Real state Colombia

[Rolando Rubio]

Have a nice day,

I'm new to the real investment thing, I'm from Colombia, south America, I already read the beginers book that is really interesting an attent to some webminars, the problem is tha here in my country I can't find any good deal whith few money, 

Here is an example:

A house with 3 bedrooms cost $120.000 and rents $233, if I pay 12.600 in front and a loan fort the rest with an interest rate of 11% year for 20 years, I have to pay $287. The same applies for almost all homes that I was doing the math for the moment, I don't know what I am missing. 

[Mike Lambert]

To everyone who want to invest in the great country of Colombia, investing internationally is not the same as investing in the US. A lot is obviously the same and you can apply some of what you learn everything, However, a lot of the investments are profitable mostly if not only because of ultra low interest rates. Interest rates in Colombia are very high and it's very difficult for a non-resident to get a bank loan there.

So here are your options to invest profitably in Colombia:

* You can invest in long term rentals for capital gains. You won't get big cash flows. There is a law in Colombia that forbids you to rent for more than 1% of the value of the property per month (12% a year). You can invest all cash but, most of the time, your gross yield will be lower anyway. If you can use leverage, you will most likely have to pay 12% if not more but most likely won't be able to finance more than 50% of the price. After deducting all the costs, you mind end up cash flow negative or slightly cash flow positive. As the middle classes expand in Colombia, you could make nice capital gains but that is of course speculation.

Bear in mind that Medellin, although still cheaper than Bogota or Cartagena, has seen its real estate prices doubled since 2011. It is still undervalued by international standards (not Colombian standards) and prices could go much higher over the long term but it might take time for the market to digest the gains of the last few years. Another important point to bear in mind is the currency fluctuations. The peso (COP) has dropped so much against the USD over the last few years and this fall in they currency has almost nullified or at least strongly reduced the COP gains when translated into USD. This so-called currency kicker one of the reasons many US investors want to invest internationally and in Colombia. Indeed, properties are very cheap when converted in USD and, as the COP recovers against the USD, this should significantly increase your capital gains. Bear in mind that the COP could deteriorate further against the USD and that the USD is extremely strong at the moment. While you don't know whether the COP will appreciate or depreciate, it is always great to have assets in different currencies and different jurisdictions from a risk point of view.

* You can flip. Colombia is a great place for that for three reasons. Firstly, Colombians and Latin Americans in general prefer shiny properties that are or look like they are brand new. Therefore, older properties sell at a big discount to the newer ones so there is room for a nice profit if you buy and older property, renovate and flip it. Secondly and, on top of the first reason, the market in Colombia is highly inefficient. There is no MLS so you can find properties that are for sale for well below market value. Thirdly, the renovation costs are much lower than in developed countries because of the low cost of labor. The issue here of, course, is finding and flipping properties in a foreign country.

* You can remodel and, instead of flipping, you can keep the property. Since you bought at a lower price, your cash flow yield will be higher and you might end up financing at a higher LTV if you use financing.

* You can do short-term rentals. This is potentially very profitable given the high potential profit vs the low cost of the real estate (and this is a way to escape the 1% rental cap rate mentioned above). This strategy is especially great considering that tourism is exploding in Colombia and we're probably only at the beginning of this trend. However, in Medellin, you can only rent short-term if 70% of the owners in the building agree and, most of the time, they won't. The city is much more aggressive about enforcing the rules than in many other countries and they are shutting down illegal Airbnbs. The solution here is to buy a whole building.

* You can be invest passively (with people like me). For example, I invest internationally in different countries with investors. Because of my connections, knowledge and access to financing, I have access to deals most investors don't have access to so I'm able to offer higher returns to investors than if they would invest by themselves (also, since we have access to more financial resources, we can buy entire buildings and do the Airbnb strategy). Aside from getting higher returns, they have nothing to do and their risk is lower because we deal exclusively with people from my trusted network that have been vetted. Finally, they don't need to acquire the knowledge about the local market laws, regulations and tax systems, which takes time and is not easy to get if you don't know the right people.

At a time when real estate has become very expensive in the US, investing internationally is an awesome idea and makes total sense. You can get returns that are uncorrelated to the US market, that can be potentially higher, there is less competition against other buyers and investors, the market is not overpriced as a result of a huge amount of debt in the system, the markets are generally inefficient (meaning opportunities can still be found) and it is a good way to diversify your portfolio, both in terms of markets and currencies. However, you need to know what you are doing and have the right knowledge and expertise or know people who do.

I hope this has been helpful. Don't hesitate to contact me if you think I could be of any further help.