Buying residential property to let out is one of the fastest growing forms of investment. Being a landlord used to be a mug's game: rental levels were fixed and if you had bad tenants you couldn't

get rid of them.

But since the introduction of assured shorthold tenancies the whole climate has changed and more people are waking up to the idea that investing in residential property is a lot more rewarding than leaving your money in the bank or building society.

It is an investment which is working well for Edinburgh physiotherapist David Campbell. Three years ago he paid #59,000 for a two-bedroom flat in Parkland Terrace. He paid for it half in cash and borrowed the rest.

He says: ''I am 60 now and the investment forms part of my pension planning. The mortgage comes to #224 a month but this is easily covered by the monthly rent of over #500. A letting agency manages the flat for me. It has always found good tenants and the flat has never been empty. It charges 15% of the rent, but I consider this money well spent.''

Campbell says it is important to get the right advice before buying a rental investment. ''You need to know which kind of property lets well and which locations are best. I was thinking of buying somewhere else, but I changed my mind after talking to a letting agent.''

Edinburgh property prices have been rising steeply recently, but Campbell says: ''I am not planning to sell yet. I haven't decided what to do when I retire. I might sell my house and move into the flat and buy another couple of investment properties.''

Brian Adair of Ryden Lettings in Edinburgh, which manages Campbell's flat, says the best properties to buy are one or two-bedroom flats near the city centre. ''A flat bought for between #65,000 and #80,000 will bring in a rent of between #550 and #650 a month, to give a gross yield of between 8.25% and 12%. The rental yield on larger flats is lower.''

Ian Potter of Fineholm Letting Service, a Glasgow agency, is equally optimistic: ''In the West End or the Merchant City, yield can be as high as 12%. However, some people are happy to take less if they think the area has good potential for capital growth.''

Landlords should however expect to spend another 10% of the gross rent on repairs and maintenance, which in newer and more upmarket properties is often covered by a management agreement, and on insurance. The tenant pays the council tax - except when the property is empty.

The residential investment market received a big boost in September 1996 when the Association of Residential Letting Agents (ARLA) launched the ''buy-to-let'' mortgage scheme. Before then, individuals found it difficult to borrow to invest in residential property because lenders refused to take into account the potential rental income. If you already had a large mortgage, you could buy to rent only if you had cash.

The ARLA scheme changed that. The lenders listed in the table take into account all or a proportion of the potential rental income when working out how much you can borrow. Interest is above the normal variable rate but is still less than normal commercial charges.

However, there are cheaper deals. Malcolm Harrison, ARLA's spokesman, says most people buying to let take out fixed-rate mortgages. Woolwich Direct has a three-year fixed loan at 7.49%, 7.99% for five, while Paragon has a mortgage capped at 8.25% for five years - the rate can go down, but can't exceed the capped rate.

There are tax advantages too. Rental income is taxable, but all your expenses, including the mortgage interest, are allowable against tax. But watch out for capital gains tax if you make a large profit when you sell.

Last year, #375m was lent under the ARLA scheme on property worth #575m. The average advance was 65% of the purchase price and the average loan was #70,000. Harrison says the typical borrower is aged 40 to 50 and cautious. ''They are the kind of people who like to leave their money in the bank or building society rather than invest on the stock market.''

The only drawback is ARLA's insistence that property is managed by a member letting agent. Agents take a fee of around 15% for letting and managing property. But there are other lenders who will lend on investment properties, so it might be worth shopping around for one who will let you do your own management.

ARLA buy-to-let mortgages

Lender Interest Fee Advance Contact

Halifax9.2%#295to 80%01222 783873

Mortgage Express 9.0%*#250to 80%0500 212854

Mortgage Trust 8.99%1%to 80%0800 550551

NatWest Mortgages9.2%#200to 75%0345 023845

Paragon Mortgages8.8%#250to 80%0800 440099

Woolwich Direct9.2%#295to 75%0345 454445

*8.75% for loans up to 70% of valuation