Video: Medellin Penthouse Investment Case Study
In most real estate markets, to get high rental yields you must go down the food chain. Small studios, lower class housing, cutting corners, etc.
Medellin is fairly unique in the sense that luxury housing can prove to be very interesting from a rental yield point of view.
It’s possible to invest in amazing penthouses, and still get very high capitalization rates.
In this video with Mauricio, we had a look at a recently renovated penthouse with gorgeous views of the city, and calculated the exact numbers that he got in 2022, including all costs, etc.
The numbers are attractive, and he constantly has a waiting list of people looking to rent high-end penthouses.
Medellin tourism is booming. International arrivals increased a whopping 53% from pre-pandemic 2019 to 2022.
Would I go all-in Colombia?
Absolutely not. It’s all about position sizing. But the absolute value and high rental yields that can be found there are very attractive. Having some exposure spices up one’s real estate portfolio, and provides the investor with interesting diversification as well as a great lifestyle play.
To a World of Opportunities,
The Wandering Investor
Other articles on Colombia:
- Making a Real Estate Investment in Medellin, Colombia
- Making a Real Estate Investment in Cali, Colombia – the next frontier?
- Actual Capitalization Rates / Rental yields in Medellin
- 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?
- Double-digit yields in Bogota for Airbnb multifamily units
- 12% net capitalization rate and rental yield in Cali, Colombia
- Afternoon trip to a Finca for sale near Medellin – with ROI numbers
Services in Colombia:
- How to obtain residency in Colombia
- Real Estate Lawyer in Colombia
- My Favourite Real Estate Agent in Medellin, Colombia
- My favourite real estate agent in Bogota
If you want to discuss your internationalization and diversification plans, book a consulting session or send me an email.
Transcript of “Penthouse investing with high yields in Medellin”
LADISLAS MAURICE: Hello, everyone. Ladislas Maurice from thewanderinginvestor.com. So today, I’m in Medellín at night. It’s really beautiful here. And what I want to show you is quite unique. So generally speaking, when you invest in luxury real estate, you typically don’t get very interesting cap rates or rental yields, same thing when you invest in lifestyle real estates. But here in Medellín, it’s one of the few places I know where it’s possible to combine lifestyle, luxury, in many ways, affordability as well, and very high rental yields. So it’s one of the few places in the world that ticks all of the boxes.
So we’re going to check out this penthouse apartment in El Poblado, one of the best neighborhoods in Medellín here with Mauricio. It’s actually his apartment. It’ll give you a good idea of what you can potentially get for not that much money here in Medellín. So this apartment is absolutely stunning. It’s a two-bedroom, three-bathroom penthouse apartment on the 17th floor here in El Poblado, with amazing views. So again, the goal of this video is not to show an apartment, but rather to go into all of the numbers in terms of the return on investment, the yields, the cap rates, the expenses, how much rent you can get.
Target market for Penthouse investments in Medellin
LADISLAS MAURICE: What is the target market for such an apartment?
MAURICIO: It will be a digital nomad who normally comes from North America, one of the bigger cities. And due to the time zone, it’s very easy to work and live here at the same time since you’re running on Eastern time.
LADISLAS MAURICE: Yeah, this is very important. I mean, when you compare, because I mean, we’ll do all the numbers in a minute. Second bedroom, so master bedroom, really nice. Gosh. And also views. I mean, views galore. Look at this, just stunning. Gosh, yeah. We’ll do all the numbers. But essentially, for between $3,000 and $4,000 a month you can get a place like this. And compare this with what you would get back in New York, or LA, or San Francisco. And no wonder people are moving here in droves. All right, cool. So now we’re going to go back down and do all of the numbers in detail. All right, Mauricio, thank you very much for showing us your beautiful apartment.
MAURICIO: Thanks a lot.
LADISLAS MAURICE: So for simplicity’s sake, we’re going to do everything in dollar terms using today’s exchange rate, which is 4,800 Colombian pesos to the dollar. So this apartment is being sold for 1.6 billion pesos, which is about $330,000 for 135 square meters. So what is the monthly rent that you are currently getting, because you’re renting it out on a yearly basis, correct?
MAURICIO: It’s $3,300 a month.
LADISLAS MAURICE: Great. So Mauricio and I have all of his figures for 2022, essentially made $40,000 gross on this apartment. How much is the property tax per year?
Running costs for a Penthouse investment in Medellin
MAURICIO: Per year is 900 USD.
LADISLAS MAURICE: What about the common charges/HOA?
MAURICIO: Per month, those are $120.
LADISLAS MAURICE: Cool, which is very affordable. I mean, just imagine for $120 a month, you get a heated pool, you have private security, the building is very well maintained, there’s a gym, etc. So quite good. And the property tax, $900, compare that with what you have back in the States. Electricity, gas, water, etc., how much?
MAURICIO: It’s about the same, 120 USD a month.
LADISLAS MAURICE: Okay. Internet?
MAURICIO: About $20 a month.
LADISLAS MAURICE: Great. And then your company charges about 10% for property management?
LADISLAS MAURICE: And then you had, you didn’t really have much in maintenance because the unit is brand new.
MAURICIO: Is brand new.
LADISLAS MAURICE: So I see, in the numbers, about $250 for the whole year in maintenance. So essentially, net in your pocket, so including if you had really charged 10% to your management company, you would have made $32,000 this year on a property that is being sold for a bit over $330,000. So we’re getting to a net yield before income tax of 9.6%.
Medellin rentals are booming
LADISLAS MAURICE: And this is what I was trying to demonstrate with this video is that, again, like I said a bit earlier, when people invest in luxury, typically, the rental yields, the capitalization rates are lower. But in Medellín, it is not the case. You can invest in luxury and have extremely high yields that are very hard to find anywhere else in the world, because there’s so much demand. Literally, there are hundreds of thousands, if not millions, of Americans, of North Americans, a lot of Canadians, too, that are moving down to South America, they’re looking to spend more time here. Because they work in the same time zones, they can benefit from the lower cost of living and overall a lifestyle that is a lot more relaxed. So Medellín is absolutely booming.
I came here last year. A year later, I came back again and things have evolved, things have gotten even better. The airport is more connected than ever. I mean, there are direct flights to New York, to Miami, to Orlando, to Mexico City, to–
The Colombian Digital Nomad visa as a catalyst for real estate investing in Medellin
LADISLAS MAURICE: Panama City, to Madrid, Buenos Aires, São Paulo, name it, you know, very well connected. So people are coming here in droves. And a major catalyst that is about to take place is the fact that people are going to be able to apply for the digital nomad visa, which is very easy to obtain. It’s just a bit of paperwork, mostly online. And you just need to demonstrate that you’re earning, I think, a bit–
MAURICIO: 600. About 600 USD with today’s rate.
LADISLAS MAURICE: 600 USD. Are you sure?
MAURICIO: Yeah, 100%. It’s three times the minimum salary, and the minimum salary this year is 1 million. 1 million is about worth 200.
LADISLAS MAURICE: Yeah.
MAURICIO: So 600.
LADISLAS MAURICE: Cool. Anyways, people earning $600 a month are not your target market. So in any case, people that want to rent nice apartments, they will absolutely have the means to be able to obtain this Colombian digital nomad visa, which will make people come here and sign leases of a year, which they were not doing before, because before, people had to obtain residency, or they had to spend three months, and then if they were lucky and did a bunch of paperwork, they could extend for another three months. But essentially, people’s stay in Colombia was capped at six months a year if they did not obtain residency here. And now this is gone. So we’re going to see even more people moving down here and signing long-term leases.
Personally, I am very bullish rental yields in terms of Medellín real estate. The country has a number of macro risks. You know, investors need to be aware of this. The people voted for a rather very socialist president, which is never a good thing for foreign investors. So we can expect a few negative things such as higher taxes, more regulation, probably bad decisions for the economy as a whole. But the reality is, digital nomads are going to continue coming here, Petro or no Petro, the current president. So if anything had had a negative impact, his election had a negative impact on the currency, but it hasn’t had any impact whatsoever on the amount of people that are coming here to Colombia.
Airbnb regulations in Colombia
And it’s possible to also rent this apartment. So daily rentals on Airbnb is not allowed. Can you elaborate on the laws here in Colombia in terms of short-term rentals?
MAURICIO: Yes. So the law says that if you want to do daily rental, which means less than 30 days, the building needs to be a commercial building. And if it’s not a commercial building, it’s a residential building. And this is a residential building. And then you can only rent 30 days or more.
LADISLAS MAURICE: So in most cases, I’d be very worried about such an investment in the sense that, you know, taking out the short-term market as a possibility, taking it away is a negative. But because of all the dynamics here, personally, I’m not worried. I’m actually here with a very close family member. And I am here with Mauricio helping him find an investment for his retirement, because he wants a property that will give him very good cash flow. And, again, the cash flow is in USD, because people coming here are mostly Americans. So even though you’re buying in pesos, your rental income, typically, is in US dollars, if you invest in the right areas, where higher end digital nomads want to stay.
LADISLAS MAURICE: And we also did the numbers. It was an interesting exercise in terms of putting this in midterm rentals, so for at least a month, so people that want to stay here for a month, two months. And what we see is, the reality is we had to lower the occupancy rate from 100%. Because you literally have a queue of people that want this apartment.
LADISLAS MAURICE: And we lowered the occupancy rate to 95%, increased a little bit the maintenance because when people move in and out, there are a few more issues that pop out. And we got to a net capitalization rate or rental yield of 10% versus 9.6% before. So not a big difference. And why, and again, this is a recent phenomenon, people are coming here and want units for the entire year. Even people that are just coming for six months, three months, they book a place for the entire year, because whenever they come back to Medellín, they want to have their own place. So it’s really a new category of people that are coming here.
People think Colombia is this underdeveloped country, etc., etc. Absolutely not. It’s quite developed, especially in the core areas of cities such as Medellín. And many high net worth individuals are moving here. So there’s really a market to capture.
MAURICIO: There’s still a lot of potential.
LADISLAS MAURICE: So Mauricio, people that come to you and say, “Hey, I want to make such an investment. I want to get these numbers,” do you have other apartments as well, maybe a bit more affordable, or for people that want to buy such a unit that’s a bit old and renovated completely to their own taste?
MAURICIO: Yes, I would have four different apartments with the same category with the same potential, I would have in mind, and be able to show people who come down here.
LADISLAS MAURICE: Yeah. So I confirm, there are many such opportunities here in Medellín. I encourage people to come here. Again, I took a very close family member of mine all the way from Europe to come here. The gentleman is retired, he doesn’t speak Spanish, and he’s here looking at real estate. And actually, right after this video, he’s upstairs hiding in one of the bedrooms, we’re going to sit down and we’re going to make an offer for one of the places that you showed us. So there are opportunities here.
So if you’re interested, there is a link below. You can get in touch with Mauricio directly, there’s a contact form. And then you can have a conversation with him in terms of your potential goals here in Colombia.
MAURICIO: Yeah, happy to respond to any questions you might have. And yeah, don’t hesitate to reach out.
LADISLAS MAURICE: Cool. So you can reach out to Mauricio in English, in Spanish, or in Swedish.
MAURICIO: In Swedish. [laughs]
LADISLAS MAURICE: All right. So if there are maybe five Swedish people following me, you can reach out to him in Swedish.
LADISLAS MAURICE: All right, okay. Fantastic.
MAURICIO: Thanks a lot.
LADISLAS MAURICE: Thank you.