$100,000 house with good returns in Medellin

Jul 14, 2023 | Private List update

https://youtu.be/2-pDRIH_EqA

$100,000 house with good returns in Medellin (https://youtu.be/2-pDRIH_EqA)

Video: $100,000 house with good returns in Medellin

I have to say that I like Colombia. It’s beautiful, easy to get in (Colombia loosened entry restrictions two days ago), there are many immigration programs, real estate is affordable, and it’s a generally fun place.

I wrote in the past about real estate in Medellin (interesting), Bogota (not interesting), and Cali (interesting).

I challenged my Swedish realtor, Mauricio, to show me something different from the usual apartments with stunning views (as per our previous video together here).

He showed me this house going for $100,000, in Laureles, one of the best neighbourhoods in Medellin. Granted, it’s a modest home. But one can obtain very reasonable yields, at a low price point and low price per square meter / foot, and because it’s an independent house the investor does not have to deal with expensive homeowner fees.

Also, the yearly property tax is $100 (!)

You can watch the video here. We also did a full net rental yield calculation.

Medellin is unique because of high yields and great lifestyle

It’s quite hard to find markets where the yields are high, and yet the lifestyle on offer is also great. What makes Medellin particularly appealing is that the city has amazing weather all-year round, so there is a lot of tourism and you can use your apartment whenever you choose to without massively compromising your rental returns.

However do monitor the upcoming presidential elections in Colombia. A win by Petro, the socialist candidate, would have an impact on potential capital gains, though I doubt it would deter tourism in the short to medium term.

Feel free to get in touch with Mauricio here. He can help you with your real estate investment needs in beautiful Medellin.

To a World of Opportunities,

The Wandering Investor

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Transcript of “$100,000 house with good returns in Medellin”

LADISLAS MAURICE: Hello, everyone. Ladislas Maurice from thewanderinginvestor.com. So this evening, we’re going to go to a little house here in Medellin, meet up with Mauricio, who helps people make investments in Medellin. And we’re going to have a look at the house and then do all of the calculations to see the exact net rental yields that one can obtain after all the deductions, etc.

So unfortunately, we have to do this in the evening because that house, the owners couldn’t show it during the day. Medellin is not the safest place. But around here, in Laureles, it’s relatively okay. It’s a very residential area. So there are two main areas that are investable in Medellin. One is El Poblado, which is the main touristic area and local people with money like to live. And there a lot of restaurants, quite a few hills, apartments with amazing views, etc. And then there is Laureles, which is a little farther away, which comes at a 20% to 30% discount, but which is very pleasant as well.

A lot of cool restaurants right there in that direction behind me. There is an area with approximately 50 restaurants, they’re all pretty cool, really nice designs. There’s an area with a lot of bars and nightclubs close to the university. So it’s a fun area and it’s flat, so it’s very walkable. So a lot of digital nomads, when they come for a second time to Medellin, like to stay in Laureles, because it is more walkable and it’s a little bit more local than the whole El Poblado area. But both areas, honestly, are really cool from a lifestyle point of view and offer very decent investment prospects.

Why invest in real estate in Medellin, Colombia

Before coming to Medellin, I had very modest expectations of the city because it’s been so well marketed. Same thing for the real estate market here, but I’ve been actually really impressed. The city is cool. And real estate is very affordable. And the yields, if you target the midterm market, so rentals from one month to a year, targeting specifically Americans, the yields are extremely attractive. Millions of Americans in the last year or so have realized that they can work entirely remotely. And the same people increasingly believe that the situation in America is quite toxic, so they’re happy to leave. And Colombia, as well as Mexico, offer a great lifestyle, great weather, it’s very affordable, and it’s the same time zone.

So the rental market right now in Medellin is super, super hot. All the agents I am talking to have occupancy rates of 85%, 90%, 95%, even. It’s quite incredible, actually. So we’re going to go check out a little house. It’s not necessarily the nicest of houses, but I just thought that it looked like very good value for money. It’s going for about $100,000, 94 square meters, three bedrooms in Laureles. I mean, just look here, it’s cute. See, like tons of cute little restaurants around. You just go into one. It’s like very affordable. In terms of menus, so you can see in terms of salads, here, you get good salads for, what, for $7. So here you can have steak, barbecue, like large pizza for $10, in one of the better areas. And it’s definitely not going to be small.

Little parks. This is just like an average area in Medellin. Some foreign dude with a cute girl. It’s very green. And that’s what I like about this area, it’s very, very green. Great. So I just got here. I’m in front of the house. So we’re going to do a little walkthrough really quickly, and then we’ll sit down with Mauricio, who is my Swedish-Colombian agent here, and we’ll go through the numbers, because it’s quite interesting. Little residential streets. So really, we’re in Laureles, five minutes away from really the core of Laureles. So good location, not core-core, but still a very good location.

And it’s this little house. So there are two separate title deeds, one for the apartment that we’re going to go see and for the one up there. So that’s another family that’s living there. But essentially, the way things are structured is that you really own the property and you can decide whatever you want to do with it. So Airbnb is a possibility. So this is really not the typical house-viewing of Medellin that you see on YouTube. Typically, on YouTube, people will show you amazing apartments with stunning views, etc., of which there are many. I agree, there’s some amazing real estate in Medellin. But here, I just wanted to show an easy, small, affordable yield play, a bit of a no-brainer investment.

So we’ve got one bedroom here, there was the entrance. So this is a three-bedroom, two-bathroom apartment. A second bedroom, sort of living space. So we’re not talking luxury here, obviously. But this house, 94 square meters, is going for less than $100,000. It’s going for $97,000 before negotiations. Look, there are a few things that I’d work on, obviously, improve some of the finishings, but it wouldn’t be very expensive. The door was a bit weak at the entrance. Other bathroom here. So I mean, it’s decent. And the kitchen, which is still under renovation, but pretty decent.

Great. Mauricio, thank you very much for your time today.

MAURICIO: Thanks for having me.

LADISLAS MAURICE: So this, like I said, when I was showing the apartment, it’s really not the typical place that you’ll see on YouTube when people show you Medellin. But what I thought that’s interesting about this, and then when we’re looking for investments, we’re sitting together in front of his laptop, and I was saying, show me some easy, just entry-point, just no-brainer investment. And then you pointed out this house. And I think it’s very interesting. It’s, in many ways, local.

MAURICIO: Yeah.

LADISLAS MAURICE: But you believe that we could rent such a house, if furnished properly, to foreigners?

MAURICIO: Yeah, for sure. And the first reason would be the location. The location is amazing, it’s in Laureles. Just like, I think, one, two blocks away from where the really like Laureles the Second Park. And there you can find all the restaurants, all the bars, nice hotels, and the vibe is really, really nice. And then just coming up two blocks up they found this authentic Colombian neighborhood. We have like small little city houses, and you have like Colombians walking around. And it feels very like you’re not like in Europe or in US, you’re definitely like in a South American little city.

LADISLAS MAURICE: And still with all the cool amenities.

MAURICIO: Yeah, with all the pluses. And then you also have close here, you have Éxito, which is like a big supermarket.

Rental yield calculations in Medellin, Colombia

LADISLAS MAURICE: And when it comes to investing in Medellin, it’s crucial to invest in either El Poblado, or here in Laureles. This is where all foreigners essentially want to stay. So you definitely don’t want to go out of that. Let’s talk numbers. So 94 square meters, three-bedroom, two-bathroom, it’s going for 380 million pesos, which is approximately $97,000 at the current exchange rate. You were saying to furnish this place really well, how much would you need to invest?

MAURICIO: You would need about 20 to 25 million. And like 25 million, that’s definitely covering everything there.

LADISLAS MAURICE: Nice little decorations, the whole thing.

MAURICIO: Yeah, nice decoration, like nice paintings and like quality furniture.

LADISLAS MAURICE: Okay.

MAURICIO: Because cost of living here in Colombia is probably like 30% less than when you go to the US or to Europe. So it’s like you get a long way with just 25 million.

LADISLAS MAURICE: Great. So taking the initial purchase price and adding the amounts for closing costs and for furniture, we’re at about 410 million pesos, which is roughly 106,000 USD.

MAURICIO: Yeah, good.

LADISLAS MAURICE: How much typically– So I mean, you’re originally from Sweden.

MAURICIO: Sweden, yeah.

How much to negotiate for real estate in Colombia

LADISLAS MAURICE: People don’t negotiate that much in Sweden. How’s the negotiating culture here? Like how much could you genuinely expect to negotiate when you try to buy a property here?

MAURICIO: That’s a good question. Like, the average is 6% to 8%.

LADISLAS MAURICE: 6% to 8%?

MAURICIO: Yeah. But it’s a lot of these where the seller comes out and asking like 20%, 30% more than they’re willing to sell it for. So what you do then it’s like you lowball and they see what’s happening. You wait some time. You make sure that the seller knows that you have a different like other objects that you’re looking at, at the same time. And then you can see. But normally, 20% to 30% is not very unusual.

LADISLAS MAURICE: To negotiate 20% to 30%, or you mean to throw a lowball?

MAURICIO: Lowball offer under 20% to 30%. And then you see the reaction from the seller.

LADISLAS MAURICE: Okay.

MAURICIO: And if they’re like–

LADISLAS MAURICE: But generally, in the end, sellers accept what sort of discount?

MAURICIO: I think we’ve seen it’s 6% to 8% is very normal.

LADISLAS MAURICE: Okay. Because a lot of markets, if you throw 30% below the asking price, people don’t respond.

MAURICIO: They won’t even look at you, yeah.

LADISLAS MAURICE: Yeah, they don’t.

MAURICIO: For example, in Sweden, where I come from, there’s like you set up a price, and like it’s a bidding war to get the house. This normally goes for like one week, two weeks, but if it’s longer than one month, then it’s too long. While here in Colombia, the average price a house can be on the market is like 12 to 18 months.

LADISLAS MAURICE: Yeah. It’s a low liquidity market.

MAURICIO: Yeah.

LADISLAS MAURICE: So this is really, really important to understand. I would not come to Colombia to buy, to renovate, and then to flip. The turnaround time is just too slow. And then from a tax point of view, it’s a mess as well. So here, you come to buy either for lifestyle, for a mix of lifestyle and investment, which a lot of people are doing nowadays, or just purely for investment. Is the negotiation margin smaller on kind of more affordable units like this than luxury apartments?

MAURICIO: Yes, always.

LADISLAS MAURICE: Okay.

MAURICIO: I would say almost always. Like this unit here is like a Colombian family has owned it before. They are wanting to sell it because there’s to the countryside. So they’re like looking to sell. And then I think it could be pretty fair deal.

LADISLAS MAURICE: Because we were discussing, before this video, essentially, in a house like this, if you put it unfurnished, rent it to locals, you would get roughly 5% gross. But again, what you want to capture is the whole digital nomad boom that’s happening here in Medellin.

MAURICIO: Yeah. And the most important way to do that is always like location, location. As you said before, you want to be either in Poblado or Laureles in order to do that. And Laureles here, you can’t see much now in the video, but it’s very walkable. Like, it’s super flat, it’s in the center. Medellin is in a valley, and Laureles is like in a flat area in the middle. So it’s very walkable, you can walk everywhere. But then you don’t get the views. So it’s like it’s give and a take, I would say.

LADISLAS MAURICE: Cool. Cool-cool.

MAURICIO: Yeah.

LADISLAS MAURICE: Okay, great. So we’re 410 for the total purchase without negotiating. So we’re going for conservative numbers. How much do you think you can rent this on a monthly basis? So people who come here for one month to six months.

MAURICIO: Without promising too much, I’m very, very certain that you can rent this for 1K USD.

LADISLAS MAURICE: So 1,000 USD?

MAURICIO: Yeah, USD a month.

LADISLAS MAURICE: So 4 million?

MAURICIO: Yeah, 4 million.

LADISLAS MAURICE: Okay, so let’s run with an occupancy rate of about 80%.

MAURICIO: 80%.

LADISLAS MAURICE: I was looking at a software a bit earlier today, just looking through the Airbnb listings, that you have the long-term listings, and your occupancy rate was between 85% and 90%.

MAURICIO: Yeah, it’s crazy.

LADISLAS MAURICE: So we’re just going to use 80%. So that takes us to 38 million pesos per year in gross income. Your management fee for long-term is 10%?

MAURICIO: 10%.

LADISLAS MAURICE: Okay, so we take that out. What’s the property tax?

MAURICIO: The property tax here is extremely low, it’s $100 a year. [laughs]

LADISLAS MAURICE: $100 of property tax a year. And this is why, look–

MAURICIO: But I need to add, it’s very unusual, and it’s also because it’s a house. If you buy an apartment, it’s always more expensive. So that’s also why it’s a really good investment, because the expenses for this house is very low.

LADISLAS MAURICE: And it’s a bit of an American market in many ways, in the sense that all these modern buildings have relatively high HOA fees. But when you buy into this, you do not have any HOA fees. So not only is your property tax a lot lower, but there isn’t any HOA fees. So even if, suddenly, a lot of supply were to come on the market and you needed to kind of fight on a price basis versus the competitors, and, honestly, I’m not seeing a lot of supply coming up, there isn’t that much building happening. When I speak to people, they say, “Oh, there’s a lot of building.” I travel full-time around the world. For a city of 2.5 million people that’s actually pretty dynamic, I’m really not seeing that many buildings popping up. So I don’t see supply being an issue in the immediate future. So just the fact that it’s a low fixed-cost maintenance investment is really interesting. How much would the landlord have to pay, approximately, for utilities like internet, electricity?

MAURICIO: So utility for this area, it would be around 250 mil a month.

LADISLAS MAURICE: Okay, so about 3 million a year.

MAURICIO: Yeah.

LADISLAS MAURICE: So like $750 a year of utilities.

MAURICIO: Yes.

LADISLAS MAURICE: Internet, roughly how much?

MAURICIO: Internet is 152 mil pesos a month, and then you get 120 megabytes.

LADISLAS MAURICE: So again, if you target the foreigners who come here for a few months, you cannot be a cheapskate when it comes to the internet connection.

MAURICIO: [laughs] Oh, yeah.

LADISLAS MAURICE: Just pick the best. Because that’s the one thing that will kill your reviews, like, “Slow internet. I couldn’t upload my video work.”

MAURICIO: That’s the first people ask, is like, “How stable is the internet?” And a lot of times, they even want to have a print screen from the internet inside the house. So make sure to have that.

LADISLAS MAURICE: I should actually ask for this as I travel. [laughs]

MAURICIO: [laughs] Yeah.

LADISLAS MAURICE: [crosstalk 00:15:57] make that mistake.

MAURICIO: No, it’s good. Because imagine you’re working, you make good money, that’s why you can live here, and like it’s good to be here. And then you can’t work. Then everything is getting destroyed. So super important.

LADISLAS MAURICE: Perfect. So internet, so that is approximately another 1.8 million out.

MAURICIO: A year.

LADISLAS MAURICE: A year?

MAURICIO: Yeah.

LADISLAS MAURICE: Maintenance. How much would it cost just to maintain the place when, I don’t know, there’s a leak somewhere? On a yearly basis, how much would you tell the investor to just kind of set aside for their numbers?

MAURICIO: I would say about 1K a year. So 250 mil, roughly, a month just to set aside and so you can be good there.

LADISLAS MAURICE: Okay, cool. That sounds fair.

MAURICIO: Yeah. But like this here is newly renovated. I think it will be very lower in the beginning of the–

LADISLAS MAURICE: Yeah. And I think the furniture budget that you had was quite big.

MAURICIO: Yeah.

LADISLAS MAURICE: So in there, I’d probably take a bit of that furniture budget to work on some of the finishings.

MAURICIO: Maintenance vary with time.

LADISLAS MAURICE: So we did the numbers right before– Essentially, once you remove all of those expenses, so, one, we were conservative with the purchase price, we were conservative with the–

MAURICIO: Yeah, without negotiation.

LADISLAS MAURICE: Without negotiations. We were conservative with the occupancy rate of 80%. We were conservative by putting in maintenance and maintenance allowance, etc. So once we remove all of the expenses, we get to a net yield before local personal income tax of 6.2%. Honestly, I travel around the world full-time looking for investment opportunities, it is very hard to find such net-net yields. Another comparable market would be Ukraine, in Kyiv, but it comes with its own set of risks. So does Colombia.

The macro case for Medellin

But still, 6.2 is a really good deal. Especially when you take a step back and you look at the macro situation of the city of Medellin. It’s a city of 2.5 million people that is doing well. It’s attracting a lot of foreign investment, Alibaba invested here, Mercado Libre, which is the Amazon of South America, has an innovation center here. Medellin International Airport is a fast-growing base for a hub for Viva Air. They have 14 flights a week to Miami, a bunch of flights to Orlando. Other airlines fly directly to New York. And there are going to be more connections to Mexico, to Argentina, to Brazil, to Chile. So really, the airport is booming.

So when you take a step back, and you see that you can buy, in one of the best neighborhoods in the city, for a bit over $1,000 per square meter and still get very decent yields of 6.2% using conservative figures, we use conservative figures from the purchase price to all the assumptions in the numbers, honestly, it’s very attractive. So sure, it’s not the prettiest thing inside. It’s a modest house. There are a lot of very nice apartments. Tomorrow, you’re going to show me an apartment with amazing views.

MAURICIO: Yeah, in Poblado.

Investing in Airbnb in Colombia

LADISLAS MAURICE: In Poblado. And that one is going for about $1,500 a square meter. So yeah, if you want to live there, it’s definitely nicer. You also get decent yields. But what I wanted to show here with this video is that with not much money, with just 100K, you can get yourself a little house with three bedrooms, in a good area, and very decent yields. And we didn’t even explore Airbnb. Because we’re having that discussion offline, essentially, doing Airbnb in Colombia is very complicated. Because to be able to do Airbnb, you need to have the approval of 70% of your homeowners’ association, which essentially never happens. So you can only do Airbnb in buildings that were designed for Airbnb. So they typically come at a large premium.

MAURICIO: You have to pay more because it’s– Yeah.

LADISLAS MAURICE: It’s a lot more.

MAURICIO: Yeah.

LADISLAS MAURICE: Or, you do Airbnb from a little house like this because you’re essentially allowed to. So looking at the own Airbnb I’m staying in, I personally don’t like to spend a lot of money when I travel. I just need a bed, fast internet, and a place that’s decent. I’m paying, for a little one-bedroom apartment, $40 a night. So this here, a three-bedroom apartment, which is like, objectively, nicer than the place I’m staying in, once it’s like nicely furnished, it’ll easily go for–

MAURICIO: $50, $60.

LADISLAS MAURICE: $50 a night, $60 a night. And again, if we use conservative assumptions of 60% to 70% occupancy, you can take that 6.2% yield and easily add two, three percentage points to it.

MAURICIO: Yeah.

LADISLAS MAURICE: Very interesting. We’re going to go check out some other investments that you highlighted, and some other videos that we’ll do together. And also, an apartment like this entitles you to residency here in Colombia. So there are two types of residencies. One is kind of the cheap residency. You need to invest about–

MAURICIO: 90K. 80K, 90K.

LADISLAS MAURICE: Yeah, $80,000, $90,000, and this gives you residency, and you must stay in Colombia at least half of the year to be able to renew it. But this makes you a tax resident, which you don’t necessarily want.

MAURICIO: Also, one to three years you’re getting it.

LADISLAS MAURICE: One to three years.

MAURICIO: And after three years, you need to reapply again.

LADISLAS MAURICE: Okay, reapply. The interesting residency is when you invest at least $150,000, and then you get a residency permit for five years.

MAURICIO: Five years.

LADISLAS MAURICE: And you just need to show up for a day every two years just to maintain it. If you’re interested in making a real estate investment in Medellin, I really recommend that you speak to Mauricio and his team. He’s got a whole bunch of people working on his team. His partner is from Canada as well. And you can find investments, you can find lifestyle properties. And we were discussing, a lot of people seem to be coming here and doing a bit of both. So they buy an apartment that they stay in for a few weeks every year or a few months, and then the rest of the time they rent it out.

MAURICIO: Yeah. Because the weather here in Medellin, it’s called like the eternal city of spring. So the weather here is almost always nice. You can see now, it depends, a little more rainy and so. So it’s a lot of people who’s like from Sweden, or like where it’s cold.

LADISLAS MAURICE: Do you have a lot of Swedes investing here as well?

MAURICIO: Yeah. Yeah, we do. Yeah. That’s very fun for me, because I’m like, take Swedes here and they get to know it. They have like the local feeling. I, obviously, know the city well, so I can show them to have a good time, and where to make good investments, and what to think about, and yeah.

LADISLAS MAURICE: Cool. That’s definitely–

MAURICIO: And in Swedish, of course. [laughs]

LADISLAS MAURICE: [laughs] That’s an interesting niche. So if you’re Swedish and you want to service in Swedish, you can get in touch with Mauricio.

MAURICIO: Yeah, for sure.

LADISLAS MAURICE: There is his email right below. There’s also a link with more details on his services.

MAURICIO: Yeah.

LADISLAS MAURICE: Cool. So before we go, throughout the video, I was trying to think of a shirt joke because of your shirt, but I don’t know, I couldn’t think of one. So I’ll just point out his shirt. That’s–

MAURICIO: Too good-looking to make a joke about, but yeah, it’s comfortable and nice. [laughs]

LADISLAS MAURICE: [laughs] Okay. Thank you.

MAURICIO: Nice to see you.

LADISLAS MAURICE: Thank you, Mauricio.

MAURICIO: Nice to see you.

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