Is American real estate a 'buy' right now? Chinese investors seem to think so

By John Dixon

A couple of months ago, Chinese investors paid $2.15 million for a restaurant in Toledo, then another $3.8 million on land on which they plan to build a $200 million residential-commercial development.

Obviously, some folks with major buying power see something they like in American real estate. And it’s not just happening in Toledo. That just happens to be the example used in a recent Bloomberg article about the phenomenon. China may be on the opposite side of the world, but it’s second only to Canada when it comes to investing in American real estate.

I’ve been saying for some time that that this is the time to invest in real estate, and I’ve seen little reason to change my mind. Sure, the economy is still limping along. Too many people are jobless. And there doesn’t seem to be a lot of happy economic news.

But fortunes aren’t made by buying assets during boom times. Just ask all those people who bought real estate a few years ago, before the recession and the mortgage crisis brought things to an abrupt halt. In those days, it seemed like any idiot could make money in real estate, and practically every idiot tried to do just that. Investors were following the “greater fool theory,” assuming that even though they paid ridiculously high prices for homes, land and commercial properties, they could find a bigger fool to buy the properties at a higher price.

A lot of that real estate ended up in the hands of banks and the FDIC, and we’ve been selling thousands of these properties for a fraction of the prices they brought a few short years ago.

Of course, the covers of the financial magazines in 2005 were screaming of the fortunes that were being made in real estate speculation. The bookstores (we still had bookstores in those days) were full of books by newly minted real estate investment gurus promising you could accumulate a fortune in real estate with no money down.

We’re not seeing so many of those now. Instead, we’re seeing smart investors. I can’t speak to the wisdom of a $200 million investment in Toledo, but I can tell you that there are a lot of great values right now on real estate. Restaurants, homes, office buildings, subdivision lots -- you name it. And at current prices, they really can be an effective wealth-building instrument.

But why are the Chinese investing so aggressively in U.S. real estate? In part, Bloomberg says, it’s because they’re worried about a real estate bubble in their own country, and there’s a lot of concern about the banking system. (Sounds a lot like the United States in 2006 to me!)

At some point, international demand for American real estate may fuel increased prices, and that will be good news to the people smart enough to be buying now. But for the moment, we’re seeing the best opportunity in years.

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