Property Investing In Medellin

Medellin Prediction: One Year From Today, This Opportunity Will Be History

Kathleen and I are in Medellin this long Easter weekend to get our apartment ready for rental. The renovation took longer and cost more than the contractor told us it would (of course), but we’re happy with the finished product. Now we’re hoping to begin seeing some return on the investment.

We’ll be meeting with rental managers today and tomorrow to talk through the best way to position the place for rental. It’s much higher end than most apartments on the furnished rental market in this city (because Kathleen has renovated not only for rental but also for personal use), so pricing is going to be tricky. We’re hoping we can set the rental rates high enough to give us a good return on the amount invested in the purchase and the renovation…without pricing ourselves out of the market.

Now that this project is coming to a close, I’ve begun looking around for another apartment investment in this city. Prices have risen over the last year, by some accounts by as much as 10% or more. Still, there are good deals to be found on the ground.

Prices in El Poblado (the most rentable zone) range right now from US$1,000 to US$2,000 per square meter, depending on the age of the building, the amenities, and the specific location. New buildings are generally more expensive. They have more amenities; plus, the Colombians prefer to buy new. This means older buildings can be a bargain, and, as long as they are well located, the rental yields can be better.

Even with the Colombian peso at a two-year high against the U.S. dollar, prices in dollar terms still look good. One particular apartment I’m interested in is priced at a bit less than US$1,000 a square meter–and it’s being sold furnished. Nicely furnished…making it a turn-key rental investment. My projections have this property generating a net yield in the 7.5% range assuming a 75% occupancy rate for 30-day rentals. A friend with a rental in this city has been enjoying occupancy rates of 90%, so the 75% assumption seems reasonable.

A net yield of 7.5% isn’t terribly exciting, but it’s in my target range of 5% to 8%. Rent the apartment short term (for less than a month at a time), and the net yield would go up. More exciting, though, is that the seller of this unit is willing to finance.

Foreigners can’t get local bank financing in Colombia, so paying all cash or negotiating seller financing are the only options.

Two years ago, when I first visited Medellin, net rental yields being achieved did qualify as exciting–as high as 15% and higher. The price appreciation of the last 12 to 18 months has had an effect. I think this rate of appreciation will continue, as Colombia in general and Medellin in particular continue to attract increasing numbers of both tourists and expats/retirees.

Another force in this market to pay attention to is the foreign mining industry. Executives working for foreign mining companies operating in Colombia need furnished rentals for anywhere from a month to a year. They want high-quality properties in convenient, central locations. And they are on expense accounts, which means they can afford to pay for what they want…if they can find what they want. This is an insight highlighted for me by one rental manager we’re meeting with this weekend. He says that this market segment, in particular, has been largely ignored in Medellin to date. For this reason, he’s very interested in our apartment. Our place is bigger than the typical rental and, again, has been renovated to a standard more for living than for renting out.

I predict that, a year from now, you won’t be able to find quality apartments in El Poblado on the market for US$1,000 a square meter. That’s why I’m looking to make my next apartment buy here now.

Lief Simon

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