosing a property suitable for the young professional who is not yet ready to buy but still wants the freedom and independence of living on her own.

• The rent on a studio or small flat is also going to be a lot less than on a big house. This may not sound like a good thing, but consider this: If you run into void periods, covering the mortgage yourself is likely to be much less of a burden than it would with a large property.

• Flats are much easier to maintain. Most flats in the U.K. tend to be leasehold rather than freehold so you will have to pay an annual service charge to the freeholder for the maintenance of the common areas. If you buy a leasehold property, you own the flat for the duration of the lease, unlike a freehold property where you purchase it outright. Watch out for properties with a lease of 65 years or less as these are likely to be cheap because mortgage providers won't lend money on these. However, leases can be extended — and you can add the service charge onto the rent.

Setting your budget

Of course, what property you buy is largely decided by your budget. The key factor to bear in mind is that you shouldn't overstretch yourself. Most landlords use leverage to borrow much more than their deposit, but the rental income must cover at least 130 per cent of the mortgage repayments. And ask yourself this: If the property is empty for two or three months a year, can you afford to carry on paying the mortgage yourself? If the answer is no, you should think about scaling down your ambitions.

Location, location, location

Picking a good location isn't as straightforward as it sounds. What you think is a good location might not be your tenant's idea of a good location. Your ideal place to live could be a green, leafy street with minimal traffic, close to good schools. But your prospective tenants (some of whom won't have cars) may be more interested in an area that is close to shops, pubs, and takeaway restaurants with reliable public transport links.

If your tenants don't have a large family, a large supermarket two roads away isn't as important as a 24-hour convenience store where they can pick up a pint of milk late at night.

Many prospective tenants don't have the resources to run a car — which is why they are renting in the first place — and will demand a property close to local transport links. Most don't fancy walking half-an-hour from the nearest train station when they return home late at night. For these tenants, the train station or bus stop needs to be close to a rental property: More than 10 minutes' walk and your prospective tenants are likely to be put off.

To extend the likely pool of tenants, look at properties outside major cities but with reliable transport links into the city. For example, many towns in the South East, such as Guildford and Haslemere in Surrey, are around an hour away from London on the train. Many people prefer to live outside a city and commute in as necessary for work. Buying rental property in such an area widens your pool of potential tenants.

When you buy a property, keep your potential tenants in mind. You should have a good idea what type of person is likely to want to live in your rental property. If not, you'll find buying the right property very difficult. For example, if your rental property is near a college, university, or hospital, a house that several students or colleagues can share for a reasonable monthly rent may be easier to let than a luxury one-bedroom flat with a hefty rent to match.

The benefits of buying locally

If you plan to manage your rental property yourself, without the help of an agent, buying locally makes sense. If the tenant has a problem in the middle of the night or complains of a malfunctioning boiler — problems you'd prefer to check out yourself before calling in a tradesman — your life is a lot easier if the rental property is just down the road rather than three hours away up the M1.

The other advantage of buying locally is that you are likely to know the area inside out. Many landlords feel more confident buying property in an area they know, especially when they start out. You are likely to know what is a bargain in terms of property prices — and what isn't. Finding that bargain and snapping it up quickly is also easier: You might be driving down a street on your way to work and spot a property that you think would be ideal for letting. A quick call to the estate agent handling the sale, and you're on hand to view it immediately. A scenario like this could save you the hassle of trawling through newspapers, property magazines, the Internet, and estate agents, and puts you in a position to find a good deal.

Buying too close to your own residence

Be wary of buying a rental property too close to your main residence. Buying the empty house next door to yours, for example, with a view to letting it out may seem like a good idea. But while you can keep a close eye on the rental property, tenants living on your doorstep can be a pain in the neck, particularly if they're the type to constantly badger you for this and that.

Just as you may regret having your tenants living next door, you may also find it difficult to rent the property in the first place. Tenants can be wary of living in close proximity to their landlord, fearful that they will be closely watched and monitored. It may be better for all concerned if you buy your rental property in another part of your town.

Buying in an area you don't know

Buying in an area that you don't know well is fraught with potential problems. The property you have your eye on may look like a bargain, but it could be in an area beset with problems, none of which are apparent to someone not familiar with the locality. The area could also be declining rather than improving in the long term, and you're not likely to know that until too late.

If you want to spread your wings and buy further afield, do your research carefully first. The Internet is a great place to start when you want to research an area. You can get an idea of the type and price of property available, local amenities, and schools and transport. Once you have a general idea of where a good place to buy may be, visit the area to get a feel for whether it actually is a good place to buy in. Visit local estate agents and speak to letting agents to get an idea of what property is available and what sort of rent you can expect.

Dilapidated properties

A rundown property needing complete renovation may be well within your budget, but there's probably a very good reason for that — the property is likely to need plenty of work. It may look like a bargain, but if it takes months to get ready to rent, it'll cost you money, not just in renovations but also in lost income. Also, most mortgage lenders only offer buy-to-let loans on properties ready to let to tenants.

Converting an old rambling house into several flats may be tempting, but leave this well alone until you're more experienced in property management. Over time, you'll build up contacts, including a network of tradesmen and builders, who will be able to complete the work for a good price.

Letting out a basement in your home

If you live in a large property with a basement, you may be tempted to convert it into a self-contained flat to rent out and generate some extra income. But bear in mind that this strategy is feasible only if the property has space for a separate entrance. If you're planning a new self-contained flat and building work is required, you also need planning permission. Building regulations also have to be followed concerning all structural aspects of the property, as well as the size of the windows, ventilation, drainage, and escape routes. I have inserted the next sentence following a comment written in the text about sources of information.Information on planning and building regulations can be obtained from your local council.

While converting your basement into a self-contained flat is potentially a good idea, think it through very carefully. Check with local letting agents as to the amount of rent you can expect to generate to see whether you'll get a good return on your investment.