Everyone wants a finca
For anyone who has traveled in Latin America, a Colombian finca is a true dream. Imagine a cute house, overlooking beautiful, green, lush hills, with perfect weather all year round and access to delicious fresh vegetables, fruit, and meat.
I looked into it in the past for myself, as a lifestyle property. I tried to make the numbers work to see how I could own my dream finca and still get a decent capitalization rate thanks to Airbnb. Each time the numbers never quite added up.
So last time I was in Colombia, I was hanging out with Mauricio, my Swedish realtor in Medellin, and he told me his plan for the afternoon was to drive to a finca to check it out as a potential listing as the owner had contacted him.
I tagged along for the one hour drive to the finca, and we ran all the numbers with the seller as she gave us access to her Airbnb profile.
Lifestyle
I reach the same conclusion each time; such fincas offer amazing lifestyle, but aren’t great for passive rental income. However, do have a look at the video to see the sort of lifestyle that Medellin and its surroundings have to offer. It’s part of the investment case for Medellin as a whole.
If you want good capitalization rates / rental yields, you must invest in Medellin itself. I wrote a whole article on the real estate investment market in Medellin.
I like it so much I invested there myself.If you are looking to invest in Medellin, or would like a lifestyle finca nearby, do reach out to Mauricio.
To a World of Opportunities,
The Wandering Investor.
Other articles on Colombia:
- Is it too early to make a Real Estate Investment in Bogota, Colombia?
- Making a Real Estate Investment in Cali, Colombia – the next frontier?
- Making a Real Estate Investment in Medellin, Colombia – unusually high yields
- Actual Capitalization Rates / Rental yields in Medellin
- Penthouse Investing with High Yields in Medellin
- Is Colombian real estate still investable following the election of Gustavo Petro?
- Double-digit yields in Bogota for Airbnb multifamily units
- 12% net capitalization rate and rental yield in Cali, Colombia
- Pros and Cons of living in Medellin, Colombia
- Investing in Bogota real estate – Possible bottom? Market update
- I bought a Penthouse in Medellin, Colombia
Other services in Colombia:
- Real Estate Lawyer in Colombia
- How to obtain residency in Colombia
- My favourite real estate agent in Medellin
- My favourite real estate agent in Bogota
If you want to read more such articles on other real estate markets in the world, go to the bottom of my International Real Estate Services page.
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Transcript of “Afternoon trip to a Finca for sale near Medellin – with ROI numbers”
LADISLAS MAURICE: Hello, everyone. Ladislas Maurice from thewanderinginvestor.com. So today, I’m in Medellín, and we’re going to do something fun with Mauricio.
MAURICIO: Yes. So we had, about a week ago, owner who reached out and want to list her property with us. So it’s a little bit special, it’s out of the city. According to the seller, it’s a 30-minute drive. According to Google, it’s an hour.
LADISLAS MAURICE: Yeah.
MAURICIO: So let’s see who wins there. And we will go. It’s a house out in the woods with a lot of plot of land. We haven’t got the square meter yet, so we’ll go and check it out. And she says that the big opportunity is that you can build more houses on this plot of lot. And the house is, according now, renting for about $50 – $70 a night.
LADISLAS MAURICE: Okay. And the total price is a bit over $200,000.
MAURICIO: $200,000.
LADISLAS MAURICE: So essentially, this is just a trip. You haven’t seen the property?
MAURICIO: Haven’t seen the property. I got a feeling about the numbers, so we’re going to go out there, we’re going to ask her for Airbnb, get all the facts, all the right data, put it into our investment document and see what it comes down to. So I’m pretty excited.
LADISLAS MAURICE: Yeah. So essentially, we’re just having beers and then we were wondering what to do this afternoon. And he was like, “Oh, I wanted to go check out this property, see if it’s a good listing.” So I’m just going to follow Mauricio, the real estate agent here in Medellín.
MAURICIO: [laughs] Yes.
LADISLAS MAURICE: Follow his process, and we’ll see what he does when he’s doing his due diligence on a property here.
MAURICIO: Yeah, let’s go.
LADISLAS MAURICE: All right. Cool. Let’s go. Mauricio?
MAURICIO: Hey.
LADISLAS MAURICE: What happened here?
MAURICIO: I got robbed.
LADISLAS MAURICE: You got robbed?
MAURICIO: Parked the car in the streets, so yeah, don’t do that.
LADISLAS MAURICE: Gosh. All right. Let’s go.
MAURICIO: Okay.
Trip to the Medellin finca
LADISLAS MAURICE: Looks like we found the place?
MAURICIO: I found the place.
LADISLAS MAURICE: Okay.
MAURICIO: [laughs]
LADISLAS MAURICE: Yeah, you need– Okay, so note to self, if you buy this place. Gosh. You need–
MAURICIO: [inaudible 02:10] for a driver.
LADISLAS MAURICE: Yeah. Oh, my God. Yeah, you need a good 4×4 or something. All right. Wow. All right. So Mauricio is getting insulted by his business partner, being called a bad driver. [laughs] I’m staying out of it. [laughs] Well done, Mauricio.
MAURICIO: Thank you.
LADISLAS MAURICE: How do you feel?
MAURICIO: Yeah, with less package in the car, it was easy. [laughs]
Viewing the Medellin finca
LADISLAS MAURICE: [laughs] So Mauricio, what do you think of the impact of this entrance, the road on the valuation of the property or the Airbnb?
MAURICIO: I think it should be improved, like, the way up here should definitely be like an easy way up so that you don’t have problem with people arriving to the property.
LADISLAS MAURICE: Okay.
MAURICIO: So have that in mind.
LADISLAS MAURICE: Cool.
MARIANA: Hello, guys.
MAURICIO: Hey, how are you?
MARIANA: How are you?
MAURICIO: Nice to meet you.
MARIANA: Nice to meet you. Mariana. Nice to meet you.
LADISLAS MAURICE: Hi. Ladislas.
MARIANA: Okay, you’re welcome.
LADISLAS MAURICE: Cool. Nice house.
MAURICIO: Nice property. After you.
MARIANA: Thank you very much.
LADISLAS MAURICE: When was it built?
MARIANA: It was built in 2021.
MAURICIO: So recently, huh?
MARIANA: Yes.
MAURICIO: Nice.
MARIANA: It was two years ago.
MAURICIO: How big did you made it?
MARIANA: The house is 120 meters and the land is 2,200 meters.
LADISLAS MAURICE: Okay.
MAURICIO: 2,200.
MARIANA: On papers. In reality, it’s 2,600 meters.
LADISLAS MAURICE: Is this common, Mauricio, in Colombia, to have a difference between what is on the title deed and what is in reality?
MAURICIO: Super common, and the reason is because of taxes.
LADISLAS MAURICE: Okay. Yeah, my own [laughs] my own property in Colombia. I’m just asking this question for the episode but my own property is like this. So yeah, it’s pretty common.
MAURICIO: Yeah, yeah, yeah.
LADISLAS MAURICE: Cool. All right. Why is there a camera in the kitchen inside of the Airbnb?
MARIANA: Because when we build this house, we want to have our security, because we are not too far from the city but we needed the cameras. It’s the only that we have inside the house.
MAURICIO: The only one?
MARIANA: The only one.
LADISLAS MAURICE: Not in the bathrooms or in the bedroom? [laughs]
MARIANA: No. [laughs] No. No. No.
MAURICIO: [laughs] You ever have had any complaints? You rented it out to Airbnb before?
MARIANA: We only have one complaint, but the guy, he has said one time it was good and the second time he was [inaudible 04:45] the camera.
MAURICIO: Okay.
LADISLAS MAURICE: Where was he from? Was he American or Colombian?
MARIANA: No, he is Russian.
LADISLAS MAURICE: Russian?
MAURICIO: Russian?
MARIANA: Russian.
LADISLAS MAURICE: Yeah.
MAURICIO: Okay.
MARIANA: Yeah.
LADISLAS MAURICE: Yeah, Russians don’t want cameras. I wouldn’t want a camera. I wouldn’t be happy if I saw this in an Airbnb. But anyways, the buyer wouldn’t have to deal, could just remove it, so.
MAURICIO: Yeah, yeah, yeah.
LADISLAS MAURICE: Cool.
MAURICIO: So you have the kitchen here. What you have behind?
MARIANA: Back there, the machine.
MAURICIO: Okay. The cleaning area.
MARIANA: The cleaning area.
MAURICIO: So washer, dryer. That’s a big heater. So all the showers get heated at the same time? If everybody showers simultaneous–
MARIANA: Yes.
MAURICIO: Nice.
MARIANA: Also, the–
LADISLAS MAURICE: Yeah, the view’s amazing.
MAURICIO: Yeah.
LADISLAS MAURICE: Gosh. The view is really amazing.
MARIANA: That’s our back.
LADISLAS MAURICE: Yeah.
MARIANA: [It’s 30 meters
LADISLAS MAURICE: Very nice.
MAURICIO: So you’re overlooking the valley right down there?
MARIANA: It’s Copacabana, and after Copacabana is Guarne, and then Santa Elena.
MAURICIO: Santa Elena.
Discussion of target market, occupancy rates, construction costs, land costs
LADISLAS MAURICE: Do you have bookings during the week or only on weekends? Because this is essentially a weekend destination for people from Medellín.
MARIANA: People from Medellín or from Colombia, normally, they visit us in the weekend. During the weekend.
MAURICIO: Yeah.
LADISLAS MAURICE: Okay.
MARIANA: But also, we have a lot of–
MAURICIO: Might I ask you, what the nightly price is the weekends?
MARIANA: COP 500,000 per night.
MAURICIO: COP 500,000?
MARIANA: Yes.
MAURICIO: So $100?
MARIANA: For a couple. For a couple.
MAURICIO: For a couple?
MARIANA: Yes.
LADISLAS MAURICE: Okay. What’s your occupancy rate?
MARIANA: Fifty percent in this moment.
LADISLAS MAURICE: Fifty percent. Okay, cool. Can we go into the computer and go through your Airbnb profile to see exactly your bookings, how much you cashed out, etc.?
MARIANA: Yes, of course.
LADISLAS MAURICE: Cool. Okay, great.
MAURICIO: Nice.
LADISLAS MAURICE: I think that’ll help doing the numbers.
MARIANA: We are Superhost. We are Superhost.
LADISLAS MAURICE: Superhost, okay.
MAURICIO: It’s good when we’re talking about it. So how many reviews you have on Airbnb right now?
MARIANA: Right now it’s 23 reviews.
MAURICIO: Twenty-three. And you–
MARIANA: Yes. But not all the people [laughs]
MAURICIO: Leave reviews?
MARIANA: Leave us the reviews.
MAURICIO: So this is the master bedroom right there?
MARIANA: Yes. That keep–
MAURICIO: High ceiling?
MARIANA: Yes.
MAURICIO: What is that, 3.5?
MARIANA: More.
MAURICIO: Four?
MARIANA: Four.
MAURICIO: Four meters.
MARIANA: Four meters.
MAURICIO: Nice.
MARIANA: And this is our bedroom. Main bedroom. You can enter. You can open, if you want.
MAURICIO: Very nice, yeah.
MARIANA: Yeah. The [crosstalk 07:19] is there.
MAURICIO: It’s very modern, yeah.
LADISLAS MAURICE: This is where Mauricio would be on TikTok. [laughs]
MAURICIO: [laughs] Here, linen as well. It’s nice.
LADISLAS MAURICE: Cool.
MAURICIO: It’s nice, even the view from the bedroom, too.
MARIANA: Yes.
LADISLAS MAURICE: So of the bookings, out of 10 bookings, how many bookings are Colombians and how many bookings are foreigners?
MARIANA: I think that is 60% is foreigners.
LADISLAS MAURICE: Sixty, six-zero?
MARIANA: Yes.
LADISLAS MAURICE: Six-zero is foreigners.
MARIANA: Yes.
LADISLAS MAURICE: Oh, wow.
MARIANA: And 40% is Colombian.
LADISLAS MAURICE: Okay. And the foreigners who come here, is it foreigners who live in Colombia or is it tourists?
MARIANA: In Medellín, and Bogota, and Cali.
LADISLAS MAURICE: Okay.
MARIANA: In the [inaudible 08:09].
LADISLAS MAURICE: Okay, cool.
MAURICIO: How is the Wi-Fi connection out there?
MARIANA: Today, is 10 Megabits.
MAURICIO: 10 Megabits.
MARIANA: Because it’s not possible to–
MAURICIO: I know, Fibra.
MARIANA: Yeah.
LADISLAS MAURICE: Okay, cool. Great. I think this gives us a good idea of the space. And then you were saying– So wait, is there space to build another house if we buy the plot of land?
MARIANA: I don’t understand.
MAURICIO: [Spanish language]
MARIANA: [Spanish language]. Yes, of course.
LADISLAS MAURICE: [Spanish language]
MARIANA: [Spanish language]
MAURICIO: Like, having exactly like this?
MARIANA: Yeah. Yeah, because the prices are increased.
MAURICIO: Increased?
MARIANA: Yeah.
LADISLAS MAURICE: Okay. So about $100,000 – $110,000 gets you another house like this?
MARIANA: Yes.
LADISLAS MAURICE: So you’re selling this for COP 950 milliones, you told Mauricio?
MARIANA: Yeah.
LADISLAS MAURICE: So that’s about $211,000. And then an extra $110,000 gets you this structure, essentially, there. I guess you’d have to dynamite these rocks. Or here.
MAURICIO: You had an architect here looking–
LADISLAS MAURICE: There would be space for three, actually.
MARIANA: Yeah.
LADISLAS MAURICE: There would be space for two more.
MAURICIO: Where did they say that would be a good spot to put it? Here?
MARIANA: They say that there. There or there.
MAURICIO: So they could, potentially, make three and make it into like a little glamping-ish?
MARIANA: Yeah, of course, it’s possible.
MAURICIO: It’s possible.
LADISLAS MAURICE: Okay. So essentially, when you break it down, $210,000 for this house. Building one would be about $110,000. So this means $100,000 for the land divided by 2,500 square meters in actual land, it’s about $40 per square meter for what is mostly buildable land. When you just look at the house and you say $210,000, I don’t know, what do you think? Do you think expensive, not expensive? You have a few listings of houses and fincas around Medellín. What are your thoughts?
MAURICIO: I think depends a lot of what the numbers on Airbnb comes out to.
LADISLAS MAURICE: Okay.
MAURICIO: So we get that information, we put in correlation to what the asking price is, and then I can give a better. So when we get back to the computer, give an honest answer on that. But the land price it’s pretty fair for the amount of time from Medellín to come here, and the potential to build more buildings.
LADISLAS MAURICE: Okay.
MAURICIO: I think it’s, yeah.
LADISLAS MAURICE: So you think $40 per square meter for this area is fair?
MAURICIO: It could be fair, yeah.
LADISLAS MAURICE: The house, $110k. So essentially, the land, $100k. Is this land worth $100k? That’s kind of the big question. I don’t know. I don’t know this area well, so I can’t say. $40 a square meter. It’s not flat land, it’s land that goes like this. So this, obviously, comes at a discount. But essentially, if I were to come here to buy this, I would be negotiating not on the price of the structure but negotiating on the price of the land. So that would be the conversation that you and I would be having. [laughs]
MARIANA: Yeah. [laughs]
LADISLAS MAURICE: What I do like is that you can build more so then, in terms of efficiencies, if you’re going to be running an Airbnb operation, it’s a lot easier. Because trying to find, like, who does the cleaning here?
MARIANA: We have a woman that clean us. And she lives around this area.
LADISLAS MAURICE: How far away?
MARIANA: [Fifty, hundred meters].
LADISLAS MAURICE: Okay. How much do you pay for one cleaning?
MARIANA: I pay COP 40,000.
LADISLAS MAURICE: Okay.
MARIANA: Because, in four hours, she does the task.
MAURICIO: The cleaning.
MARIANA: Yeah, the cleaning.
LADISLAS MAURICE: Okay, so $9 for the full cleaning of the house.
MAURICIO: Four hours’ work, yeah.
LADISLAS MAURICE: For four hours of work.
MARIANA: It’s cheaper.
MAURICIO: Great information. So the only thing we have left is to look at the actual Airbnb listing.
MARIANA: Okay.
MAURICIO: If that’s fine?
MARIANA: Yeah, of course.
Airbnb income from the Medellin finca
MAURICIO: Okay, perfect. So here we are. We’re now seeing the full listing on Airbnb. And owner has done a great job with the reviews. They have 23 reviews, 4.78 star. Nice photos. And, yeah, that’s about it. And the most important part here is the numbers. So we chose to get a whole year. We took April 2022 to March 2023. That is, in total, COP 38 milliones, which is, roughly, $8,500. And we, normally, just to keep it on the safe plan, like, take 40% in expenses. So let’s do that. $8,500, the remaining part is, obviously, 60%. Here we go. Yeah, roughly, $5,000 you get a year. And they are investing, roughly, $211,000. So that investment, we can see, net, $5,100 divided by 2,000. So you’re looking at about 2.5% returns on investment on cash and cash. And it’s not the best investment. It’s not a pure investment. It should also be looked in that case as a lifestyle investment.
LADISLAS MAURICE: Yeah.
MAURICIO: And to have in mind the land that you can build extra house, but then you’re looking at COP 500 milliones extra, so it’s–
LADISLAS MAURICE: Doesn’t make sense.
MAURICIO: Yeah.
LADISLAS MAURICE: Yeah, even building if it’s $100,000 for the structure, with all the furniture, and all you’re getting is $8,500, you’re making $8,500 gross, yeah, doesn’t quite make sense. And then it makes the place less nice.
MAURICIO: Yeah. So for pure investment, you would probably have to lowball the place with 40% this.
LADISLAS MAURICE: Yeah, which won’t happen.
MAURICIO: No, no, no.
LADISLAS MAURICE: So this is a lifestyle play?
MAURICIO: Yeah, lifestyle play. You get a good cabin close to the city, you can use it whenever you want, get some extra income. You’re definitely covering your expenses, which are low. But yeah, that’s to have in mind, for sure.
LADISLAS MAURICE: And I think that’s something I see a lot of foreigners, they come to Colombia, they hope to get these really nice fincas, and live the dream, and have these views, and have their cows, and live in peace, and blah, blah, and when they’re away, make a lot of money on their Airbnb, or they just want to put it on Airbnb all year long and then have just like one week a year there. When you do this, you just need to know that it’s a lifestyle decision. Because I’ve looked at it myself because I like it. I looked at a lot of fincas. I was trying to make the numbers work. Because I would have liked this for lifestyle but I was never able to make the numbers work.
MAURICIO: Not same with a city apartment. For sure, not.
LADISLAS MAURICE: Yeah. Yeah. Like, if you want money, if you want good returns, you buy a Medellín real estate. If you want this sort of lifestyle, I mean, it is what it is. I’d say, I don’t know, I’m not going to comment on what the owner is doing, but I would say that you can probably add another 10%, 15% to these numbers in terms of people staying a bit longer, or re-bookings, people paying cash, etc.
MAURICIO: Also, the owner did use it as a lifestyle, so they were using it, sometimes, during the week, some weekends booked off the date. So they haven’t maximized this property. But still, you’re not looking at a double, for sure not.
LADISLAS MAURICE: What was your occupancy rate, roughly?
MARIANA: Fifty percent.
MAURICIO: Fifty.
LADISLAS MAURICE: Fifty percent. Okay, so lifestyle, you get 2½% net capitalization rate, or rental yield, and you have the worst of the 50% [laughs] available for your usage. And if you start going into keeping it over weekends or over the holidays for yourself, then you’re eating your yield.
MAURICIO: Yeah.
LADISLAS MAURICE: Cool. So Mauricio, do you have a lot of listings like this around Medellín? If people with these sort of–
MAURICIO: Our typical listing is not like this. Our typical listing would be in the city because that’s where we operate and it’s close to get out in emergencies. So that’s what we focus on. But we do have listings like this for sale, but not a ton.
LADISLAS MAURICE: Not a ton?
MAURICIO: Not a ton.
LADISLAS MAURICE: Okay. But you do have a few lifestyle listings?
MAURICIO: Yeah. We have here, in Barbosa, we have in Santa Fe de Antioquia, El Jardín is another pueblo we also have certain properties. And you’re looking about the same returns.
LADISLAS MAURICE: Okay.
MAURICIO: About the same returns.
LADISLAS MAURICE: Okay.
MAURICIO: It’s more a lifestyle choice.
LADISLAS MAURICE: Cool. I think this was a very healthy exercise for people in terms of helping people manage their expectations, one, if they want to buy their little house or finca out in the mountains here near Medellín. I think this really shows what the reality is in terms of the numbers.
MAURICIO: Yeah. I think more than anything here will also potentially be an increase of value of the property more than the cash flow.
LADISLAS MAURICE: Yeah. Yeah, potentially.
MAURICIO: Yeah, potentially.
LADISLAS MAURICE: Maybe, maybe not. Cool. So if you’re interested in Medellín real estate, I wrote a whole article on all of the neighborhoods in Medellín, where to invest, where not to invest, all the yield calculations, etc. There’s a link below. If you want to get in touch with Mauricio and his team, he’s got a whole team, and they can help you find investment real estate in Medellín, or also if you’re just looking for lifestyle, whether in the city or here around the countryside, just get in touch with Mauricio. There’s a link below, as well his email, and then you can get in touch with him.
MAURICIO: Or, if you want to rent a place and not buy it, then keep in touch.
LADISLAS MAURICE: Yes. [laughs]
MAURICIO: [laughs]
LADISLAS MAURICE: Yeah, yeah.
MAURICIO: Okay.
LADISLAS MAURICE: Sounds good. All right.
MAURICIO: Thanks a lot, as always.
LADISLAS MAURICE: Thank you.
MARIANA: Okay. Take care. Bye.
MAURICIO: Thanks.
MARIANA: Thank you very much.
