Real Estate Investment In Medellin

Global Property Investing For Virgins

Aug. 27, 2010, Medellin, Colombia

Dear Live and Invest Overseas Reader,

As Kathie has reported, she and I were in Medellin this month to scout real estate investment opportunities. Entering a new market, as we were, is no easy thing, even if you've done it as many times as we have. For the first-time investor, the experience can be overwhelming.

Your first instinct these days when doing anything for the first time is to go to the Internet and google for help. In the case of entering a new real estate market, you're tempted to go to a search engine and look around for local agents and listings.

Try this in English, and you'll find all the gringo agents in town and maybe a few locals who speak English. You can start here but understand that, at this point, you're operating in this market at the gringo level. 

• Which are considered the "nicest" neighborhoods?...

• Which are considered the up-and-coming neighborhoods?...

• How much does an apartment cost? Boil this down to a per-square-meter price so you can compare among areas within the country and among other countries...

• Where are most foreigners buying?...Why?...

• What types of properties are most foreigners buying (one-bedroom apartments, houses, undeveloped land, etc.)?...Why?

• Are most foreigners buying for personal use or for investment?...

• Is there an active rentals market? Short-term, long-term, or both?...

• How much would a particular property rent for per month long-term or per week short-term?...

• Where would you (speaking to a real estate agent, an attorney, a business owner, an expat, or a taxi driver) invest yourself right now?...Why?...

• In which direction is the market moving?...

In addition, ask general questions about the local economy and local industry. Ask about the current president or whomever is in charge of running things. Not to be political but to get a read on the political situation from the man on the street.

Ask about taxes. Are they high? Do people pay them? How are they collected? Is there a property tax? On what value is it based?

Again, you'll be amazed at the variety of answers you'll receive. All this input, conflicting as it will seem, will help give you the lay of the land. The more conflicting the responses, the wilder the market. In Medellin, I'd classify many of the responses we received as wildly conflicting.

Next step is to begin to get a handle on procedures. As I said, you want to meet with more than one attorney if possible. For each one you meet with, ask:

• What are the transaction costs for buying and selling real estate? You'll want to know the "round-trip" costs, as I refer to them, for a single piece of property. In some markets, it is more expensive to buy than to sell, and vice versa. You don't want to find out too late that, while it cost only 2% to get into an investment, it's going to cost you 15% to get out... 

• What is the buying process? What documents are required? What is a typical down payment? Are there any local nuances you should know? In Colombia, we were told, it's common practice for the purchase price for a piece of real estate to be under-stated (perhaps significantly) on the sales documents. This can have advantages (when it comes to paying property taxes, for example), but it also can create big problems down the road, especially in a place like Colombia with foreign exchange controls in place...

• Which leads to the next important question to ask every attorney you meet with: Will you have any trouble taking your money back out of the country when you decide you're ready to do so? That is, are there exchange controls or other obstacles in place?...

While you're playing private detective and asking everyone you meet the same series of questions, you also want to be observing. As you you're your way around the area, do you notice signs of an active economy? Are people out at the malls and restaurants shopping, spending? In Medellin, the answer was a strong yes.

What's the infrastructure like? Are the roads well-maintained? Are the parks and public areas taken care of? Again, in Medellin, we were impressed by the superior level of the infrastructure everywhere we went, from the pot hole-free roads to the like-new aboveground Metro system. 

Do you see garbage in the streets or on the sidewalks? Medellin is one of the cleanest cities I've ever visited, by the way.

When a strong local economy exists, that can be one possible exit strategy for your real estate purchase. This is the case in Medellin.

If no local economy exists or if the local economy is small and limited, then you're likely going to be stuck selling on to another foreigner when the time comes for you to cash out. This is the case in many resort markets in Mexico and Spain, for example.

Having a local market can reduce your investment risk.

Your first visit to any new market, see as many properties in as many different neighborhoods and areas as you have time for. You want to get a feel for the type of construction, the options for building materials, common amenities, etc. See how apartments are typically laid out. Is space well used? Collect and catalogue every listing sheet for every property you view.

Then go home. Don't buy anything your first trip no matter how tempted you are.

Take all this boots-on-the-ground information with you back wherever you came from. Sift through it. Compare responses. Fact-check what you can with as many sources as possible.

You're ready for your second trip.

Lief Simon

P.S. Kathie and I will be returning to Medellin within the month. And, yes, we're thinking we'll buy. My complete report on current buy opportunities is forthcoming for Marketwatch Members. Continue Reading:

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