Realisation and capital gain. In general high-yield properties are not being bought by owner-occupiers. That means your exit market is likely to be to other property investors. Your ability to exit will therefore depend upon the appetite of investors such as yourself for similar investments in the future - as well as on the individual property. If you can pick a property in an area that is going 'up' you have the chance of benefiting from a fillip to prices as owner-occupiers start buying the type of house you own, but this requires luck, good judgement, and a willingness to accept a lower initial yield (i.e. to buy somewhat more expensive property at the outset). Generally you should invest for the medium- to long-term: five years or more.

Benefit changes. Changes in the regime for payment of Housing Benefit (the government subsidy for people who cannot afford to rent their own home) are in the wind. A 'pathfinder' scheme is being rolled out in certain local authority areas and may then be introduced nationwide in a few years time; on the other hand it is quite possible that in the meantime the scheme may be modified substantially or even abandoned.

Benefit Administration. Housing Benefit is administered by local authorities and delays in payments are endemic to the system. While some councils (e.g. Middlesbrough, Stockton-on-Tees) are efficient and pay fairly promptly, others are chaotic and in some cases try to hide this by being obstructive to all enquiries. HB delays cost a landlord heavily because a slow council can raise queries at a very late stage about a claim which have then become hard to answer (e.g. because the tenant has now moved on elsewhere). This should be a significant consideration in your purchasing decision.

Taxation. Since the days of Assured Tenancy Business Expansion Schemes (early 1990s) residential property has had few tax breaks. It is treated as an investment: you are allowed to deduct legitimate running expenses for tax (e.g. repairs, bank interest, management fees - but not initial refurbishment) and (on furnished lettings) you can claim a further 10% 'wear and tear' allowance to help cover the cost of furniture and fittings (which are not otherwise tax-deductible). If you sell the property at a profit you will be liable to Capital Gains Tax (CGT) subject to your annual exemption and taper relief. The property will form part of your estate for the purposes of Inheritance Tax (IHT) - but note that CGT dies with you. If you live overseas you will need to get approval from the Inland Revenue or else your manager will be obliged to deduct tax at source from any payments.

On the other hand, the Chancellor has recently suggested that the rules may shortly be changed to allow Self-Invested Personal Pensions (SIPPs) to invest in residential property, and further that a tax-transparent residential property investment trust structure may be allowed (to encourage institutional investment). These might provide an attractive way to hold property in the future, and might significantly increase investor demand and thus raise prices.

Good management. Particularly with lettings to tenants in receipt of benefits, a manager with a good track record is essential. Selecting tenants in a market place where credit checks and standard referencing services are no use requires good judgement and local knowledge. Resolving Housing Benefit payments requires a thorough understanding of rules and procedures, and good relations with the council and with the tenant. Sadly, the best managers are not always the cheapest :-)

Safe as houses? Your capital is at risk and if you choose to gear your investment by borrowing against the value of the properties you have bought (or against other assets you have) you could lose even more than the net amount you have invested. However a decent long-term net income should reduce the likelihood and size of any capital loss.

HMOs - Houses in Multiple Occupation - converted into say 5-8 self-contained flats or bedsits. These require good local management and can have higher running costs but offer higher yields. If centrally located they may also offer some interesting longer-term capital growth potential. As each property is a more substantial investment (say £100,000+) you can build a useful portfolio with only a few purchases.