Colombia Case Study–How Strong Is Your Stomach?
I ran into a friend here in Panama the other day, Steve, who bought and recently resold an apartment in Colombia.
“How did that work out for you?” I asked, interested as I’m preparing to make my first buy in this market.
Steve is what you might call a cavalier investor. He’s been bumping around Latin America for years, he speaks Spanish fluently, and he has a high tolerance for the unexpected.
For Steve, his recent experience in Colombia was just another lesson in his ongoing education in emerging markets in this part of the world. Another investor with less of an appetite for the surprising might have seen it differently.
About a year ago, Steve purchased a one-bedroom apartment for both investment and personal use. He used it as a place to stay while he continued his scouting expeditions and, when he was back home in Panama City, he rented the place out.
A couple of months ago, Steve decided to sell. He wanted to walk through the entire investment process in this market. It’s all well and good to identify opportunity and then to act. But it’s not possible to know that an investment strategy is solid or that an investment market viable until you’ve come out the other side. Projections about how much money you could or would make if you sold are a waste of time…and certainly don’t grow your bank account.
You can speak of profits in a market with confidence only after you have pocketed some. Steve wanted to execute a sale and to bank some profits, both to be sure he understood the process of selling as well as of buying in this country and also to prove to himself that his theories about the money to be made in this market weren’t all hot air.
Steve listed his apartment for sale with a local real estate agent, and, within short order, the guy found him a local buyer.
So far so good…until it came time for the buyer to send the purchase money. Steve hadn’t been able to open a bank account in Colombia, so his only option locally was to have the money sent to an account at the central bank. However, going this route, Steve worried that he wouldn’t be able to transfer the funds out of the country when he wanted to. He’d come to understand that, back when he’d made his purchase and wired his funds into the country, he hadn’t properly registered them for investment.
This realization led Steve to another one–he wasn’t going be able to sell to a local. He’d have to find a foreign buyer who could pay him outside Colombia.
Steve listed his apartment with another agent, one more experienced with foreign investors, and, hoorah, in short order, this guy found Steve another buyer, this one non-local.
The down payment was paid by check in the United States. The balance of the purchase price was paid in cash in installments in Colombia.
Now, this was a small apartment, meaning the sales price was also small, small enough that the transaction was easy to manage and the cash payments were less than US$10,000 each. Steve was able to travel out of Colombia with his payments after each visit without worrying about the customs reporting issues.
As I said, not every investor would be up for this level of workaround and effort.
That said, I like this story for a number of reasons.
First, as I mentioned already, it highlights the importance of an open mind and an appetite for the unexpected when dealing, especially for the first time, in emerging marketplaces.
Second, it shows that most any hurdle in a market like this one can be overcome, as long as “Undaunted!” is your mantra.
Third, it reminds me of the importance of understanding the particulars of taking money out of a country before you bring any in.
In other words, unless your stomach is strong and you enjoy feeling your way through the twists and turns of unfamiliar investment terrain, don’t do anything until an attorney with experience helping foreigners buy and sell has reviewed and signed off on your plan and all associated documents.
Finally, for me, the most interesting part of this tale is that Steve was able to find first a local buyer and then a foreign buyer in quick succession and with little effort. This, often the big challenge, was the easy part of the experience in this case.
Steve’s test case would seem to show that this is an active marketplace.
I intend to put the theory to further test myself very soon.
Lief Simon
P.S. I almost forgot the bottom line. Steve sold his apartment for about 20% more than he’d paid for it a year earlier. In the months between, he had use of it himself.
