When I first started talking about Medellin as a real estate investment destination a few years ago people opined I was not being reasonable: “crime”; “drugs”; “You’ll get kidnapped”.
Fast forward a few years and the city has absolutely boomed in terms of tourism and is now on the lifestyle map. The key neighborhoods of El Poblado and Laureles are gentrifying at a very fast rate.
Back then getting net rental yields of 10% on rentals was very doable, but as prices and supply have both increased, yields have compressed a bit. 7% net, not gross, is now more reasonable of a target.
I myself invested in Medellin where I bought and renovated a penthouse which I am renting out.
In the meantime, the city keeps developing, real estate is still very reasonably priced, and presidential elections which should be positive for investment into Colombia are around the corner next year.
And remember, Medellin is still pretty niche. Ask around and many of your friends and family either haven’t heard of it or are still worried about issues from the past.
And what I also like about Medellin is that it’s not just a city focused on tourism; it’s not Phuket, it’s not Cartagena; it’s not Bali.
It’s an actual city with Colombia’s most dynamic local economy.
I made a video case study of a nice condo near Provenza in Medellin together with Mauricio, my Swedish realtor
I also wrote a more detailed analysis of the real estate investment market in Medellin.
Buying real estate in Colombia also entitles you to Colombian residency.
And please don’t fall for the hotel rooms being sold by agents promising you 12%-15% net returns:
1. You won’t make 12%-15% net
2. Who will buy an old hotel room from you in a few years time?
I’m only saying this because as Colombia becomes more popular as an investment destination, the scammy crowd is showing up as well. So please tread carefully.
To a World of Opportunities,
The Wandering Investor.
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?
- Penthouse Investing with High Yields in Medellin
- Actual Capitalization Rates / Rental yields in Medellin
- Double-digit yields in Bogota for Airbnb multifamily units
- Afternoon trip to a Finca for sale near Medellin – with ROI numbers
- I bought a Penthouse in Medellin, Colombia
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 “Cap rate analysis of condo in Medellin – decent real estate rental yields in El Poblado”
LADISLAS MAURICE: Hello, Ladislas Maurice from thewanderinginvestor.com. Today, I’m in Medellín with Mauricio, my realtor, here. How are you, Mauricio?
MAURICIO: I’m doing great. Yeah, no worries at all.
LADISLAS MAURICE: Cool. Today, we’re going to do a case study. We are in Provenza, the best neighborhood in Medellín. We’re going to walk for 10 minutes in that direction, and we’re going to see a new building, so nice apartment, two-bedroom, etc. And we’ll do all the numbers in terms of rental income, costs, expenses, all of that to get to a net rental yield or net cap rate. And why are we doing this case study? Because Medellín is one of the few markets in the world where you can combine lifestyle real estate with good returns. Typically, when you buy lifestyle real estate, you don’t quite get good returns. Here, you can do both.
Tourism growth in Medellin
LADISLAS MAURICE: And so, you’ve seen a boom in tourism, right?
MAURICIO: Yes. Last year, there arrived 1.5 million tourists to Medellín, and it just surpassed Cartagena, which is great. And since 2019, it’s grown with over 50%.
LADISLAS MAURICE: Fifty percent in terms of tourism.
MAURICIO: Yeah.
LADISLAS MAURICE: From before COVID to now?
MAURICIO: Yes. There’s a lot of tourists that need to be catering with nice apartments.
LADISLAS MAURICE: And what are your occupancy rates?
MAURICIO: We do daily rental, which means less than 30 days, those were running at an average at 78%. And the monthly rental, which means more than 30 days, is 92% in average, of our portfolio. And in our portfolio, we have about 80 units.
LADISLAS MAURICE: Eighty units?
MAURICIO: Yeah.
LADISLAS MAURICE: Okay. Look, this place is absolutely booming here in Medellín. I’ve been coming here for the past two years, approximately. I come back every six months or so. We see each other on a regular basis.
MAURICIO: Yeah.
LADISLAS MAURICE: I made an investment here myself as well. I’m potentially looking for more. And the city is really changing.
Tenant profile in Medellin
LADISLAS MAURICE: Are you seeing a change in your tenants?
MAURICIO: Yes, if you see over the last five years, where we see a lot more are families who are looking to come back here. And we think that these people came the first time, maybe five, six years ago. And now, when the city gets a better reputation, people not afraid of coming here, and there’s more and more tourists coming with that kind of profile.
LADISLAS MAURICE: Yeah. I think it’s changing. Look, look at places like this, yeah, five, six years ago, you wouldn’t have seen many places like this, like, cool bars, restaurants, etc. Now they’re all over Poblado, all over Laureles, so two of the prime neighborhoods to invest. It’s expanding as well. But yeah, what I’m seeing is that tourism in Medellín, traditionally, was more scrappy backpackers, males, mostly, and now it’s just turning into a full-blown lifestyle destination, where it’s digital nomads that live here all year round, you even have snow birds coming down for winter, families, a lot of foreign females. Typically, it was mostly males, but now we have, like, groups of females that are coming from the US, from Europe. I see the market evolving in a positive way.
MAURICIO: Yes, agree. What happens a lot is also that, in Colombia, they’re very business-minded, so the more people are coming, their needs need to be filled, and they’re very positive with having tourists bringing in money. They love USD here in Colombia, so as long they can get more USD, they will be doing what the tenants are looking for. Okay, so here we are.
Apartment tour in Poblado, Medellin
MAURICIO: Here’s the building.
LADISLAS MAURICE: Nice. When was it built?
MAURICIO: 2022, so two years ago.
LADISLAS MAURICE: Great. This is the apartment?
MAURICIO: Yeah.
LADISLAS MAURICE: What’s the price and the square meters?
MAURICIO: The square meter is 92 square meters divided over two bedrooms, three bathrooms, and the purchase price was $246,000, and furniture about $16,000, including AC, though.
LADISLAS MAURICE: Including AC?
MAURICIO: Yeah.
LADISLAS MAURICE: Okay, so over $2,500 per square meter. This is not cheap, but it’s brand new.
MAURICIO: It’s also high-end, great location, new building, good amenities, you have a swimming pool, you have jacuzzi, you have sauna, you have steam room. And as we’ll see in the end of the video, there’s a yoga room on the terrace at the last floor, which is pretty cool.
LADISLAS MAURICE: What are the top things that people look for when they’re looking for a high-end rental?
MAURICIO: Obviously, first thing is the location. And here is the perfect location. You’re within 10-minute walk, as we could see, from Provenza, which is where you want to be. You also have Parque El Poblado, and then the 10th Street, which is the most famous street known here in Poblado. So location wise, there, also new building so you know that you get good quality. The amenities, as we told you about, you have a swimming pool on the third floor, you have a yoga room up on the last floor with an amazing view. Those things together makes it a really nice place. And obviously, the view from here, it’s unbeatable, no?
LADISLAS MAURICE: I think that’s important. Medellín is known for these views. I mean, this is typical Medellín. People come here for this. At night, it is absolutely beautiful with lights. Let’s say, I buy this, I give it to you. I mean, you’re actually going to be managing this for me. It’s an investment–
MAURICIO: Yeah, it’s going out on the market in two, three weeks.
LADISLAS MAURICE: Okay, cool. Actually, you know what, we’ll do this, because by the time that I publish this video, you already have the Airbnb listing, and I think it’ll be interesting for people to see on what aspects of the building and the apartment that you emphasize. Because you’re probably emphasizing the view, the swimming pool, all that, and those are really key selling points. I think let’s go upstairs and let’s go check out that yoga thing and then the whole view and do the numbers in terms of what the ROI is for your investor. All right. Wow. Very nice rooftop.
Rental yield calculation in Medellin
MAURICIO: Yeah. Here’s the yoga room, available for all guests.
LADISLAS MAURICE: Yeah, people love this sort of stuff nowadays. It just doesn’t cost much to make for the developers, but people go crazy.
MAURICIO: Yeah.
LADISLAS MAURICE: Cool. Okay, great. This apartment was sold for $246,000?
MAURICIO: Correct.
LADISLAS MAURICE: What are the closing costs?
MAURICIO: The closing cost was about $7,000 and that including notary cost, transfer fees, the legal fees as well.
LADISLAS MAURICE: Okay. What about the furnishing, all the furniture, and all that?
MAURICIO: The furnishing, including the AC, ended up being about $16,000.
LADISLAS MAURICE: Okay, cool, so about $270,000–
MAURICIO: Roughly.
LADISLAS MAURICE: all in?
MAURICIO: Yes.
LADISLAS MAURICE: Okay. What about the HOA per month here?
MAURICIO: About $120.
LADISLAS MAURICE: Okay. It’s really not that bad, it’s, like, $1.30 per square meter, roughly, for all these amenities.
MAURICIO: Yeah. But it’s also a lot of apartments who shares the cost. With more apartments, it normally takes down the HOA. This building when it was built, it was targeting high-end Colombians and digital nomads who come here for longer term, for, like, three, five, six months. They definitely prefer long-term clients in this building.
LADISLAS MAURICE: Well, it’s not they don’t prefer, it’s like, there’s an actual ban on Airbnb, right?
MAURICIO: Yes, you can’t do less than 30 days.
LADISLAS MAURICE: Less than 30 days.
MAURICIO: But also, the administration prefers three months, six months, even longer than one month.
Mid-term rental market in Medellin
LADISLAS MAURICE: Okay. Look, I think you need to explain the midterm market a little bit, because for many property investors around the world, people either think long-term contracts, one year and above, or Airbnb, short-term for a few days or a week or two, but here in Medellín, there’s a huge market for the midterm. Can you, please, elaborate on that target market?
MAURICIO: Yeah. The midterm will be considered one month, two months, up to three, six months, and it depends a lot of which visa the client is getting. A lot of visas, like the tourist visa, you can get for three months. You can renew it and get extension to three months, so you can get clients to rent for six months. But also, with the digital nomad visa they can get up to two years, they also have clients who rent for one year straight.
LADISLAS MAURICE: People here, for example, this apartment, the rental income would be how much per month?
MAURICIO: We’re targeting $2,500 a month.
LADISLAS MAURICE: Okay. And it would be possible to find someone who would be willing to pay $2,500 a month on a yearly contract, not just on a monthly basis?
MAURICIO: Yes, it depends a lot on which client we start to get in, but if you have AC, this kind of location, good view, you definitely get long-term clients who like the place, want to secure the deal for the whole time, to have their visa.
LADISLAS MAURICE: Cool. We’ll use an occupancy rate of 92%, which is your average. Honestly, this one should be a bit higher in reality because of the location, the views, it should essentially be rented out the whole time if you price it well. What about the property tax?
MAURICIO: The property tax is also about $1,000 a year, $1,200.
LADISLAS MAURICE: Okay. What about a maintenance allowance?
MAURICIO: Maintenance, it’s a new building, all the furniture are new, and we have insurance, it will be about $100 a month, maximum.
LADISLAS MAURICE: Okay, cool. And what about the utilities?
MAURICIO: With the internet including, it will be about $190 a month.
Optimizing rental yields in Medellin
LADISLAS MAURICE: Okay, cool. Look, when we do all of the numbers, we get to a net, net yield of about 7%.
MAURICIO: Seven percent, yeah.
LADISLAS MAURICE: Okay. Before local income tax here?
MAURICIO: Yeah.
LADISLAS MAURICE: Can you do better?
MAURICIO: Yes, you can, but this apartment is not only an investment, it’s more a lifestyle/investment property. Why? Because it’s new construction, it’s a high price per square meter, but you’re also getting a lot of benefits for it. But if you’re looking for pure, pure investment, then you probably want to come in at a little bit lower price per square meter, which you can’t do in a building like this, so it’s for a lifestyle choice.
LADISLAS MAURICE: Personally, what I did, I bought an older apartment and did a full remodel, so using some of your people. It’s been going great. This is how I will be getting a higher cap rate, because I went into an older building that the whole value add through the renovation, and now my price per square meter is actually really low. Thanks to this, I could get some better yields.
MAURICIO: Exactly.
LADISLAS MAURICE: To your point, this here, it just shows how you can combine great lifestyle with very decent cap rates. There aren’t many markets in the world where you can get away with this.
MAURICIO: Yeah.
How to contact Mauricio
LADISLAS MAURICE: Cool. Look, I wrote a whole article on the real estate market here in Medellín, the neighborhoods to look into, mistakes to avoid, etc., so key insights in terms of investing here, and also highlighting the economy in Colombia, some of the risks associated with Colombia. Obviously, when you invest and you get such cap rates, there are other risks, generally speaking, from a macro point of view. Mauricio, you have investors from all over the world, right?
MAURICIO: Yeah, we have investors from all over the world who mostly have, like, other properties in other countries, and they like to diversify. And Latin America, especially Colombia, it’s a great option nowadays.
LADISLAS MAURICE: Look, at the end of the day, it is one of the cities in Latin America that offers the best value for money, once you compare lifestyle versus price per square meter and proximity to the United States.
MAURICIO: Yeah.
LADISLAS MAURICE: Great. Cool. If you’re interested in that article, there’s a link below. And if you want to get in touch with Mauricio, people can get in touch with you in English, and Spanish, and in Swedish, your native tongue, right?
MAURICIO: Yeah, that’s my favorite language.
LADISLAS MAURICE: All right. Fantastic. There’s a link below. Mauricio, thank you.
MAURICIO: Okay. Thanks a lot, man.
