Editor’s Note: Dennis Fassett is a former corporate finance executive turned real estate investing "Cash Flow Mercenary". Dennis specializes in single-family and multi-family cash flow properties, and thoroughly enjoys assisting his fellow investors with their own strategies, including how to buy your first apartment building.
As an ongoing contributor to Mogul “Market News Updates”, Mr. Fassett offers us with his own unique, lively, and thought-provoking commentary on the timely industry news and events of today that are impacting our industry. Enjoy...
From Dennis Fassett, Cash Flow Mercenary...
We all know what a “good friend” Zillow has been to real estate investors, right?
From their wildly and laughably inaccurate “Zestimates” to their nonexistent customer service to their refusal to correct obviously bad data, all they have done is make our business more difficult.
Well it seems that our "good friend” is at it again…
According to a recent Wall Street Journal piece, Zillow plans to sell US real estate listings to a company that runs a Chinese real estate portal.
And their goal?
To give the Chinese much easier access to the US real estate market.
Are You Freaking Kidding Me?
According to the article, “Chinese buyers spent more than $11 billion on properties during the year ended March 2013, making them the second-largest source of foreign demand behind Canadians.”
And it went on to say that, “The vast majority of those deals were all-cash transactions, making them an attractive source of business for real-estate agents.”
But the icing on the cake?
The head of the Chinese real estate portal company said that many of their “60 million users are interested in U.S. properties”.
You read that right. SIXTY MILLION potential new cash buyers are going to descend like locusts on the US real estate market this summer.
What does it likely mean? Higher prices and less supply for us as real estate investors.
And that’s not all. It seems that Zillow “already has started to promote its agreement as a way for real-estate agents that advertise on Zillow to have access to the massive China market.”
Hmmmmmm…
The Two Facets of Chinese Buying Frenzy
Listen. I’m not a lib-commie-socialist or anything like that. And I think opening markets is generally a good thing. And God knows I've got nothing against the Chinese as a people – I hope that’s a given, but it’s worth saying.
But when I first read all this, I must say it really pissed me off.
Like do we really need more people entering the real estate market here? Do we really need to further facilitate the foreign land-grab in the U.S.?
I mean…
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Prices have already spectacularly risen,
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Supply is already tight,
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And it’s getting more and more difficult every week to find deals.
And having sixty million more people suddenly jumping into the pool is going to make it even worse.
But Then it Hit Me…
These clowns over at Zillow may actually be doing us a favor. By accident of course.
Because yes, the Chinese invasion is going to rise purchase prices and make it harder to find deals. And yes, it will increase competition and will further restrict supply in an already tight market.
But guess what?
With all of those cash buyers descending on the market, competition amongst all buyers will increase as well. And that will drive retail sale prices up. And that will put even more money in our pockets on each deal, especially since Chinese buyers in the past haven’t shown much sensitivity to price at all. These guys seem willing to shell it out for their little slice of American turf.
But even with that realization, to be honest this one still really pissed me off.
Why?
Because I can’t take advantage of it!
You see, something over 50% of the Chinese money is going to California, and a majority of that money is going to Southern Cali, in areas like Irvine and the San Gabriel Valley.
Whereas I’m in Southeast Michigan.
Nope, not even a rabid Chinese cash-throwing buyer is going to confuse Detroit for LA.
But that doesn't mean I’m not going to try my damnedest to get a piece of that action. Because there isn't nearly enough real estate action in California to satisfy sixty million new Chinese cash buyers.
So that means there will be some spillover to other areas. And I want in!
You Getting This?
If you've ever dealt with foreign buyers, you know that they always have the ability to buy more than one of whatever the heck it is that you’re selling, whether houses, condos, apartment buildings, whatever.
That means that all it takes in one of those foreign buyers, treated right, for you to put a whole pile of Chinese money in your pocket, and to continue doing so for as long as you keep them warm, cozy, fat and happy with your deals.
So the Question is…
…With 60 million new foreign cash buyers about to descend on the USA this summer, what are you going to do to take advantage of it and get a piece of the action for yourself?
Talk to me below. I’d love to hear your take on this.