I bought property in Colombia and I don't think I'm crazy.

[Oscar Montealegre]

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.

[George Gammon]

@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