I previously wrote a long article on real estate in Medellin, which I found very attractive from an investment point of view, for those who are willing to take Colombia risk. I encourage you to read the first part of that article as it gives a macro overview of the situation in Colombia (article here).
Cali has a terrible reputation, but it is improving
Whenever one mentions Cali, people have images of violence and drug cartels. At a point in time this was true. However, though still ranked number in Colombia in terms of violent crime, the overall situation has now improved.
Looking at homicide rates, Cali ranks lower than St Louis and Baltimore. The reality is that crime is concentrated in the poor areas of the city, where foreign real estate investors don’t tend to hang out much.
Nowadays, Cali’s image is improving. It is the capital of Salsa dancing, and is also a big destination for medical tourism, particularly plastic surgery and dental work. The region also has a lot to offer in terms of hiking and nature.
Also, with Medellin having become very popular with foreigners, Cali is increasingly seen as a great, alternative love tourism destination.
But Cali is not just about tourism
Traditionally, the ports on Colombia’s Caribbean coast were the main drivers of the economy due to the country’s deep trade links with North America and Europe.
However, as the West starts its gradual relative decline, the reality is that Colombia’s trade will increasingly move East, which is great for the country’s main Pacific port Buenaventura.
Buenaventura is a mere 2h30 hours drive away from Cali, and is rather crime-ridden, so many logistics companies choose to have their headquarters in Cali rather than Buenaventura as attracting talent there is very challenging. As Colombia continues to develop its road infrastructure, Cali becomes ever more accessible by road.
Short-term rentals are fully booked
As discussed in the video below, the reality is that doing short-term rental in Colombia is complicated due to regulations. To be able to rent out an apartment for less than a month, the owner must have the approval of the majority of the home owners association, which never happens.
This leaves investors with two options for short-term rentals.
- Buy a small house. The issue with this option is that small houses are typically farther away from the main touristic areas, and not many are for sale. Also, the lack of security can be an issue for some tenants.
- Buy a whole building, and make your own rules.
Occupancy rates of 85%+
I sat down with my friend Patrick, a Dane living in Cali, and he showed his statistics for rentals in Cali. I was impressed with these numbers. He managed to get his investors net yearly rental yields of more than 10%.
Long-term rentals are not a good real estate investment in Cali, Colombia
Just as in Bogota on which I also wrote a report, Medellin, and every other city in Colombia, long-term rental are absolutely not interesting. You can generally expect gross yields of about 4% before any deductions.
If I were to make a real estate investment in Colombia, I would just be looking at the short-term market, or the mid-term market targeting the booming North American digital nomad influx.
So where should I make a real estate investment in Cali?
Most locals will tell you to go to the South of Cali. I agree that the south is much nicer from a lifestyle point of view, with a lot of trees, more space, private compounds with security and gardens, relatively modern malls, better infrastructure, less traffic etc.
However, what makes a good lifestyle decision does not necessarily mean a good investment decision. The reality is that tourism is primarily in the North/North West of the city. Additionally, we’ll see more development in the North as the city develops as this is where the road connections are located and future logistics hubs will be built.
All the cool bars and restaurants are there. There’s a really cool and fun road called Avenida 9 Norte. If you’re in town for a few months or weeks and want to hang out, meet people, and have fun, this will be the default area. Strong demand for rentals.
Cute district of historical, colonial houses. It might not be a bad plan to make an investment there long term. For now it’s mostly relatively cheap hostels and such, but I can definitely see how this area could gentrify. It’s a good place to buy a whole house.
Premium area in the North West with bars and restaurants. Locals like it. People who have lived in Cali for a long time say it’s very nice due to green areas, museums and walk-ability to Granada and San Antonio. Personally I didn’t quite see the value proposition versus Granada, but this is from the perspective of someone who only spent a few days in Cali.
The area looks beaten-down and is certainly rough, and not just around the edges. But wow, some of the buildings are absolutely gorgeous, and are sold for next to nothing. Long term, I think this could be a great investment for patient investors.
The best real estate investment in Cali, Colombia, is to buy a WHOLE building
I spent a lot of time with Patrick. He’s a Danish national who has been living in Cali for many years, and helps foreigners enter the Cali market.
He has undergone a few projects whereby he buys a whole building for investors, renovates it completely, and then rents out the units on the short and medium term. Patrick and his partner offer property management services as well so the investments are turn-key.
He was showing me the numbers, and they were quite spectacular; Patrick is able to get 10-12% net yields, before income tax, on such investments.
How much does it cost to buy a whole building in Cali?
In the prime areas of the north, Patrick can source buildings for $300-$350 per m2 (+-$30 per ft2). He then adds about $700 per m2 (+-$63 per ft2) for a full, high-end renovation including furniture.
So for about $1,000 per m2 (+-90 per ft2) you make a real estate investment in Cali and have an ENTIRE building right in the center, fully renovated with high-end specs and net yields of 10%-12%.
This is a unique proposition.
This Excel file are the projections for one of Patrick’s turnkey investments that he is setting up for one of his clients. It is truly insightful. If you interested in such a project for yourself,
Below are the 2021 audited actuals for a building that cost one of Patrick’s investors $2 billion COP.
So in Covid 2021, Patrick’s investor still managed to make a pre-tax profit of 12% ($242 million COP) on invested capital. Imagine what it’ll be now that the borders are open again, and his occupancy rate is through the roof…
You can reach Patrick by email: firstname.lastname@example.org.
Are individual apartments also a good real estate investment in Cali, Colombia?
Sure, just as in Medellin I am sure that you can find apartments that could give decent yields in the mid-term market. However Medellin has a lot more liquidity for sales, and the yields are similar. The only difference you get with Cali is that it is cheaper, and thus has potentially more upside.
What I find unique about Cali is the price for these full buildings. Typically, in most markets, buying a whole building comes at a premium. In Cali they come at a heavy discount. All in, Patrick was able to offer one of his investors a full building, with 7 fully renovated luxury apartments in the core center of the city for about $1 million.
This is a steal.
Homes in the historical district of San Antonio also offer portfolio diversification
This historical house that I went to see is right in the middle of the historical district of San Antonio. It consists of 3 stories of a surface of 200m2 each. The price tag is $370,000, bearing in mind that prices are very much negotiable in Colombia.
This house is currently set up as 13 separate apartments, which should net about $2,100 per month after expenses if fully rented out on a long term basis. Essentially, it’s one of those investments that would yield 4%-5% net, taking into account maintenance, vacancy, taxes, etc.
I find the value proposition that Patrick offers to be more interesting as he buys buildings that need to be completely renovated, guts them out, and turns them into very rentable luxurious units.
This house in San Antonio is only partially renovated, which is typically frustrating as I hate paying for partial renovations. I prefer either fully renovated, or not at all. But what you get is a piece of history, which is a different portfolio play.
What are the risks of making a real estate investment in Cali?
I mentioned all of the risks I see in my article on Medellin. Colombia is not risk free. But when you’re buying whole buildings for $300 per m2 in the core center of a city of over 2 million people, the downside risk is objectively rather limited.
Additionally, such an investment would also qualify the investor and his family for a 5 year investor visa which can lead to citizenship down the line.
Watch this video I did with Patrick on making a real estate investment in Cali, Colombia
In this video he showed me an individual apartment and then elaborated on his recent full-building-project for one of his investors.
Patrick offers the following services:
- Putting you in touch with competent local agents to find a good apartment or house for investment or lifestyle purposes in Cali – and making sure you don’t overpay.
- Consulting if you just want to talk to him.
- Turnkey projects for large investors who want to buy a whole building (his main occupation).
- Property management.
You can reach Patrick by sending him an email: email@example.com.
Much more content…
Other articles on Colombia:
- Making a Real Estate Investment in Medellin, Colombia – unusually high yields
- Is it too early to make a Real Estate Investment in Bogota, Colombia?
- $100,000 investment house in Medellin, Colombia
- Is Colombian real estate still investable following the election of Gustavo Petro?
Other services in Colombia:
- Real Estate Lawyer in Colombia
- How to obtain residency in Colombia
- My favourite real estate agent in Medellin
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.
If you want to discuss your internationalization and diversification plans, book a consulting session or send me an email.