All Forum Posts by: George Gammon

@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 

@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 

Investing in real estate in most countries is very similar, I've invested in several countries including the US many times, and the principles of buying low, adding value and selling with a margin are universal.  I've actually looked at properties in Vilnius.  

The remodels would be different there, as you know the spaces are far smaller than those in the US and most of the buildings are much older, but again, the same principles apply. 

You always make money on the buy side, not on the sell side, the world over.  

I'd strongly encourage US investors to explore opportunities in other countries. Many, offer higher ROI and much lower risk. Especially to the US market at current levels (prices and amount of debt.)

Example:  I've been investing in Medellin, Colombia since 2015 and have realized 20%-40% returns with a fraction of the downside of the US because of the lack of leverage (3% of Colombians have a mortgage.)  But to be clear, I suggest having RE portfolio of assets in multiple countries, and multiple currencies, including the US and USD.  

I have several single family rentals in the Kansas City area.  Looking for a new PM that prioritizes communication and diligent maintenance work.  My current PM struggles heavily in these areas and it's cost me far too much money over the last year.  Looking to hire a new company asap.  Any suggestions would be greatly appreciated.  

Thank you,

George

@Gabriel Haines I'm looking for a better property manager in KC as well.  Did you have any luck finding a good one?  Any insight would be thoroughly appreciated.  

I don't live in KC but I invest there and have done so for years.  At times, even from other countries let alone states.  Because I'll most likely buy in certain areas in the future without ever seeing the house or street I've been working on a map of certain areas to assist me.  By driving for hours on end and street by street I rank each square of my map on a scale of 1-10.  I do this so I can remember the exact vibe for the street in case a deal comes up there in the future and I'm out of the country.  I'm trying to "hack" the local knowledge edge! ;) 

The 1-10 scale isn't my perceived investability or even the A, B, C ranking we all know well.  It's more of the areas desirability from the stand point of a potential renter or owner occupant.  In short, its my opinion of the street's "pride of ownership" expressed through a number.  I tried not to focus on the age of the homes or size but more things like (but not limited to):

1.  how well exterior of homes were maintained 

2.  how well was the yard kept.  any trash, leaves, broken down cars?

3.  how did the driveways look.  overall curb appeal 

4.  is it a street a family would feel safe.  let their kids play etc.

I'm sure most of you know what I'm talking about.  

So my question, to everyone who invests in out of state markets or has considered it in the past, is do you think this is overkill or do you think it'd be helpful in actually making good decisions?  Is it information you'd personally use?  I'll include a pic of the actual map I'm making, it covers about a 2 X 1 mile area.  It's done with a google map print out, clip board, pencil, ruler and some serious drive time!  And I'm by no means an artist.  C = commercial M = multifamily H = historic district.  Thank you in advance for your feedback...

@Zo A.Here's what the majority of investors don't seem to understand.  Let me do my best to explain.  Hopefully this helps you.

The investor community sees the options for investing out of state in a way that's far too black and white, especially when considering turnkey providers.  

As an example.  The turnkey option is typically viewed as pay a little more for the property but off load all the headaches of learning the market, buying, rehabbing, finding a PM etc.  So option 1 is buy a rough property and rehab it yourself, building equity through the rehab, and option 2 is buy from a turnkey provider, let them do the work and forgo the upfront equity.  The big decision becomes "is the equity worth the headache?"  

Here's the problem.  This assumes turnkey providers are going to sell you a property you want.  It assumes you discuss with the turnkey provider what your goals are and if you prefer A, B or C areas, the provider then shows you the inventory they have that meet your qualifications and you choose which looks the best...

It's ********.  Here's why...In a sellers market (and this is key) it's extraordinarily difficult for any investor to find attractive deals, this includes local investors who have been in the market for years (often decades) and turnkey providers.  The turnkey providers have to have inventory to sell, therefore they buy properties local investors don't want (or they don't want for their own portfolios) and sell them to out of state investors because they're oblivious to the issues with the areas, neighborhoods, or specific properties.  

I'm not saying the turnkey providers will sell a C property as a B property etc. (although many do), I'm saying all A, B and C areas aren't created equal.  

Let me give you a specific example here in Kansas City, more specifically Jackson County.  The best suburbs are Lees Summit and Blue Springs, they'd be considered A areas.  But there many smaller micro areas within Lees Summit or Blue Springs that are no where near A quality.  In fact there many areas where one street all the properties will be A and the next street over all the properties are C.  Or there many areas currently A, but mass multi family is being built near by, most likely taking it down to B or C within the years to come.  

On the flip side of the coin, there areas currently C or B that a huge new home development is being built right next door, corporate campus or gaining "trendiness" giving tailwind to the area potentially propelling it from C or B to A.  This is paramount for out of state investors to know.  It's the edge local investors have and what most turnkey providers won't tell you.  

Let me be clear.  I'm not implying turnkey providers have zero attractive A, B or C inventory.  I'm simply stating, in a red hot sellers market, the majority of the inventory will be undesirable and it's up to you to educate yourself and cherry pick based on your individual goals.  

The reason this is most often hidden is because out of state investors don't consider inflation when looking at their supposed paper appreciation and they don't sell so they don't truly know the market value of the property.  The only thing they have as a measuring stick is the cash flow.  As long as the properties cash flows as advertised they assume they got a good deal.  What they're not factoring is the inflation adjusted depreciation of the asset.  This needs to be deducted from the cash flow to have an accurate assessment of the properties performance.  

Let me give you another real example.  If you purchased a property in 2010 for 100k and today it's worth 100k you lost approximately 10k.  Why? because in order to have the same amount of purchasing power today as you had when you bought the property in 2010 for 100k, you'd need 110k.  This is due to inflation or the price of goods and services increasing.  Often asset prices don't keep pace with inflation and sometimes they exceed inflation.  

So using our hypothetical scenario we'd need to deduct the 10k from our cash flow to get the real ROI. How many investors do this?

An even more alarming example would be the same scenario but using 2006 to 2012.  Our hypothetical investment property would have to be worth 113k in 2012 in order to have the same purchasing power it had in 2006 (100k).  How many properties do you know that went up in value between 2006 and 2012?  Most likely it would've gone done in nominal value making the inflation adjusted paper loss even more severe.  

This is applicable to out of state investing because most turnkey providers inventory (in my opinion) will struggle to keep pace with inflation and therefore under deliver without the investor even knowing.  

WHAT'S THE SOLUTION? If you're considering an out of state investment select the market(s) first.  Take a month or at least a couple weeks and go to that market(s).  Get a rental car and drive for dollars.  In other words, drive up and down every street in your targeted zones, take notes.  Talk to as many local investors as you can face to face when you're there, meet with property managers, agents, bankers, general contractors and turnkey providers face to face...give yourself that local knowledge and "edge."  Then and only then can you truly make an educated decision when buying.  

Use that information gathered to buy a property and rehab yourself or cherry pick the turnkey providers inventory knowing you're buying precisely what you want...

If you don't have time to do that don't invest out of state. 

Hope that gives you some food for thought.  

Good luck,

George

 1.  I'm not saying C areas don't have appreciation potential.  Often they have more appreciation potential.  There are also areas that have an extremely low potential for appreciation and higher potential for depreciation.  The majority of turnkey inventory I've seen in KC falls into this later category.  Again, I'm by no means saying all turnkey inventory is garbage, I am saying buyers need to further educate themselves on the intricacies of these areas and not rely on the "advice" of the turnkey providers.

2. I make a point of the MLS because you offer what you have for sale to a larger pool of buyers. Larger pool of buyers, at times, equals a higher price. Don't most sellers want the highest price for what they're selling?

3.  They're not saving 6%, they're saving 3% because they'll keep the sell side commission.  I think that would be more than made up for by offering it to an entire country of buyers as opposed to just one.  

4. Your right, most turnkey providers can't get multiple offers on the MLS because the majority of their inventory is undesirable. This is my point.

5. Regarding the quick sale. In a buyers market I get it. In a sellers market, like what we have today, I'm a tough sell. Every house I've sold myself, on the MLS, lately has sold with in days. And I'm supposed to believe turnkey providers prefer to sell at a lower price if it means not haggling? And in this market how much haggling is done when you're getting full price offers?

6.  Mike to say Ruskin (the area Mackaylee is referring to) is a "gem for investors" is laughable.  In all honesty it's a **** hole that every local investor I know would't touch.  

I'll reiterate my opinion with the emphasis on the fact that this is my opinion only, for what its worth.  

Most turnkey providers sell inventory that local investors, who have the local knowledge, don't want.  They do this because it offers inventory that they can flip at times, like now, when the market is hot and deals in good areas are far and few between.  They also benefit on the back end because these properties tend to have more maintenance issues and evictions which is where the money is made on property management.  THAT IS NOT TO SAY they have no good inventory, occasionally they absolutely do (especially in a buyers market), or there's no good inventory in "C" areas, but all "C" areas aren't created equal...investors need to understand these points better.  Because at the end of the day it's their money and their responsibility.