Who are all these cash buyers in Carmel Valley??

User Forum Topic
Submitted by Nazzy_17 on June 17, 2013 - 8:09am

Thank you to all who replied to my inquiry comparing schools in Carmel Valley to La Jolla. Your comments, thoughts, and opinions are well received, so much so that we've moved forward on finding a home in Carmel Valley, and when even attempting to make a full price offer, or inquired about certain properties, receive the response "the sellers are reviewing multiple cash offers." Are these cash offers coming from investors or families who have the resources to pay cash, because my research shows that around 70% of people in Carmel Valley have a mortgage with around 20% down? I'm finally starting to see that once offers are accepted, the properties are coming back on the market and my sense is because the appraisals aren't meeting these inflated prices - this is in those RARE circumstances where the buyer has to take out a mortgage. Thoughts?

Submitted by The-Shoveler on June 17, 2013 - 8:21am.

Most likely IMO these are NOT investors buying homes in CV with all cash for the most part.
I have heard of people taking out loans from parent/401K’s/etc….
Then after buying/closing they take out a mortgage to pay back the 401K/etc…
Desperate measures IMO .

Submitted by zk on June 17, 2013 - 8:35am.

I think a lot of them are from Taiwan and China. They have lots of cash, they don't like to borrow money (in general), and education is all-important to them. So they're going to find what they think is the best school district and buy a house there with cash. They communicate with each other, and once an area gets a good reputation, word spreads. It's happened in the Bay area, L.A., and San Diego (and no doubt other metropolises as well). A particular area gets the reputation. In San Diego, it's Carmel Valley.

Not sure what percentage of the cash buyers are Chinese, but I know that it's common for them to pay cash.

Submitted by ocrenter on June 17, 2013 - 9:10am.

Chinese RMB to US dollar

since 2005 the Chinese RMB has appreciated against the US dollar by 25%. which means a house in CV is now at a 25% discount compared to 2005.

A $1 million dollar home in CV is now just $750k for them.

Submitted by The-Shoveler on June 17, 2013 - 9:08am.

The really odd thing is the Chinese have been creating a spending more currency than anyone else (you almost never hear that however, everyone would just like to focus on our fed).
So they got to spend it somewhere I suppose.

But really I think it is more borrowing retirement and investment accounts (and parents) then taking a mortgage after close than anything else.

Submitted by freshman on June 17, 2013 - 10:25am.

They have to pay cash because they cannot get a loan here as they don't have business or job here . Also a rumor is the new "no corruption" policy came in from the new china president took the seat. They are afraid their money from laundry will be taken away, so they move their money out from china , buy whatever in other countries to save their properties oversea.

Submitted by dumbrenter on June 17, 2013 - 10:33am.

The-Shoveler wrote:

But really I think it is more borrowing retirement and investment accounts (and parents) then taking a mortgage after close than anything else.

I fail to understand this. won't it be better for them to take a mortgage before buying the property rather than after? Can you elaborate on possible motivations to do such a thing?

Submitted by dumbrenter on June 17, 2013 - 10:34am.

zk wrote:
I think a lot of them are from Taiwan and China. They have lots of cash, they don't like to borrow money (in general), and education is all-important to them. So they're going to find what they think is the best school district and buy a house there with cash. They communicate with each other, and once an area gets a good reputation, word spreads. It's happened in the Bay area, L.A., and San Diego (and no doubt other metropolises as well). A particular area gets the reputation. In San Diego, it's Carmel Valley.

Not sure what percentage of the cash buyers are Chinese, but I know that it's common for them to pay cash.

I observed a much higher percentage of expats from South Africa / australia / uk in carmel valley than in other areas. Do they typically go all cash?

Submitted by FlyerInHi on June 17, 2013 - 10:41am.

zk wrote:
I think a lot of them are from Taiwan and China. They have lots of cash, they don't like to borrow money (in general), and education is all-important to them. So they're going to find what they think is the best school district and buy a house there with cash. They communicate with each other, and once an area gets a good reputation, word spreads. It's happened in the Bay area, L.A., and San Diego (and no doubt other metropolises as well). A particular area gets the reputation. In San Diego, it's Carmel Valley.

Not sure what percentage of the cash buyers are Chinese, but I know that it's common for them to pay cash.

Same thing happens in New Jersey, near Fushing, NY, Irvine, and hacienda height in LA.

Koreans too.

Submitted by The-Shoveler on June 17, 2013 - 10:53am.

dumbrenter wrote:
The-Shoveler wrote:

But really I think it is more borrowing retirement and investment accounts (and parents) then taking a mortgage after close than anything else.

I fail to understand this. won't it be better for them to take a mortgage before buying the property rather than after? Can you elaborate on possible motivations to do such a thing?

All else being equal, the sellers (and RE agents) will choose a cash buyer every time (well almost), a lot less uncertainty.

Submitted by SD Realtor on June 17, 2013 - 10:54am.

My thoughts are that you should not get rattled. Even by your own research, you found that around 70% of the people in CV have mortgages. That means when you make your inquiries or write your offers, that you should see that same proportion, 3 out of 10 have cash buyers yet you are implying that this is not the case.

My rule of thumb to clients is don't get rattled by what you are told. You cannot control the external environment. Set your strategy and pursue the home in a manner determined by how aggressive you want to be, not by what you may get told based on simple inquiries. While the market is still hot, it is not quite as hot as it was in March. There have been more homes coming on the market and of course, pricing has jumped but we are approaching the price equilibrium that happens after a major leg up.

If I looked at the past 30 closings in CV for detached homes I would be willing to bet that no more then 20% are cash. I could be wrong, but would be very surprised. The profile of the cash buyer is a trivial detail, I guess people are curious so that is why they bring it up?

Your sense about properties coming back to the market does match what I have seen. Many homes are not appraising because the leg up was so steep that there are not enough comps to justify the rates. Originating lender guidelines are forcing appraisers to find hard comps and if that cannot be done the appraisal will not come in. Some buyers will pay the difference and some will not. Stay the path and you will do okay.

Submitted by FlyerInHi on June 17, 2013 - 11:14am.

freshman wrote:
They have to pay cash because they cannot get a loan here as they don't have business or job here . Also a rumor is the new "no corruption" policy came in from the new china president took the seat. They are afraid their money from laundry will be taken away, so they move their money out from china , buy whatever in other countries to save their properties oversea.

I spent a lot of time talking to these people when they travel.

These guys are not corrupt politicians but businessmen and traders who speak English already and have been involved in international trade.

They earned their money fair and square. Maybe they didn't pay much income taxes in their home countries, but that a different story. It's not unusual for a small business to net $200k per year. Asians are thrifty and usually own houses paid off already (from their parents). So after a decade in business, they can easily buy a house all cash.

Same thing for people from Latin America, South Africa, etc. we live in a globalized world.

Submitted by The-Shoveler on June 17, 2013 - 11:31am.

FlyerInHi wrote:
freshman wrote:
They have to pay cash because they cannot get a loan here as they don't have business or job here . Also a rumor is the new "no corruption" policy came in from the new china president took the seat. They are afraid their money from laundry will be taken away, so they move their money out from china , buy whatever in other countries to save their properties oversea.

I spent a lot of time talking to these people when they travel.

These guys are not corrupt politicians but businessmen and traders who speak English already and have been involved in international trade.

They earned their money fair and square. Maybe they didn't pay much income taxes in their home countries, but that a different story. It's not unusual for a small business to net $200k per year. Asians are thrifty and usually own houses paid off already (from their parents). So after a decade in business, they can easily buy a house all cash.

Same thing for people from Latin America, South Africa, etc. we live in a globalized world.

I would add when you look around the world, at first and second world countries (and some third),

The U.S.A. is in the RE Fire sale bargain ben (not as much as we were two years ago but still a relative bargain).
Try buying a Condo in shanghai.

Submitted by FlyerInHi on June 17, 2013 - 12:10pm.

Yes American real estate is cheap. But taxes and maintenance are high.

If you're a global businessman, buying a house so you kid can go to a top university is a bargain. The house will not diaapear so the capital is still preserved.

Interest rates are low so parking money in real estate, especially If it's something you can use is not a bad deal at all.

Submitted by dumbrenter on June 17, 2013 - 12:54pm.

FlyerInHi wrote:

Interest rates are low so parking money in real estate, especially If it's something you can use is not a bad deal at all.

Flyer, I'm not sure I follow the connection between interest rates and buying a home all cash. could you please elaborate?

Submitted by SD Realtor on June 17, 2013 - 1:00pm.

Agreed with you DR. I think it is foolish to park hard cash in RE right now.

I would definitely take advantage of a mortgage for many reasons. Inflation protection as well as leverage. If you anticipate much higher interest rates in the future, why not keep cash available to purchase high yield bonds that will be available when rates go up, rather then have that cash tied up in a home. Imagine having a mortgage, or several mortgages if you are an investor at say 3 or 3.5%, and you then having several hundreds of thousands of dollars available to lock into double digit yielding bonds. (check out bond yields in the early 80s).

You would do very well. Seems like a better way to go rather then putting all your cash into a home. I guess it just depends on your outlook.

Submitted by flu-redux on June 17, 2013 - 1:03pm.

It's quite simple what some people are doing...

1. Go in with cash offer.
2. While in escrow, tell seller you're going to get a loan, but closing is not contigent on loan.

Buyer won't care so long as you close on time. Everything looks like cash at the end anyway. The only thing you're doing is removing loan contigency...Only works with strong buyers...

As far as foreigners. They might not have a loan domestically, but nothing says they aren't getting the loans abroad....

Submitted by FlyerInHi on June 17, 2013 - 1:13pm.

dumbrenter wrote:

Flyer, I'm not sure I follow the connection between interest rates and buying a home all cash. could you please elaborate?

If you got th money sitting not earning anything. Why not buy real estate at the bottom? can't lose.

Submitted by The-Shoveler on June 17, 2013 - 1:18pm.

FlyerInHi wrote:
Yes American real estate is cheap. But taxes and maintenance are high.

If you're a global businessman, buying a house so you kid can go to a top university is a bargain. The house will not diaapear so the capital is still preserved.

Interest rates are low so parking money in real estate, especially If it's something you can use is not a bad deal at all.

Just a note on that,
The China Gov has been hinting fairly strongly that they intend to impose property tax at some point in the future.

Also for SDR,

Not all countries have FDIC insurance, just look at Cyprus also some are a little nervious about bonds, not that I worry about the U.S. Bonds but some do.

Submitted by SD Realtor on June 17, 2013 - 1:22pm.

Now I would definitely agree with you on that point Shoveler.

When the govt does decide to take away assets, it is much easier for them to simply lock up the banks, trading firms, etc.

However once they do that, I presume taking property is not far behind.

Submitted by CA renter on June 17, 2013 - 6:24pm.

SD Realtor wrote:
Now I would definitely agree with you on that point Shoveler.

When the govt does decide to take away assets, it is much easier for them to simply lock up the banks, trading firms, etc.

However once they do that, I presume taking property is not far behind.

I think Shoveler is referring to the foreign countries taking assets from "corrupt" businessmen, traders, etc. IOW, the Chines govt taking assets from Chinese businessmen, so these people buy RE in other countries (like the U.S.) to help protect their wealth.

Submitted by earlyretirement on June 17, 2013 - 9:01pm.

I tried picking up some properties in Carmel Valley last year as well as early this year before I just gave up. Fortunately we weren't desperate to buy like some of these families now looking for houses to move in to them before the school year.

We were trying to just pick up a townhouse not a SFH but we know several friends that bought in Carmel Valley in the past 6 months or so. A few of them seemed like they weren't totally in love with the property but just got desperate and "beaten down" looking.

I was having lunch this weekend with one of our friends that bought a SFH in Carmel Valley in December and she said she just felt beaten down and like it was a full time job looking for a house. She "gave in" and bought a house there.

I really think many people are going to have some serious buyer's remorse here in a few years because they bought properties they weren't in love with.

I think the numbers out there tend to show that about 30% or so of the buyers out there are cash buyers. I'm not sure if that is still the case but the last time I checked it looked to be about 3 out of 10 buying in cash here in the SD area. I'm not sure if it's higher in Carmel Valley or not but some of the properties we lost out on were cash buyers.

I went in with 50% cash offers on a few properties and we got beat out by 100% cash offers. I don't blame sellers for wanting cash and being able to close quickly. After all, a few years ago when we were buying...we paid cash for our house to negotiate a good deal and got a really great price that way. More deals were falling apart back in 2011 vs. today.

FlyerinHI makes a good point about legitimate business people. I agree. I've met a TON of families here since moving here from other countries. I can't believe the number of Colombians I've met here in San Diego. As well, Russians and several Mexican families. I'm starting to meet some Argentineans and Brazilians as well. Previously I mostly saw Argentineans and Brazilians buying on the East Coast (Miami, NYC, etc) but I'm seeing some shift some of their funds to SoCal now.

It's funny because sometimes I hear all this talk about wealthy Chinese buying here in San Diego. Just where is this happening and have you guys seem examples of this? If so, where? You realtors on the board.... are you seeing wealthy Chinese buying here with cash?

I was just curious about that. I've read about it on a few forums but when I press for actual developments where this is happening no one ever has anything to say. So if you guys are seeing it, please post as I like to keep up with actual trends.

You have to remember that real estate is still fairly cheap here for many foreigners. It might be expensive to Americans but real estate is very expensive in many countries. Even countries that are relatively poor or with tons of problems still or poor economies are expensive. You have properties in some of these major cities in these countries that are much more expensive than San Diego. So to them it's cheap.

As well, traditional cities where foreigners tend to buy like NYC are VERY expensive today. By rotating out of traditional cities like NYC and getting some of those funds to SoCal properties here is really cheap for them compared to places like NYC! Especially at the sub $1.5 million dollar market. Here $1.5 million actually buys quite a bit of house! In NYC..not so much... Plus some of those HOA fees in cities like New York are absolutely crazy. Here HOA fees even in upscale communities is relatively cheap.

The dividing line of crappy tract homes in the $700s to $800's really starts to drastically improve on the quality now once you can go over the $1.1 million or so range.

And add in Proposition 13 and buying here with 1% property taxes along with capped increases in property taxes and our property taxes are VERY cheap compared to the East Coast. Heck, even compared to crappy cities like Dallas our property taxes are CHEAP. In some of those cities they are approaching 3% a year.

You have to also remember that in many of these countries it's totally normal for the locals to pay CASH. In fact, in some places it's the norm, not the exception. So it's nothing to them to pay cash for a property.

I do think that some of the cash buying is people that are cashing out of their stock market portfolios. I know tons of people that have liquidated their stock market portfolios here in the past few months and have tons of cash on the sidelines. I've even heard of people raiding their retirement savings or borrowing from their 401Ks to buy real estate which I think is totally foolish.

As well I'm 100% sure there are lots of people that are using credit card balance transfer offers out there. Credit card companies are starting to relax their standards again. Just like during the bubble. It's actually surprising! I'm getting these 0% balance transfer offers with the 3% fee weekly now. From ALL of my credit card companies. So I know that most others are probably getting them as well.

Many of them say 0% until August 2014 on them. The banks are essentially getting free money and they are using higher risk gimmicks like this again. I'm really surprised at some of these things. I'm sure there are people out there leveraging and using credit cards out there as well in stock market and also real estate market.

So on one hand they are paying cash but they are taking those funds from essential sources that they definitely shouldn't be raiding. It will be interesting to see how this all plays out.

I'm also curious to see how a few properties that I've seen that went into Escrow within a few hours/days close at. Definitely an interesting interesting market!

Submitted by RoyceKemp on June 17, 2013 - 10:06pm.

I'm a REALTOR and I can attest to the Chinese buying all-cash! I've worked with a client, fresh from getting his Master's in Mechanical Engineering from Michigan and whose Dad bought him a home, and then a couple of other investment properties.

Also have a former colleague (I was once in Computer Engineering) who is Chinese and helped a friend from mainland China buy a million dollar home in Carlsbad sight unseen. The money is definitely flowing in from China, and is driving up prices.

Submitted by earlyretirement on June 17, 2013 - 10:46pm.

blueeyedlion wrote:
I'm a REALTOR and I can attest to the Chinese buying all-cash! I've worked with a client, fresh from getting his Master's in Mechanical Engineering from Michigan and whose Dad bought him a home, and then a couple of other investment properties.

Also have a former colleague (I was once in Computer Engineering) who is Chinese and helped a friend from mainland China buy a million dollar home in Carlsbad sight unseen. The money is definitely flowing in from China, and is driving up prices.

Thanks blueeyedlion. Is there any specific developments or areas you see this happening more than another?

For example, your client that bought whose dad bought him a property... what type of property was it? SFH? In which area/development? Thanks for sharing.

Submitted by CA renter on June 17, 2013 - 10:59pm.

earlyretirement wrote:
blueeyedlion wrote:
I'm a REALTOR and I can attest to the Chinese buying all-cash! I've worked with a client, fresh from getting his Master's in Mechanical Engineering from Michigan and whose Dad bought him a home, and then a couple of other investment properties.

Also have a former colleague (I was once in Computer Engineering) who is Chinese and helped a friend from mainland China buy a million dollar home in Carlsbad sight unseen. The money is definitely flowing in from China, and is driving up prices.

Thanks blueeyedlion. Is there any specific developments or areas you see this happening more than another?

For example, your client that bought whose dad bought him a property... what type of property was it? SFH? In which area/development? Thanks for sharing.

ER,

I've talked to a few people who were working with Chinese investors, but this was ~2-4 years ago. They (Chinese investors) were pooling large funds (billions) to buy up bulk foreclosures directly from banks, the FDIC (supposedly), and other lending institutions. Also, they were buying foreclosures on the courthouse steps. I've talked to people who've represented them on the financial side, and also talked to some people who've worked in flip/repair crews for these investors. They were buying up mostly SFHs on the low to mid end, here and around the country, to either rent or flip.

Submitted by RoyceKemp on June 17, 2013 - 11:04pm.

He was about to start working for Qualcomm (a lot of my clients are in the tech industry since I am a former Computer Engineer) and so this particular client targeted areas centered around Qualcomm (UTC, Mira Mesa).

They bought a single SFR for him to live in, and two condos as rentals. They did use financing since he had established some credit here in the States. So it was a combination of financing on the SFR, and all cash for the condos.

Submitted by earlyretirement on June 17, 2013 - 11:19pm.

CA renter wrote:

ER,

I've talked to a few people who were working with Chinese investors, but this was ~2-4 years ago. They (Chinese investors) were pooling large funds (billions) to buy up bulk foreclosures directly from banks, the FDIC (supposedly), and other lending institutions. Also, they were buying foreclosures on the courthouse steps. I've talked to people who've represented them on the financial side, and also talked to some people who've worked in flip/repair crews for these investors. They were buying up mostly SFHs on the low to mid end, here and around the country, to either rent or flip.

Yes, I heard that sort of thing a few years ago. Nothing too specific but the same type of thing. I wonder how many of the recent purchases would fall under that category.

blueeyedlion wrote:
He was about to start working for Qualcomm (a lot of my clients are in the tech industry since I am a former Computer Engineer) and so this particular client targeted areas centered around Qualcomm (UTC, Mira Mesa).

They bought a single SFR for him to live in, and two condos as rentals. They did use financing since he had established some credit here in the States. So it was a combination of financing on the SFR, and all cash for the condos.

Ah ok...Mira Mesa seems to be on a tear lately. Just many places, not much inventory at all on the market. Even Mira Mesa seems to be pricing people out of the market there.

Submitted by FlyerInHi on June 18, 2013 - 12:00am.

I bought a townhouse in Sorrento Valley. All the neighbors seems to be Chinese or Indians. One guy and his gf from UK.

I think Asians stand out more. But we now live in a globalized world. Plenty of people from Latin America and Europe too -- they blend in more. "Glamour" cities will see buyers from all over.

I once read about an HK millionaire buying hundreds of houses in Vancouver years before the 1997 handover of HK to China. He became a billionaire and Vancouver became an international glamour city.

I forgot which economist wrote about glamour cities. San Diego is a 3rd tier glamour city.

Submitted by FlyerInHi on June 18, 2013 - 12:22am.

Talking about real estate trends is interesting.

Honolulu has plenty of buyers from the mainland looking for paradise.

Florida, and Nevada attract northern retirees and plenty of Canadians. Canadians are interesting because they blend in just like Americans, until you talk to them. Of course Miami is full of Latin Americans. NY is like the world's melting pot.

I bought a few properties in Las Vegas. Happy about getting in at the bottom. One complex is about 50% Canadian. Lots of Californians.

In the end we are all Americans from everywhere. That's what's great about this country.

Submitted by zk on June 18, 2013 - 7:10am.

FlyerInHi wrote:

I think Asians stand out more. But we now live in a globalized world. Plenty of people from Latin America and Europe too -- they blend in more. "Glamour" cities will see buyers from all over.

Entirely possible. Striking, though, how much that echoes a lot of the talk heard during the 2000s bubble.

Submitted by earlyretirement on June 18, 2013 - 8:08am.

FlyerInHi wrote:
Talking about real estate trends is interesting.

Honolulu has plenty of buyers from the mainland looking for paradise.

Florida, and Nevada attract northern retirees and plenty of Canadians. Canadians are interesting because they blend in just like Americans, until you talk to them. Of course Miami is full of Latin Americans. NY is like the world's melting pot.

I bought a few properties in Las Vegas. Happy about getting in at the bottom. One complex is about 50% Canadian. Lots of Californians.

In the end we are all Americans from everywhere. That's what's great about this country.

Absolutely FlyerInHi. I love talking about real estate and watching the various trends around the world has been interesting.

I totally agree with you about Canadians. I have MANY MANY Canadian clients and they are investing all over the world. Especially in South America. Huge investment there by Canadians that like to have a place down there where the seasons are opposite and they go down for their winters and it's summer down there.

I love that there are more and more Chinese investing here. Yes, as you mentioned FlyerinHi, San Diego isn't one of the top tier cities for these "glamour" factors but it's getting more and more exposure now which is wonderful. (Except for probably the locals that still haven't bought real estate and need to. By becoming a "glamour city" attracting all of these foreigners will drive real estate prices up even higher at a faster pace.)

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.