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Rental Investment Property In Medellin, Colombia

“Kathleen, I went to Medellín just recently and I almost bought a place, but I have a couple of questions first that I hope you may be interested in addressing.

“As I was looking for an investment opportunity as I am not ready to move to Colombia yet, I had a question about your confidence that there is enough demand for the type of rentals I would need.

“I was looking to buy a three-bedroom apartment for 300,000,000 pesos, or roughly US$156,000, in a prime part of Poblado in Medellín. To get a 5% to 6% return on this investment, I would need to rent it out at US$1,900 per month with 70% occupancy (the return is net of management fees and after taxes and assuming I buy furniture).

“When I think about renters, the pool seems limited. The best market is short-term vacationers who come for one to three weeks from the United States and Europe, but the law passed in 2010 by the hotel lobby makes that impossible except for a few buildings. Minimum rental time is one month. So that leaves longer-term renters who can afford US$1,900 per month.

“Wealthy Colombians prefer to own property and would probably not rent. Average Colombians could not afford this rate. So really that just leaves miners and other short-term contract workers who are in town for a shorter time and perhaps people who come to adopt or retirees who are going to rent for a short time before buying.

“Given the large number of apartments on the market and this somewhat limited pool, it seems to me that achieving the 70% occupancy would be hard. What do you think about this issue?

“I think Colombia is still a compelling choice to buy and live in a place. I am just skeptical about the ability to rent out at a high rate in Poblado.

“I would be very grateful for any feedback you can give me.”

–David B., United States

I asked Latin America Correspondent Lee Harrison, who has more personal experience as a rental investor in this market than I do, for his opinion.

Lee writes:

I have a couple of furnished 30-day rental properties in Medellín now, and I’ve found that the pool of renters is good… better than I expected.

One of my rental properties is a three-bedroom unit, and the other is two bedrooms. I’ll give you my personal take on the rental scene, based on my experience since 2011.

You’re right in that most Colombians won’t be in the market for these kinds of units. Colombians who go to El Poblado tend to settle in different areas than expats do and normally want unfurnished units. In my experience, most Colombians who reside here own one or two cars and don’t mind using them; most expats prefer to walk everywhere if possible.

So Colombians can indeed afford to buy in El Poblado and make up more than 95% of the market. In fact, they buy the high-end new condos in the expensive areas. It’s the expats who tend to seek the lower end of the market in El Poblado.

Occupancy so far for both of my rental units has been at 100% (with no guarantees for the future, of course). The tenants have been mining industry execs, potential expats exploring Medellín, a Spanish restaurateur starting a business, and a family of five.

As I said, the three-bedroom unit has remained full; however, if I were buying an apartment strictly for rental, I’d try for a two-bedroom. That’s what most renters look for. The location is critical; a lousy unit in a good, walkable location will rent better than a super unit in a non-walkable area. If you can buy a place within walking distance of both the Golden Mile and Parque Lleras, excellent. If you have to choose, I’d pick the Golden Mile over Parque Lleras for the high-end market. (I know I’ll get lots of debate on this…)

You may be a better shopper than I am, but I’d be prepared to spend upwards of 350,000,000 pesos (US$180k) on a good unit in a good location (though you can certainly buy for less than that). I also think you’ll do better than 6% if you buy right.

As to short-term rentals, the returns for these are much higher and occupancy can be good. I’ve seen old, dark, poorly maintained rentals with great return track records, only because they rent short-term.

You can usually find a number of condos on the market in short-term buildings. Remember, though, that Colombians (who are the majority of the buying pool in this market) generally won’t live in a short-term building. When it comes time to sell, therefore, your likely buyer will be another person looking to operate a rental. I don’t see this as a big limitation, but it’s something to understand and factor into your purchase decision.

The key to a successful rental investment experience in this market, as in any market, is finding a good rental manager. I’ve worked with First American Realty Medellín and The Apartment Medellín (which are now merged into one group). I believe they have an inventory-wide occupancy of around 72%, higher in the prime areas. They can give you their own sales pitch when you inquire, but suffice it to say that I bought where they advised and outfitted as they specified and am happy with the results.

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