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Billions are pouring into U.S. real estate from investors in China… and frequently, those dollars are going into deals that, to me and you, simply make no sense at all.  But there’s method to the madness, and I’ve discovered 5 important things you need to know if you want to do business with investors in China.  I’m Bryan Ellis. This is Episode #203.

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Hello, SDI Nation!  Welcome to the podcast of record for savvy self-directed investors like you!

It’s Monday, and what a great day to be alive, my friends!  Spring is a spectacular time of year and we here at SDI Radio are champing at the bit for another great week, so let’s get to it!

First, let’s hear a bit of wisdom from the ancients, shall we?  Every episode, I share with you a proverb, quote or saying that has stood the test of time, and is important for you and me as self-directed investors.  Here’s today’s proverb:  “A fortune made by a lying tongue is a fleeting vapor and a deadly snare.”

Obvious, right?  Don’t lie to get rich, right?  Well sure, but to me, there’s more to that one.  Notice that this proverb doesn’t say that you CAN’T get rich by lying.  Bernie Madoff demonstrated that skillful deception can lead to fabulous wealth.  But Madoff demonstrated the rest of the proverb too… that fortunes made through deception are both temporary and a huge trap.  So clearly, let’s don’t grow our wealth through outright fraudulent deception like Madoff.  But one step further is this:  My view of wealth is stewardship rather than ownership.  Let us take care to be people of few words, and to make sure that the words we speak are careful and true.  There’s no great legacy we can pass to our children than a heritage of honesty… and there’s no better foundation to build wealth than through being wholly truthful in the big things and the little things.

Your thoughts on this are welcomed on today’s show page over at SDIRadio.com/203.

My friends, this past Friday, Carole and I had a really interesting lunch conversation with the president of real estate services conglomerate who owns over 5 dozen companies, several of whom have likely served some of your real estate needs along the way.

I learned quite a bit from that conversation, and one topic in particular stood out to me quite clearly:  The nature of Asian investors who seek to invest in U.S. real estate.  My colleague has first-hand knowledge of the topic, having recently spent time in China and being provided with access to substantial amounts of that capital.

Here are the things that I observed from this conversation:

1. Chinese investors prefer hard assets. By hard assets, I mean things like direct ownership of REAL ESTATE.  They seem far less interested in “structured” types of investments like mortgage notes or even hedge funds that purchase real estate.  They want REAL ESTATE – real, direct ownership of it – PERIOD.
2. Their Primary Concern Is Not ROI: Chinese investors tend to be willing to place their capital into investments that, from my vantage point, do not make a large amount of sense.  Many of these investments are relatively low-yielding in terms of cash flow and can easily be beaten by other alternatives.  But ROI is not their primary measuring stick.  Their real measure appears to be SAFETY OF CAPITAL.  The political system in China is such that one’s wealth is essentially and ultimately the property of the government, and to get that money out of their own banking system and into hard assets held in a relatively reliable jurisdiction like the United States represents something even more valuable than a big ROI:  It represents physical safety of the capital itself.  That’s where the focus of many Chinese investors is fixed.
3. It’s Expensive For Chinese Investors to send money to the US: There are substantial brokerage fees to which Chinese capital maybe subject.
4. Chinese Investors Prefer Multifamily Properties: While there is an appetite for other types of real estate also, many Chinese investors prefer multi-family residential properties, as this type of property allows them to deploy larger amounts of capital more easily in a single transaction, while still investing in residential property that is, at its core, fundamentally familiar as a concept. and Finally…
5. Chinese Investors Prefer Specific Local Markets: To the Chinese investor, not all U.S. real estate markets are the same.  That’s clearly correct, but it goes further than that.  Not even all STRONG real U.S. real estate markets are the same.  Generally speaking, Chinese investors appear to be most interested – CURRENTLY – in properties in just a few specific very large markets, with California receiving a particularly large degree of interest.

From my vantage point, I feel sympathy for Chinese investors.  What you have is, by and large, people who are very bright and have successfully monetized China’s economy, which is the biggest rival to the U.S. economy in raw size.  But China is a communist country, and so at the end of the day, the government can do anything it wants… including with the wealth of those entrepreneurs and investors who have built fortunes from their own ingenuity.  Their interest in U.S. real estate is as much a function of preservation as investment.

We here at SDI are always in search of additional ways to serve Chinese investors looking to deploy their capital into U.S. real estate.  If you have any suggestions, drop me a line at feedback@sdi360.com.

And hey – a quick note about our private real estate fund that invests in Northern California real estate.  So many of you have asked about it, so I’ll give you a bit of an update here.  The first quarter of 2016 just ended on Friday and since today is only Monday, we don’t yet have the final numbers back from the accountant.  But I’ll put it like this:  The total net return for the first quarter alone appears to be solidly in the double digits.  That’s not an annualized return… that’s just for the first quarter.  So things are going quite well, largely according to plan.

My friends… always remember this:  Invest wisely today, and live well forever!

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