One Property Market Where You Can Shop For Both Yields And Capital Appreciation
An old adage in real estate investing goes something like this: You don’t make your money when you sell, you make it when you buy.
Of course, you have to sell a property to recapture your capital and hopefully some profit. However, buying something cheap or beautiful or just because you like it doesn’t guarantee you’ll make a profit… or that you’ll even be able to find a buyer when you want one.
We’re in Medellin this week, enjoying our first family stay in our just renovated apartment here. Sitting on the terrace the other afternoon, I thought about resale markets, and how much sense Medellin makes in this context. This is an active market with a large local population plus a growing expat population. If we were to put our apartment up for sale today, it would likely sell quickly for a decent price. The location is good, the size of the apartment appeals to a large section of the market, and it’s been renovated, meaning no work required of the new owner. It’s turn-key.
Another property I saw recently, not here but back in Panama, didn’t meet those criteria. It’s a lovely house in a pretty setting, but the location would really only appeal to a niche expat market, narrowing the pool of potential buyers. When you factor in the million dollar-plus price tag, the resale market narrows further. The owners are aware of this and have reconciled to the idea that it could take up to two years to sell the place. Additionally, they didn’t buy for investment. They bought a place where they wanted to live themselves and knew the consequences down the line could be a slow resale.
This example brings another real estate adage to mind: If you’re buying for investment, don’t buy the nicest house on the block. It won’t have as much upside as the least nice house in the same neighborhood.
In the current global real estate climate, you want to focus on opportunities in active markets. You also want to focus on properties with the potential to generate yields, as capital appreciation is no longer a forgone conclusion in most markets. Yields are key, but my point is that you want to balance the yield potential with the potential to resell your property when the time comes. A market’s buyer base is more important than ever.
Again, Medellin hits all the marks. You can find good yield-producing opportunities (when you buy the right type of property in the right location), and you can feel pretty comfortable about your prospects for resale down the line. The local market is broad, and the expat market is growing.
Furthermore, this is one market where I’d go out on a limb to project appreciation over the coming few years. We’ve seen it already since we started shopping here two years ago. Values are up say 15% across the board in that time and continue slowly, steadily up.
Finally, there’s a lot of inventory across all types. You definitely don’t have to buy the nicest place on the block to have a nice place.
While, again, prices have gone up over the last couple of years, since we started paying close attention, you can still find good choices for rental investment properties in the US$100,000 range. Boost your investment budget to US$150k, and the number of available properties increases significantly. If you’re open to a renovation project, you can find gems for less.
The one drawback in this market is to do with short-term rentals. This is the kind of rental that will earn you the best yields. The trouble is that short-term rentals are illegal according to Colombian law unless the building specifically allows for them. Right now, only a few in Medellin do. The good news is that, in Colombia, a short-term rental is anything less than 30 days. That means you can legally rent your apartment for as little as 30 days (that is, a month at a time) with no worry.
Yields have come down as prices have gone up. Two years ago, you could buy certain properties with the expectation of a net yield of as much as 15% to 20%. Today, anticipated net yields are still above my generally acceptable range of 5% to 8%, but they are moving down. However, again, I’d say that you do have some capital appreciation to look forward to in this market, as the Colombian economy continues to grow, the Medellin stigma continues to fade, and more expats and retirees discover what the city has to offer.
All things considered, this remains one of my favorite investment markets in the world right now, and I don’t see that changing anytime soon. That’s why we’ve scheduled another Live and Invest in Medellin Conference for September. This is a place that should have your attention, both for investment and as a world-class lifestyle and retirement choice. We’ll show you what we’re talking about when we convene in the city with local contacts Sept. 10-12.