The Most Turn-Key And Low-Cost Way To Invest In Colombia’s Future (And Your Own)
Last year, I bought an apartment in downtown Medellin, Colombia. The price was a bargain (less than US$700 per meter), and, despite having spent much more than I intended on the renovation (friend Lee Harrison refers to this as the “Spousal Factor”), I could resell the unit today (18 months after the purchase) for a profit of at least 50%. And I could likely find a buyer quickly, as this is an active market.
I bought the apartment partly as a rental and partly for personal use. One Medellin rental manager who has inspected the property now that it’s been renovated and furnished projects rent and occupancy rates that would translate to a net yield of 11% or 12% per year based on the purchase price (and including the monthly HOA fee).
Not a bad return, especially as it doesn’t include any potential appreciation.
Of course, not everyone has the time or the inclination to manage a renovation or a rental property in another country, and not everyone wants to put as much money into Colombia as it takes to buy and furnish an entire apartment.
That’s why I was excited when one of my real estate contacts in Medellin, Rich Holman, told me about a project he’s put together. It amounts to a very reasonably priced first step into this market that comes with the added bonus of a Colombia residency visa.
One way to establish residency in Colombia is to invest 100 times the monthly minimum wage in a private company. At today’s minimum wage and exchange rate that works out to about US$35,000. Of course, finding a private company looking for investors at that level isn’t easy, so the reality is that gaining residency in Colombia this way isn’t normally a realistic idea unless you’re ready to invest a much greater amount.
Rich and his partner Joe Greco, however, have put together an offer using a building that one of their real estate investors bought and renovated in Medellin. The three-unit building is in the Zona Rosa in this city’s tourist epicenter. Fully furnished, the units are being prepared for short-term rental.
The idea is simple. Investors can buy a share of the company that owns the building for, not coincidentally, US$35,000, thereby qualifying you for a residency visa in Colombia. The units then will be rented out, and owners will receive their shares of the net rental income after rental and property management fees have been covered.
Projected net yields are 4% to 6% after Colombian taxes (my projected net yields above for my rental scenario are before Colombian taxes, which can be as high as 33%). That’s a decent yield especially when you consider that the main benefit of the investment is residency in Colombia. This is also an opportunity to get your feet wet as an investor in Colombia with a modest amount of capital.
If you were to buy an apartment in Medellin and furnish it, the minimum total amount of capital required would be around US$100,000. (One reader found a great apartment last year for US$75,000 and furnished it for another US$10,000, but that was last year.)
As an investor in the project, you enjoy a discount if you’d like to stay in one of the units. Further, the cost of your residency application is included in the investment amount, meaning this is a fully turn-key opportunity.
I think the yields Rich and Joe are projecting are probably conservative. These guys put together a similar project last year (for investment only; there was no residency component). The rental returns for that effort are beating their projections. As they own a real estate company with a rental management arm, they have a steady flow of rental inquiries from tourists, businessmen, and investors. They also have experience managing rental properties in this city.
Along with the yields, investors should see some capital appreciation of the underlying asset. While Medellin real estate prices have increased over the last few years by as much as 10% a year, prices are still very reasonable on a global scale. In addition, the local economy is growing nicely. Therefore, I expect property values to continue up.
The bottom line is that you won’t find many real estate investments in this price range, and you won’t find an easier residency option for Colombia.
Lief Simon
