All Forum Posts by: Aaron B.

I paid cash for all my properties outside of the USA. In Colombia, financing is not practical because the mortgage interest rates are typically 12% per year! It's crazy and completely kills in would-be investment at that high-interest rate. This particular property, I found through an agency and found an English-speaking agent and attorney back then. In my other properties, I found on my own the good old-fashioned way. Looking at buildings, talking to security guards, networking, asking people to keep their eyes and ears open for me, etc.

I think that was a good move because tourism wasn't quite to the level it is today and the exchange rate was nowhere near as good. 

I'll be making another post next month about another Penthouse that is a more recent addition and performing well.

Hello! This post is for people who are curious about international investing.

It is time for me to share another story concerning one of my international investments in Medellin, Colombia, South America. Considering that COVID-19 lockdowns have ended and international borders are open again - last year was an interesting experience that I would like to share.

First, here is the background property information for context. Note that all prices here are converted to their USD equivalent for your convenience, but are actually paid in Colombian Pesos (COP).

Penthouse specifications:

• Purchase price: $315,000
  315 square meters = 3390 square feet
• Average price per square meter = $1,000
  Average price per square foot = $92.65
• 3 bedrooms
• 4.5 bathrooms
• 1 services room (for a housekeeper or nanny)
• 1 patio, 1 balcony, and 1 rooftop terrace
• Annual property taxes = $1,650 per year
• Monthly utilities are about $360 with short-term rentals, much higher than they are with long-term renters which typically average $180/month
• Administration (HOA) is about $310/month
• Cable+Internet package is $51/month, I pay for fast speeds for remote workers and digital nomads
• Annual insurance is approximately $300 for the year and provides complete umbrella coverage for over $500,000...it’s very cheap
• The full-time housekeeper is $450/month and helps with all cleanings between reservations
• The maintenance guy is paid ad-hoc and as needed; I estimate only about $50/month

My overall cost of ownership is low totaling about $1000/month. My cost of operation with a full-time housekeeper and outsourced maintenance is $500/month. It is worth noting that both my housekeeper and maintenance guy help me with another penthouse too, so in reality, the cost per month is 50% cheaper per property. Meaning, that I pay my housekeeper $450/month to split her time between two different penthouses.

Rental history:

In 2017, I began renting the penthouse month-to-month at $3,400/month. I was testing the market as a new foreigner and offering something relatively new to the local market. The tenants have always been foreigners who are living or traveling abroad. This rental rate was done via a contract and rented immediately, so I knew that on the next contract I could likely increase my rates, and I did.

At the beginning of 2018, I increased the monthly rental rate to $3800. I had a guy interested in renting the penthouse for the year and he wanted a discount, so I gave it to him for $3700/month.

• In 2019, the rate was a firm $3800/month with no discounts provided. By October 2019, I decided to switch to short-term rentals and give it a try. I wanted to have the balance of being able to live in the penthouse on occasion, but also still have a great rental income. My goal was to double the rental income, so I basically looked at the monthly rental rate of $3800 and doubled that to $7600, and then divided it by 30 days. The long-term rental rate of $3800 was effectively earning $126.67/day. So I set my rental rate to $250/day (double the daily rate but rounded down by only $3). At this price, the penthouse is nearly and often 100% occupied each month, earning up to $6400/month.
  
  Then came COVID, in March 2020 when the borders around the world began to close and tourism and travel were effectively halted. The rental market changed quickly.
  1. Short-term rentals (STRs) died in more ways than one along with hotel occupancy following to 0% for several months.
  2. Many STRs were doing rent arbitrage whereby they signed a long-term contract with an owner for an apartment but then turn around to rent out that apartment for short-term rental rates to foreigners, and pocket the difference. Many of these rental arbitrage people who were carrying multiple long-term apartment contracts could no longer afford to maintain their rent with no STR tenants, so they broke their leases and about 1/3rd of the STR market in Medellin dried up within a month of the borders closing.
  3. Of the surviving STRs that were left, they switched to the long-term rental (LTR) model and found tenants for the multi-month Colombian lockdown.
  4. LTRs reduced rental rates by as much as 60%!!! Except me. I knew I had a rare and desirable penthouse for passing time during the lockdown with a lot of outdoor space, which is desirable for maintaining your sanity during one of the most strict quarantines. I had MANY offers by foreigners seeking a “COVID discount”, but I resisted. Eventually, a couple from the USA found me and paid my full long-term rental rate. Simultaneously, the USD-to-COP exchange rate became the highest ever in history! It went from 3200 pesos per dollar, to over 4000 pesos per dollar! So my cost of living during COVID went down 15% while my rentals maintained at 100%.
  5. The long-term rental lasted the duration of the lockdown for a few months, but as soon as the Colombian borders were open for tourism again, I switched it back to an STR. By December I was back to 100% occupancy with the daily rental and made another $6,400 in December. Again, I did not reduce my rental rates due to COVID because I knew the demand to travel would be high as soon as it becomes possible.

At this time of writing, I am booked all the way out until early September 2021, and already have half of October 2021 is already reserved for the short-term rentals. 2020 was a very good year for my rental properties and cost of living, and so I am feeling very confident about the future and my hedge against the USA as a location, and the US dollar.

I have just put down an offer on another property (30 acres to build out a glamping resort), and am always seeking out deals and vetting them, doing the due diligence with the help of my local attorneys and connections. There are more deals than I can possibly invest on my own. Thus far, all of my international investment for the last few years have been 100% funded by me. Now, I am considering how to find hard money lenders internationally. That being said, right now is the highest stabilized exchange rate in history. If you want to buy down here, now is the time. I have friends here who bought their properties 8-10 years ago when the exchange rate was half of what it is today. I bought way after them an effectively paid the same price. None the less, their rental properties are still making great money given the great rental-to-price ratios in Medellin. If you buy today, it is a perfect time to buy and you haven't really missed out in the 10+ years.

Here are some photos of the property that is making a killing:

I did not share photos of the entire property, just a few so you can get a feel for the quality.

@Nino G. I am actively investing and just put an offer down on about 30 acres of beautiful land. I have a few properties now with a minimum personal goal of acquiring one asset per year, internationally. 

I have done the grunt work myself. That is finding the local deals, assessing them, and having a strategy and vision on what I envision for each property. I am to the point where I don't have enough capital anymore to execute on the deals that are worth executing on. I have never sought hard money before but if I want to keep growing, I think I will have to soon. 

So far, all of my properties in South America have outperformed and continue to outperform any USA-based property I have owned, and that includes the pandemic in 2020 when the borders were closed. My best performing property earns $6,400/month (yes, that is USD) on a property that costs $315,000 to buy. With furniture, decor, etc added in...it was about a $350,000 purchase to get into the nice rental that it is today. I will save the details for a dedicated post.

On another note, there is definitely a lifestyle aspect that comes into play. But it is loosely correlated to real estate investment. For the most part, to save big on taxes, you should establish a legal residency outside the USA. To do that, one of the easiest paths to get residency in another country is by purchasing a property. However, you don't have to buy a whole house or something expensive. The thresholds to obtain legal residency in a foreign country vary, so you essentially just need to invest a minimum to get started. For example, here in Colombia, you can invest around $35,000 into a property, share of a hotel, etc. and it would be enough to qualify you for the 2-year resident VISA. That is enough to get you the awesome tax benefits for the next couple of years, which would more than pay for the initial investment. I should probably make a separate post about this and how it works and why it is beneficial for many. 

I wouldn't do it. The numbers don't make sense. The few people I know that have tried this in Las Vegas in the last 10-years don't have good stories to tell.

@Felipe Lois Affini thank you for the information. I have the "Compra e Vendra", but I have to take it to the Cartorio de Notas to get the "Matrícula de Registro de Imóvel" (deed). However, after researching it, I found out that the later is not applicable to favela properties. That is where the rules differ.

You have to work with multiple agencies/offices to get all the paperwork you need to be registered with each of them. I appreciate the information.

@Felipe Lois Affini Good questions. I am looking into the type of deed that I have and will get back you on that. I do have a contract, though I imagine enforcing one can be problematic. The primary consideration is time versus money, the cost of an attorney versus the loss of rent and to consider whether it's worth hiring one in certain situations. You are right that there is a whole other kind of risk in those areas and it's why I have only invested in one. It has only been a little over a year and so I feel it's still early to make a good guess on how things will play it, especially since we are dealing with unprecedented times. What are the differences between "Escritura de Compra e Venda" and a "Matrícula de Registro de Imóvel"?

@Bruce Lynn I do have a title/deed, but evicting in a favela does not work like in the USA in these properties. In a worst-case scenario, it would be aggressive and violent tenants who don't want to leave and would physically resist removal from a property and that could be dangerous. If talking doesn't work or legal action, then I would have to hire police and assistance to get them out. I hope that never happens. Picking the area and tenants is very important. And as Felipe mentioned, their history is complex and varies by area, so who knows what the future holds. For now, things are good and I don't expect them to change. If COVID-19 hasn't changed it, it's going to take something significant in the local area for that to happen.

@Mike Lambert well said. 

The USD to BRL exchange rates is an all-time high and historically have been improving. That makes your investment better since you are effectively by assets at a discounted rate.