Earn 12% A Year On This Unusual Colombian Investment
In the United States recently, I happened to be someplace where a television was playing in the background. I noticed commercials pushing the idea of getting cash up front for a structured settlement. Typically, these commercials are from groups trying to get people to call them to sell their structured settlements from lawsuits or other payouts. The person with the structured settlement gets cash today, and the investor (the group running the ads) buys a set of cash flows at a discount. It’s the kind of thing a Finance 101 teacher might use as part of a lesson on how to calculate the net-present-value of cash flow.
A colleague in Colombia has alerted me to an opportunity in that country that allows an individual investor to be the guy buying the lawsuits at a discount.
Specifically, this opportunity is to do with factoring payments from lawsuits won in Colombia against the Colombian government. The payouts aren’t structured over time, but the government takes 10 to 24 months to make them. Considering plaintiffs may have waited five to eight years to get the judgment, they aren’t thrilled to wait up to two more years to get paid.
That’s where my Colombian colleague comes in. His firm packages the judgments and pays out cash to the plaintiffs at a discount. The investors get a 12% interest rate for the period they hold the claims.
As the government is the debtor, the likelihood of not getting paid is small, but the timeline isn’t precise. The government is meant to pay within 10 months but can take longer… even up to two years.
I invested in one of these factored law suits in April of 2014. The payout to the plaintiff was funded in June, which is when the interest started accruing. Now, 18 months later, the payment number for my lawsuit is close to coming up in the government’s payment schedule. Meantime, again, I’ve been earning accrued interest for every passing month.
Each lawsuit is assigned a number and paid out accordingly. When I invested, about 1,700 lawsuits were ahead of mine. Today my suit is about 700th on the list. The government will pay. It’s just a matter of available funding and time.
In addition to the risk the government doesn’t pay, which is low, another risk is the exchange rate. These deals are done in Colombian pesos. Right now, the peso is at a 12-year low against the U.S. dollar, meaning you can buy more pesos with your dollar. By the time your payment comes through, the peso could be stronger, meaning a better dollar return… or it could be weaker still, meaning a lesser dollar return. One never knows. Of course, you could always roll over your pesos into another investment. That’s my plan. Regardless, exchange rate risk has to be considered.
Investing in Colombia is straightforward despite currency controls. Investors have to register their foreign investment funds when sending them into the country. Complete and file the correct forms properly when you send in your funds, and repatriating your money won’t be a problem (as long as you’ve paid any taxes due in Colombia). Don’t complete the forms or complete them incorrectly, and you’ll have trouble. I recommend using an attorney to make sure you get it right, at least the first time.
There’s also a fraud risk—that is, a risk that a plaintiff could sell you his payments but then not transfer them to you. However, my colleague’s firm does the due diligence on each settlement and ensures that the rights to the settlement are properly transferred before releasing funds to the plaintiff.
The minimum investment is US$30,000, so the capital requirement isn’t great. It’s low enough to let you get your foot in the door to test the waters without putting too much at risk.
For more information, you can get in touch here.
Lief Simon
P.S. I’ve invited the colleague who alerted me to this opportunity to participate in our upcoming Live and Invest in Colombia Conference. He’ll discuss this investment in detail, as well as interesting agricultural investment opportunities in this country.
We launched our Colombia event late yesterday, and already half of the VIP places have been reserved.
Colombia is one of the most appealing lifestyle and investment options in the world, not only right now but also thinking both near and longer term. I urge you to meet me in Medellín so you can see for yourself. You can reserve one of the remaining VIP places here now.
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