Real estate as an investment option

The Russ Whitney international best-seller 'Building Wealth', available from the online bookstore amazon.com, was being promoted at a seminar in London this summer which AMEInfo chanced upon.

For those who have not heard of this self-made multi-millionaire US real estate guru, Mr. Whitney is famous for having transformed himself from a humble slaughterhouse worker into a property millionaire in just a few years. These days his second career is telling everyone else how to do it, through his book and expensive seminar series.

In a nutshell, the Russ Whitney philosophy of how to get rich is to borrow to the maximum - using all available credit including credit cards - and to invest this money in appreciating property interests. To be fair, he also counsels that money should only be invested in rental properties that are bought carefully to maximize income.

This is not the place to explain the techniques used to achieve this purpose. If you want to learn more then his book is a very good place to start.

However, the way Mr. Whitney lays out real estate investment is very interesting. 'There is nothing to it. Just make sure that income exceeds outgoings and you are in business,' said the man running his London seminar.

Apparently this is often best achieved by renovating low to middle income property rather than upper level accommodation. A lick of paint may add thousands of dollars to the value of a property, which can then be re-mortgaged to help finance the next deal.

The most immediate objection to Mr. Whitney's advice is that it relies largely, though not entirely, on a rising property market. In some key areas of the UK, such as London, property prices are now falling, so investment here would not seem a good idea. Indeed, borrowing to the hilt to invest in a falling real estate market is possibly the quickest route to bankruptcy known to man.

On the other hand, provided rental income always exceeds outgoings, including interest payments then some case for immediate investment can be made. But perhaps it would still be better to at least wait for prices to bottom out before plunging in.

The more interesting thing to do, from the perspective of an expatriate investor living in the Gulf, was to apply the same philosophy to Dubai freehold property. Could a business-like approach to buy-to-let work in this environment?

The answer appeared to be very much 'yes'. If you pick out a high yielding property, i.e. one where the rental as a percentage of cost of purchase is highest, and run it as an investment the numbers do stack up. Some gross yields are as high as 15% which will deliver a comfortable profit after all expenses and mortgage repayments.

Yet for some reason people often feel more comfortable investing in the UK. There yields are very low at present - in London 4-7% is considered good although not enough to breakeven on a buy-to-let property after all expenses. It is the same story in many parts of Europe and the USA.

Now a 15% yield on a property means that in less than seven years the property pays for itself. On that basis investors should be looking hard at buy-to-let prospects in Dubai and the practical tips in Mr. Whitney's book could help to ensure success.

Moreover, his philosophy of generating a positive cash flow regardless of capital value is a nice insurance policy against an uncertain market outlook.