I bought property in Colombia and I don't think I'm crazy.
Member since 2017 · 29 posts · 67 votes
Investment Info:
Single-family residence buy & hold investment.
In 2018 I bought 3 apartments in Cali, Colombia. Cali is the 3rd biggest city in Colombia. In terms of value, I am getting a bargain price compared to the flavors of the month, i.e. Bogota and Medellin. However, Cali continues to grow and I believe property valuations will be at par with Medellin in the next decade. Therefore my outlook is now is the time to buy if you're looking for bargains and most importantly if you have the stomach to withstand the risk in investing in emerging markets.
What made you interested in investing in this type of deal?
My parents are from Colombia so I have always had an interest investing in stocks and real estate in Colombia. Also, this allows me to diversify in the most literal manner.
How did you finance this deal?
One I bought full price with cash.
The other two I was able to get them financed in the local currency, allowing me to hedge my investment and mitigate currency risks.
@Oscar Montealegre you're crazy...like a fox. ;) I've been investing in Medellin since 2015, believe it or not I actually have a remodeling show on local TV here called Vida en Remodelacion (check it out on instagram)...very few people have more boots on the ground experience. Like any other market you make your money on the buy side. So if you buy at a good price Colombia can produce fantastic returns. If you buy at an inflated price, not so much.
I assume your people tell you "you're crazy" because of the perceived risk, ironically, I'd guess most these people have never left the US let alone been to Colombia. ;) But as real estate investors it's our job to see things analytically and not emotionally. We need to be able to cut through the BS and fear mongering and look at facts and data.
And when you analyze the data it becomes obvious, there's far less risk in the Colombian market than the US market.
As an example: Let's consider the main component of risk in a RE market...excessive credit. In the US roughly 45% of Americans have a mortgage, in Colombia it's about 3%. All things equal, which market has more downside risk?
Then there's property rights, in the US you never own your home completely. Don't believe me? Try not paying our property taxes for a couple years. Colombia does have property taxes but the non payment policies are far less draconian.
Think about this. South American countries have long struggles with inflation. This means it's a really a bad idea to hold cash or bonds, so the "savings account" for most South Americans is real estate. This is one reason most of it is owned outright and is almost an untouchable sacred cow for greedy politicians.
I could go on and on, and I'm NOT saying theres no risk in Colombia, or Medellin specifically, I am saying the downside is far less when compared to a market like the US, Canada or Australia.
Regarding Medellin being in a bubble. I hear this often, but it's a feeling that doesn't hold up well under scrutiny. Other than prices rising at 4%-%5 (adjusted for inflation) over the past 12 years, what data suggests a bubble? How does a bubble exist if 90% of the properties are owned outright? In order for a crash to occur there must be a forced selling (people not able to pay their mortgage), with no mortgage what forces them to sell?
Next, look at Medellin compared to every other major market in South America, or the world, it's extraordinarily cheap on a price per sq meter basis.
I could go on but let me add this, which is the most important point. As I said earlier, you make your money on the buy side, so if you buy right, bubble/no bubble isn't relevant. Example: If you bought in US in 2007 at 1998 prices would it of mattered? If you can buy under the cost of construction, in a great area, does the price of "the market" matter? And my point is Colombia is such an inefficient market (no MLS) you can still buy for 2002 Colombia prices.
I just bought a 187 sq meter penthouse in a Medellin neighborhood called Alejandria. It's in the heart of Poblado, one of the nicest areas in all Colombia. I paid 115k USD. That's $615 dollars per sq meter or about $60 dollars a sq ft, well under the cost of construction. I'll be able to rent this for $3000 a month or make a 40% return on a flip (without using leverage,) You just can't get deals like that in more efficient markets like US, Australia and Canada.
So the takeaways are 1. You're not crazy 2. Colombia is very safe and stable when you look at the data 3. Medellin isn't in a bubble based on any metric other than feelings, and if you buy right, you'll make money 9/10 times regardless of market conditions.
Hope that helped! And if anyone has any more questions regarding South America, Medellin specifically, international investing (I've been to over 40 countries and looked at RE, or US please don't hesitate to message me...George
You're not crazy at all. Colombia is a great place to invest in real estate, especially after the newfound peace and the explosive growth in tourism.
I'm most likely going on holiday to Colombia next week and meet with local developers to look at real estate investment opportunities. I'd visit Cartagena and Medellin. Cali is on my radar too but I think it might still be a bit early. Good for you to get in early though.
Who gave you the financing and how were you able to get it?
Thank you
Congrats @Oscar Montealegre! How did you learn about the market in Columbia and investing abroad (assuming you don't live in Columbia)?
@Mike Lambert
Thanks for the message. You can't go wrong with Medellin. Cartagena on the other hand may be too over priced and in my opinion is over reliant on tourism. That's just my quick take.
I was able to do one transaction with a 30% deposit and the rest financed in the local currency. Bank of Occidente did the financing. It wasn't as complicated as I thought it was going to be.
I would love to hear about your trip when you return.
Have fun Mike and talk soon.
@ Kristin Caras
Thanks Kristin! I travel a lot to Colombia since I was young-my parents emigrated to the U.S. from Colombia. Also, when I obtained my master's my thesis was on Colombian democracy and the general economy. And yes, I don't live in Colombia but I try to keep a tight grip in Colombian affairs via newspapers, magazined and visiting at least twice a year.
It's a risk-albeit calculated-but in real estate you got to enjoy it. Perhaps because my roots are Colombian I find Colombian real estate more exciting and pleasurable than my investments here in the U.S. Such is life right. Anyway, thanks again and talk soon.
Well, I am from Cali Colombia, I visited the city no too long ago and I noticed that the Prices per real estate went up dramatically. It’s a good market to buy and hold. Congratulations!
@Oscar Montealegre
Hey Oscar,
interesting, i also have family in Cartagena and was recently considering checking the local development opportunities.
Can I ask you what kind of deal you got to finance your acquisitions? Rates and terms
Thanks for the reply. Sure I'll let you know how I go.
How did you get a loan from a Colombian bank without living there? What was the rate and the term of the mortgage and was the loan secured by the same property the bank financed or by another property in Colombia or by cash collateral
Thanks
@Oscar Montealegre
Congratulations Oscar, Cali has an enormous growth potential in the coming years, and it has been under the shadow from Bogotá, Medellin and even Cartagena which by the way I totally agree is (overpriced) I think Cali Is growing in a sustainable way that doesn’t create that bubble feeling like Medellin, based in a steady growing population of young professionals with great Universities, lot of shopping and super active night live. I have been following closely the market since I both two units (3-2) on pre-sale with Jaramillo Mora very well known developer Company the project should be done by the end of 2020, something interesting to consider I am even allowed to sell them if I don’t want to proceed with the financial with a local bank. Just wondering if you opted for a traditional long term rent or you went for short term ( B&B). Cheers cuídate!
@Oscar Montealegre you're crazy...like a fox. ;) I've been investing in Medellin since 2015, believe it or not I actually have a remodeling show on local TV here called Vida en Remodelacion (check it out on instagram)...very few people have more boots on the ground experience. Like any other market you make your money on the buy side. So if you buy at a good price Colombia can produce fantastic returns. If you buy at an inflated price, not so much.
I assume your people tell you "you're crazy" because of the perceived risk, ironically, I'd guess most these people have never left the US let alone been to Colombia. ;) But as real estate investors it's our job to see things analytically and not emotionally. We need to be able to cut through the BS and fear mongering and look at facts and data.
And when you analyze the data it becomes obvious, there's far less risk in the Colombian market than the US market.
As an example: Let's consider the main component of risk in a RE market...excessive credit. In the US roughly 45% of Americans have a mortgage, in Colombia it's about 3%. All things equal, which market has more downside risk?
Then there's property rights, in the US you never own your home completely. Don't believe me? Try not paying our property taxes for a couple years. Colombia does have property taxes but the non payment policies are far less draconian.
Think about this. South American countries have long struggles with inflation. This means it's a really a bad idea to hold cash or bonds, so the "savings account" for most South Americans is real estate. This is one reason most of it is owned outright and is almost an untouchable sacred cow for greedy politicians.
I could go on and on, and I'm NOT saying theres no risk in Colombia, or Medellin specifically, I am saying the downside is far less when compared to a market like the US, Canada or Australia.
Regarding Medellin being in a bubble. I hear this often, but it's a feeling that doesn't hold up well under scrutiny. Other than prices rising at 4%-%5 (adjusted for inflation) over the past 12 years, what data suggests a bubble? How does a bubble exist if 90% of the properties are owned outright? In order for a crash to occur there must be a forced selling (people not able to pay their mortgage), with no mortgage what forces them to sell?
Next, look at Medellin compared to every other major market in South America, or the world, it's extraordinarily cheap on a price per sq meter basis.
I could go on but let me add this, which is the most important point. As I said earlier, you make your money on the buy side, so if you buy right, bubble/no bubble isn't relevant. Example: If you bought in US in 2007 at 1998 prices would it of mattered? If you can buy under the cost of construction, in a great area, does the price of "the market" matter? And my point is Colombia is such an inefficient market (no MLS) you can still buy for 2002 Colombia prices.
I just bought a 187 sq meter penthouse in a Medellin neighborhood called Alejandria. It's in the heart of Poblado, one of the nicest areas in all Colombia. I paid 115k USD. That's $615 dollars per sq meter or about $60 dollars a sq ft, well under the cost of construction. I'll be able to rent this for $3000 a month or make a 40% return on a flip (without using leverage,) You just can't get deals like that in more efficient markets like US, Australia and Canada.
So the takeaways are 1. You're not crazy 2. Colombia is very safe and stable when you look at the data 3. Medellin isn't in a bubble based on any metric other than feelings, and if you buy right, you'll make money 9/10 times regardless of market conditions.
Hope that helped! And if anyone has any more questions regarding South America, Medellin specifically, international investing (I've been to over 40 countries and looked at RE, or US please don't hesitate to message me...George
@Oscar Montealegre - congratulations! Cali is the next spot in Colombia to invest. I'd love to get into Medellin where a friend purchased a few years ago (before most gringos knew about it) but I'm afraid that when I'm ready, prices will be high. Perhaps I'll be your neighbor in Cali. :-)
@Mike Lambert - Cartagena is a gorgeous city, but as far as investing goes it's like Costa Rica. Inundated with foreigners. Medellin and Cali will get you better returns.
@Oscar Montealegre
I don’t remember the form name, but there is a form you have to file so you can expatriate your money back out of Colombia if/when you sell the property.
Colombia is a pain when it comes to moving money and paperwork.
Other than that it is my second home.
You are my new best friend! I've been explaining to whoever wants to hear it, including on BiggerPockets' forums, that investing in most Latin American countries actually less risky than investing in the US, Canada or Australia. So it's good not to be a lonely voice.
As you mentioned, one of the main reasons for this lower level of risk is the lack of leverage. This is the bad side of leverage. However, leverage has a good side in that it magnifies your returns. So far, I have been active in other Latin American countries where most people can't get leverage but my investors and I do have access to leverage and financing. This way, we have the good of leverage without having the bad.
I love Colombia for real estate investment and have followed the market for years now and I have access to great connections there. However, since I didn't have access to leverage there, I prioritized other countries but it looks like that is changing at last.
I have been traveling, looking at and investing in real estate in many countries as well so let me know if you want to compare notes. That could make for an interesting discussion!
@Mike Lambert yes you're not going to be able to use Colombian sourced debt in Colombia. That said, I've leveraged the equity on my US assets several times to remodel and flip properties in Colombia.
If I can take out fixed rate debt at 5%, and a 70% LTV, and put it to work making 30% returns, the numbers make sense all day. Especially when you using USD debt to buy peso assets when the peso is extremely cheap, historically speaking, against the dollar. So you can get your 30% return while at the same time taking a high probability bet you'll make another 10%-40% on the currency, if and when, you take the pesos and buy back dollars.
Also remember that you're not exchanging the amount you brought into Colombia but the amount your taking back to the US thats compounded at 30% clip.
So send $1,000,000 USD down, when the peso is 3200/1, compound it at 30% per annum, and then after a few years, take $2,000,000 (doubled money with a few years of flips) in pesos back to the US when the peso is 2000/1. You're $2,000,000 now buys $3,200,000 worth of dollars.
Remember the initial $1,000,000 could have been leveraged off equity in US assets...OPM.
What if the peso goes to 4000/1? Great, the purchasing power of your USD cash flow increases dramatically to redeploy at the 4000/1 rate. If your expenses are denominated in pesos it's a huge win assuming local inflation doesn't get out of hand. In which case, the nominal value of your peso RE would increase maintaining purchasing power.
And one extremely important fact most/all investors overlook. Tremendous returns can be made simply by an asset increasing with the rate of inflation. Example: If your cost basis on an asset is 100k and its value is 200k, a 10% inflation raises the value to 220k, in real terms the asset didn't increase in value, but your cost basis is 100k so you gained purchasing power because the asset increased at 20k (10% value), not 10k (10% cost.)
My point is, you're 100% correct that there's no access to Colombian based debt, but if you get creative, ways exist to achieve the same type of returns, with the benefit of the reduced downside, due to the lack of credit in the existing Colombian housing market.
Would love to compare notes and happy to debate ANY BP member with you. ;)
George
I have thought about out of country investing a lot and I think this post is a fantastic motivator for me to explore alternate markets!
Thanks everyone good stuff, I went Colombia and loved it. Been thinking of getting something there.
That's awesome! While it is a great idea, investing in Colombia is not easy. However, if it was easy, everybody would be doing it and the opportunity would not exist or be as good. Moreover, as part of the BiggerPockets community, we know that we oftentimes need to know what's difficult to reach success. And you're not alone. Don't hesitate to reach out if we can help you along your journey!
@Oscar Montealegre you're crazy...like a fox. ;) I've been investing in Medellin since 2015, believe it or not I actually have a remodeling show on local TV here called Vida en Remodelacion (check it out on instagram)...very few people have more boots on the ground experience. Like any other market you make your money on the buy side. So if you buy at a good price Colombia can produce fantastic returns. If you buy at an inflated price, not so much.
I assume your people tell you "you're crazy" because of the perceived risk, ironically, I'd guess most these people have never left the US let alone been to Colombia. ;) But as real estate investors it's our job to see things analytically and not emotionally. We need to be able to cut through the BS and fear mongering and look at facts and data.
And when you analyze the data it becomes obvious, there's far less risk in the Colombian market than the US market.
As an example: Let's consider the main component of risk in a RE market...excessive credit. In the US roughly 45% of Americans have a mortgage, in Colombia it's about 3%. All things equal, which market has more downside risk?
Then there's property rights, in the US you never own your home completely. Don't believe me? Try not paying our property taxes for a couple years. Colombia does have property taxes but the non payment policies are far less draconian.
Think about this. South American countries have long struggles with inflation. This means it's a really a bad idea to hold cash or bonds, so the "savings account" for most South Americans is real estate. This is one reason most of it is owned outright and is almost an untouchable sacred cow for greedy politicians.
I could go on and on, and I'm NOT saying theres no risk in Colombia, or Medellin specifically, I am saying the downside is far less when compared to a market like the US, Canada or Australia.
Regarding Medellin being in a bubble. I hear this often, but it's a feeling that doesn't hold up well under scrutiny. Other than prices rising at 4%-%5 (adjusted for inflation) over the past 12 years, what data suggests a bubble? How does a bubble exist if 90% of the properties are owned outright? In order for a crash to occur there must be a forced selling (people not able to pay their mortgage), with no mortgage what forces them to sell?
Next, look at Medellin compared to every other major market in South America, or the world, it's extraordinarily cheap on a price per sq meter basis.
I could go on but let me add this, which is the most important point. As I said earlier, you make your money on the buy side, so if you buy right, bubble/no bubble isn't relevant. Example: If you bought in US in 2007 at 1998 prices would it of mattered? If you can buy under the cost of construction, in a great area, does the price of "the market" matter? And my point is Colombia is such an inefficient market (no MLS) you can still buy for 2002 Colombia prices.
I just bought a 187 sq meter penthouse in a Medellin neighborhood called Alejandria. It's in the heart of Poblado, one of the nicest areas in all Colombia. I paid 115k USD. That's $615 dollars per sq meter or about $60 dollars a sq ft, well under the cost of construction. I'll be able to rent this for $3000 a month or make a 40% return on a flip (without using leverage,) You just can't get deals like that in more efficient markets like US, Australia and Canada.
So the takeaways are 1. You're not crazy 2. Colombia is very safe and stable when you look at the data 3. Medellin isn't in a bubble based on any metric other than feelings, and if you buy right, you'll make money 9/10 times regardless of market conditions.
Hope that helped! And if anyone has any more questions regarding South America, Medellin specifically, international investing (I've been to over 40 countries and looked at RE, or US please don't hesitate to message me...George
George, How can you make $3000 a month renting a property, based on what I've read, which rent prices can be maximum 1% of the value of the property?
Also,local investors have low chances to take advantage of any local debt due to high interests rates in the country, right? Is there any opportunity for local investors? What recommendations do you suggest?
Do you have a strategy set up for buy and hold in Colombia?
Has anyone had commercial properties? Could you share that experience?
I'm wondering as well about Barranquilla. Nobody seems to talk about it, and the city has made a lot of improvement over the last few years. Has anyone invested in there?
3000 dllrs of rent in a property worth $150 k Us dllrs o 500 millones de pesos, i bet is imposible, may be 1000 dllrs o 3 millones de pesos, those are the real numbers.
@Oscar Montealegre awesome staff. I'm originally from Colombia as well and still have friends in Colombia that are involve in Real estate (builders in CRE and Residential).
After this blogging I’m going to connect back and do my reserch and really contemplating to
Invest in in my city Medellin.
Hi guys. I'm Colombian as well but it never crossed my mind to invest in RE over there. You guys got me thinking about it now. For those of you that invest there, what do you do with the monthly cash flow money? Do you keep it in a local bank or do you bring it to the US? Is the cash flow even that much when converting pesos to US dollars? I'm curious as to how all of that works.
Thanks in advance for any info you can provide.
Hey Sorry for the delayed response. Quick answer to your questions: First Colombian banks are very bullish in offering loans to US Citizens that have Colombian passports. Because my parents are from Colombian I was able to obtain a passport and much needed 'cedula' within 6 months.
The rate was 10.44% and loan duration is 15 years. Loan secured by the same property. No other collateral needed. Cheers Mike!
Sorry for the delayed response.
I got a 15 year loan, interest rate 10.44%.
Cartagena is a hot place, I think you are buying at a premium but nevertheless it will always remain one of the most popular places to visit in Colombia. Cheers!
Hola Andres! Apologies for the delayed response. Yes I do know Jaramillo Mora. I also bought another 3 bedroom apartment "en obra" with Jaramillo in Valle de Lilli. Construction was completed in August and I got the keys in late October. With this apartment in Cali (and all others) I opted for the 1 year rent agreements. I noticed in Colombia it is not easy to rent because you need to have two guarantors which reduces the possibility of tenants not paying the rent. At any rent, I would love to hear more about your investments so we can share info.
Saludos y hablamos pronto :)