Five Reasons why Chinese Investors are Buying US Real Estate

West Realty Advisors, like many other firms are continuing to receive an increasing amount of inquiries from Chinese investors interested in investing in US real estate.

The increased interest by the Chinese in US real estate would have been a surprise in 2007 but no more now. According to the NAR, Chinese buyers now account for over 27% of foreign investments into the US real estate compared to under 5% in 2007 and trail only the Canadians. So why are the Chinese tycoons buying up properties in the US compared to their favourite destinations like Hong Kong, Singapore and Japan earlier? We will explain here the key to understanding Chinese real estate investments in the US.

  1. Investments in US real estate considered safe and profitable: According to the survey by NAR foreign buyers see US real estate investments not only as safe bets but also as extremely profitable. We must remember that post the 2008 housing bubble burst US home prices have fallen drastically and even in 2014 have not recovered anywhere near 2008 levels. The foreclosure rates on housing mortgages had risen since then triggering firesales. Chinese investors have made good of the buying opportunity picking up real estate mostly in California and usually in near densely populated urban centers unlike the Canadians or the Mexicans.

  2. Higher disposable income and increased credit availability: Nearly two decades of high economic growth in China have created multimillionaires. These investors now have significant surplus cash to invest. Further China has also relaxed credit  norms which has increased credit availability significantly. According to Bloomberg China’s ratio of household credit to GDP has risen from 105% in 2000 to 187% in 2012 and in a survey of 19 analysts it is predicted that credit loosening is unlikely to stop anytime before 2019 so we maybe looking at a sustained or even a growing rate of Chinese investments in US real estate.

  3. Benefits of the stronger Yuan: Chinese Yuan (RMB) now trades at close to 6.2 against 6.8 in 2009. This appreciation of the Yuan unlike other emerging currencies like the BRL, INR or RUB has made the dollar cheaper and this combined with lower USD denominated property prices have caused the US assets to appear “very cheap” in RMB terms.

  4. Chinese domestic real estate market seems highly “overbought”:  Prices in HK and Shanghai have gone through the roof in recent times and there are worries that there could be a potential “housing bubble” in the making. Already there are some indicators that the bubble has started cooling with property prices falling lately. Further the Government in China has increased regulatory oversight on real estate purchases which now makes the domestic market less attractive compared to the US.

  5. Layering and money-laundering: There are strict laws in China on capital flowing out abroad. However there are certain sections of the noveau rich which wants to protect their wealth amid a stinging crackdown in China. According to leading investment banks people are getting over the USD50,000 limit imposed by China by laundering money through Macau casinos and cooking the books of import-export companies. Sometimes these purchases are for investment purposes to overcome the recently bearish outlook on the Chinese economy.

Chinese investments in US real estate are picking up and are here to stay. Moreover unlike Japan in the 1980’s when such a story played out, Chinese investors have significant savings which will allow the economy to run at higher household credit to its GDP compared to similar Emerging Market economies.

 

10 things I learned from flipping 1000 homes

Recently we announced our most important milestone yet, surpassing 1,000 properties acquired, renovated and sold. It took five years to reach this milestone and now we have reframed our focus with a new goal: 2,000 properties in the upcoming 24 months.

In the process of completing our first 1,000 properties, we gained a tremendous amount of knowledge. We’ve realized that many things can go wrong when completing a renovation and while it’s not possible to eliminate these issues, with proper planning, the effects can be greatly reduced.

The following  are our top ten things we’ve learned from flipping 1,000 properties.

1. Resale value of the property can change by the time the property is ready.

Don’t get married to a value that could change by the time the rehab is completed months down the line. Comps can give you a great idea of where you should be but don’t take it as gospel. The market can move faster than you think.

2. You don’t always have to rehab the house, sometimes it only needs some paperwork and negotiations.

Sometimes you can get a property at a hefty discount because of a title or lien issue that might require a little homework to resolve. Some of these issues can take months (or even years!) to resolve so choose carefully and work with a title company you trust.

3. Don’t wait on Title and Escrow companies to finish their work, you need to consistently follow up.

Especially during the holiday season!

4. Add the second bathroom.

This always makes a big difference in the after repaired value.

5. Keep track of your progress.

Making meticulous notes of what went right and wrong will serve you well in the long run. It’s a good habit to start early so you can save time and money with future jobs.

6. Do the math, and make sure you have enough cash.

Running out of capital mid-rehab can add significant delays to your construction and into escrow. Make sure you have enough when you get started and give yourself a cushion in case there are unexpected hiccups.

7. Always look at worst case scenario.

This will ensure that even if you don’t hit your ideal numbers, you are making a profit if you prepare for any contingency. Make sure the deal is worth it even if you hit some delays and surprise repairs.

8. Credit terms and performances are more important than the price.

Making sure you can buy and sell the property with reliable financing will be more important in the long than going with a slightly higher offer that may not close on time, or ever.

9. Minimum whole dollar profit.

Set a limit for minimum profit that is acceptable to you. It’s probably not worth the deal if the percent returns look good but you’re only making a couple thousand when all is said and done.

10. Turn time.

Set rehab timeframes up front that are reasonable but keep a tight schedule. Turn times that run too long can kill a deal.