Investors in residential property have done well in recent years. Anyone who invested in almost anything has made money - at least on paper. But it's getting tricky now to pin-point where to go next. Interest rates may be low, but the Bacon report is still having some effect, tax shelters are harder to find and prices are high - so investors these days are looking farther afield. Indeed, many are eyeing Edinburgh, London, Manchester and Belfast to boost portfolios. Developers too are keen to tap into this market, often launching the schemes in Dublin. And a shortage of investment activity in the market, when combined with the increasing pressure on the rental market as a consequence of high house prices, will inevitably lead to even higher rents in this sector.

Location still matters most of all when buying an investment property. So says Joe Wyse, Managing Director of Wyse Property. With prices high, he points out that established areas will hold values if not necessarily greatly add to them. "The secret is to look for up-and-coming areas which are reasonable value now and will be better value in the future."

He suggests targeting Stoneybatter/Smithfield as typical of an area that is going to rise with the tide. "Big changes are already underway there," he says. "A lot of money is going into it with a good infrastructure. The planners are terribly interested in that area and the DIT is planning to have a big campus on the former grounds of Grange gorman."

Apartment blocks already up and running there include Smithfield Village, the Hardwicke, and Whitworth Hall. The Old Distillery area is being revamped with not only apartments on offer but also a museum in the pipeline. And the old Duffy scrapyard site is in line for redevelopment.

Another area worth looking at, says Joe Wyse, is the Customs House docks area and East Wall Road and Fairview. "There will be a great amount happening in these areas over the next five years. A lot of amenities will be developed and LUAS will go down this way."

Also highlighting this area is Carina Warner, of Hooke & MacDonald. The company advises investors to consider "the end use", which means whether they are buying an apartment with a view to letting it out first and then retiring to it later. "Many of the locations that today may seem unsuited to retirement - such as the Docklands - in the coming years will be really vibrant areas with vastly improved transport and amenities on one's doorstep."

The most practical form of investment is still the one-bedroom or two-bedroom apartment, with the one-beds doing particularly well in the rental market just now. "We would advise investors to purchase mainly one or two-bedroom apartments, with standard of design and in-built facilities being important considerations," says Carina Warner. "Being close to water is a bonus when considering future capital appreciation prospects. The standard of fit-out and general decor is an important item when securing good tenants quickly."

JOE Wyse also points investors in the direction of apartments. "From a management point of view, they are easy to deal with since you are dealing with single tenancies in the main. Apartments are a solid investment if well-located."

Outside of the city, small houses in new estates are also a safe bet since fewer tenants will be involved in renting out. The future of the rental market seems assured, with more and more people, who up to now might have gone straight into the new homes sector, being forced to rent for longer periods. The Bacon report has had an effect on the market with investors initially opting out of the residential market. However, the Section 23 incentives introduced in the early 1980s have been significant in bringing rental stock up to European standards and also in stimulating supply, according to Hooke & MacDonald. "Since then, the market has widened and investors have spread their portfolios between tax incentive and non-tax incentive apartments. The rejuvenation of Dublin and other urban centres would not have taken place without the active involvement of investors on a significant scale," says Carina Warner. With fewer investors on the ground in recent times, pressure is beginning to be felt on the rental market, she adds.

"The reduction in investment buying in urban areas over the past year is affecting supply at the lower and middle ends of the market and is causing rents to move steadily upwards . . . the Government should now introduce stimulatory measures for investors targeted at urban areas where lettings are prevalent. There are a number of investors currently active in the market but not in sufficient number to meet the increasing demand for rental accommodation."

Joe Wyse points out also that "the effect of the Bacon report and not being able to write off interest before tax has been lessened to some extent by the lower interest rates but prices have got high and investors are looking elsewhere."

The old period house in multiple units is on the decline. Not only are they time-consuming from a management viewpoint, but owner-occupiers are paying high prices for them. "It's not worth an investor trying to compete in this market just now. It made sense to buy them when it was unfashionable about eight years ago and the investor then has done well out of them," says Joe Wyse.

Many investors have moved from the residential market into the commercial market where yields are greater. "Yields in the residential market are between 4 to 6 per cent before tax but are from 5 per cent to 8 per cent in the commercial market."

And investors are looking elsewhere for value. "Belfast, Manchester and London are popular with the Irish investor." Joe Wyse also believes activity in the residential market is likely to be slower. "Portfolios will be smaller. The big investors won't be so active in the residential area. People will still invest since they can borrow lots of money and have good equity in other premises. The investors who got going 10 years ago have very good equity. For instance, £60,000 six years ago would have risen to £180,000 now. Property would have increased in value three times in seven years and people are sitting on good equity and can use the equity in their portfolio to borrow more money quite easily."

But for new investors, it's another story. "They are finding housing prices very high and don't have equity in existing properties. They have to be careful and look to well-designed schemes in areas close to jobs and town centres and shops," says Joe Wyse.

The serious investor isn't just playing around in the market. "The genuine investor is in for the long-haul," he adds. "He's not going through the hassle of renting otherwise. Demographic factors would support a lot more housing units for rent. A lot of young couples are having to look at the rental option where in the past they would have bought. They are prepared to rent in the short-term until the market softens."