Friday, October 19, 2012
“How many of you are buying for investment?” A few hands shoot up. “How many of you are looking for a second home?” A flurry of hands waves in the air. “How many of you want a vacation or retirement home that will earn income when you’re not using it yourself?” Practically every person in the room raises their hand.
Those conference attendees aren’t unusual. Most of you would like our second home to help cover its costs when you aren’t using it. And if you’re buying your retirement home at today’s prices, but not planning to retire just yet, you’ll likely want to generate rental income in the meantime.
Over the coming days, we’ll highlight three locations with strong rental potential. We’ll start today with Medellin, Colombia.
Until recently, this city had a reputation. It wasn’t a good one. The name of the city conjured up images of drug gangs and violence. Medellin was the world’s murder capital and the home base of a drug cartel headed by the infamous Pablo Escobar. Although Escobar died in 1993, the city’s notoriety lingered on.
Today, Medellin is a thriving city. Property prices are very affordable. And the city offers very strong rental potential.
It’s also a place that you’ll enjoy spending time in. At 4900 feet above sea level, it’s warm and sunny by day and cool at night. You won’t need air conditioning or heating. The city clings to the slopes of the Andes Mountains, with a network of streams that flow down into the Medellin River. With 3.5 million residents, it offers big city conveniences.
The nicest neighborhood is El Poblado. It’s leafy, with wide tree-lined avenues, artwork-filled plazas and pretty parks. It’s upscale, with nice restaurants and cafes. The Golden Mile district is home to banks, offices, businesses and malls.
El Poblado attracts tourists, who often rent an apartment short-term. Professionals and executives come here for work and rent long-term. The Medellin area is the top metals mining location in Colombia. You’ll meet plenty of Canadians and Americans here for business.
El Poblado is an upper middle class neighborhood with homes kitted out to a high standard (think hardwood floors and fine finishes). But property prices are incredibly affordable, starting from $1000 per square meter for condos in older buildings.
For a newer condo, built in the last 3-4 years, you’ll pay more, around $1500-1700 per square meter. And pre-construction condos sell for even more - $2000 and up per square meter.
That’s a market anomaly. Normally you expect to pay less for pre-construction to offset the risk associated with buying a property before it’s built. In Medellin, you pay more, up to 30% more.
Yet the older buildings are usually in better locations, closer to shopping and dining. Even with a remodel they’re much better value. And you’ll get better rental yields on them. You can expect yields of 10% or more on renting by the night.
But there’s a catch. It’s illegal to rent in a residential building for less than 30 days, unless 70% of owners agree to allow it. If you find a building like that, don’t bank on it staying that way. All it takes is one too many partying tourists creating a nuisance. Families won’t want that and can vote to stop short term rentals.
But you can rent for 30 days at a time. Even if your tenant stays for less time, you can still make a yield of around 8%.
Or you can rent long-term to those mining and business executives. They want well-equipped, furnished condos in good central locations. You’ll generate lower yields than renting short-term but you get regular income and lower outgoings on costs like cleaning.
This is a market where you can make money – and a place that you’ll love spending time in.
I’m planning a scouting trip to the city in the next few weeks. I’ll meet local contacts, check out as many properties as I can squeeze in, and give you boots on the ground reports on the real estate market. I’ll also investigate the pending second home law designed to give foreigners tax breaks and other advantages when buying a second home in Colombia. So, stay tuned to get the real skinny.