Editor’s Note: The following is a guest post about the Medellin real estate market by Brad Hinkelman, Founder of Casacol SAS, Medellín, freshly updated for 2021.
It’s with pleasure that I take the opportunity to update this Medellin real estate guide for 2021. In the top section I have added a new commentary about the effects of Covid-19 on the market in general and I have edited and expanded on a number of the sections below to make them more relevant and informative in 2021 and beyond. I have also added some thoughts and predictions on USD/COP currency implications at the end as it is vitally important for any foreign/emerging market. Also take note of my comments on pre-construction projects.
In the years since my first visit to Colombia back in 2007, and subsequent personal Medellin real estate investments starting in 2008, founding of Casacol in 2012, Medellín has grown up from a backpacker hangout to an emerging world-class city to live and invest in. The long term, structural trend toward remote work is only accelerating the demand for both property rentals. And therefore the demand for real estate investment properties is increasing much faster than the market in general. Retirees are finding Medellin a great escape for a 2nd home, and general tourism to Colombia is now heading back to its long term travel boom trend.
My company Casacol (like “Casa Colombia”) helps foreign, local, junior and professional investors, 2nd home buyers, and hotel investors realize their investment and real estate diversification goals in Medellín. We are highly, highly focused on expertise in the Medellin real estate market (not Bogota, not Cartagena, not Cali), where our deep experience and focus on ground up development, traditional brokerage and property management leads to significantly higher returns than I’ve found anywhere else in Colombia (still, after all these years!).
We work with everything from studio apartments and investment (high ROI) properties, to $1M homes, penthouse properties, hotels (both condo hotel and boutique, see: Celestino, Epic), ground up development, and sometimes even country homes or “fincas”. There are excellent opportunities and value in each category for the astute investor who can see through the 2nd rate properties and heavy marketing which dominate the local marketplace.
Plus we don’t sell anything that we wouldn’t manage, which means we offer highly efficient and effective property management and solid returns on your money long after you’ve made your purchase. Well managed properties are much more liquid when you need to sell, Colombian/Medellin real estate is not known for high liquidity like a developed country.
relocating your life or parting with a chunk of your life savings to invest in an emerging economy like Colombia is not a decision to be taken lightly.
That is the theme of this article: A comprehensive 7-step guide for investors large and small, starting out, winding down or just diversifying some assets, whatever your goals are… how to invest safely and securely in Medellín real estate.
COVID Market Update 2021
As I pen this update in January 2021, we cap a tumultuous and uncertain year for the 2020 Medellin real estate market, just like everywhere else in the world. Colombian borders closed to tourism between March and August 2020 and rates and occupancy naturally dropped (about 20% occupancy, 30% rates) for hotels/vacation/long-term rentals during 2020. A couple of local podcasters had me on their show in May to discuss some perspectives on the market. I’ve seen stress in markets before, in 2000, in 2008, and now again in 2019.
Medellin Real Estate Disaster?
But it was not the disaster I expected. We saw strong demand from locals who needed to move out of multi-generational home (30 year old “kids” + parents + grandparents) on a temporary or permanent basis. Doctors and nurses who wanted/needed to separate from their families while working. And locals who were tired of the quarantine restrictions and just wanted a “stay-cation” and restaurant meal in a local hotel (we were deemed essential services and we remained open). But starting in September when international flights resumed, the pent up demand came back with a vengeance, and Oct, Nov, Dec 2020 were near record months for demand for us. Rates and occupancy are mostly at/above levels of December 2019.
During 2021 the COP dropped at one point to >4000/$1 USD and while real estate values never dropped (mostly flat during 2020) astute investors swooped in to convert USD and take advantage of any opportunistic investments. We at Casacol picked up 2 development lots on the cheap that will turn into beautiful projects during 2021 and 2022. Plus the Colombian government swooped in to subsidize mortgage rates (I know, good and bad!) for first time buyers up to $400M COP this year which is producing very strong local demand hence prices are trending strongly upward again going into 2021. My prediction for 2021 is that it will look a lot like 2019, which was a great year for Medellin real estate investors.
And now on to the guide…
Step 1: So you want to invest in Medellín real estate?
The first question you need to ask yourself is why?
Here are the most commonly stated reasons:
- I want an investment that produces a high monthly income
- I want a place to live/live part-time/retire in, or rent out for extra cash
- I need a visa/want permanent residence
There is a big difference between making a home buying decision and an investment buying decision. In my experience, the places that make great homes to live in and show off to your friends (large apartments, fincas, etc.) are not usually the best ROI producing investments.
Likewise, the best investment properties (generally smaller studio, 1, 2 bed, short-term rental apartments and boutique hotels) are not usually where you want to live. It’s important to decide early on where on the spectrum you wish to be as a buyer.
We at Casacol also have a lot of buyers wanting to buy because they want a visa/cedula/residency/second passport. I tell everyone in this category:
“Buy Medellín REAL ESTATE because you think it would be a good investment for you, but don’t make potentially a bad OR HASTY investment because all you need is a visa.”
If all you need is a Colombian visa, then find a lawyer you like and there is always a solution. In 2019/2020 the Colombian Chancellery (immigration authority) made it a lot more difficult to receive most clases of visas, except investment visas. This is not an immigration article, but don’t let anyone advise that you need to buy property to get a visa.
Step 2: Location, Location, Location
Heard this before? It’s true everywhere on the planet, and it’s true here in the Medellín real estate market as well. Once you’ve contemplated either living or investing here, you need to turn your head to where.
Looking for an investment?
If what you want is a high income producing investment then you should be looking at a very short list of high-quality, very well located buildings with modern amenities that ideally allow for (legal) short-term rentals, probably in Poblado and potentially Laureles where you’ll find 90 percent of the demand from foreign business and leisure travellers.
For ROI production and based on our property management experience, we are going to steer you towards certain buildings more than others where I know we can generate good returns.
Note: Just being in Poblado or Laureles is not enough, you should be near very specific arterial routes, with good amenities and close to commercial centers or the parks or else your eventual renters will eventually find something better! It’s a competitive market for higher end rentals to which we cater.
Looking for a place to live? The world is your oyster.
Medellin real estate can go anywhere from studio apartments to farm land, Laureles, Bello, Sabaneta and everything in between across a population of almost 4 million people and 10s of thousands of properties. FYI: The closest thing to an MLS/Zillow in Colombia is here at FincaRaiz. While many of the properties are duplicated, improperly listed or bait listed to get your contact, it’s a good place to start for interest in the local market.
Choosing a place to live is like choosing what clothes you want to wear today, it’s entirely personal, and no one in my office will talk you out of a specific location unless you’re truly making a mistake.
Personally, I’m partial to Poblado and Laureles for places to live and once blogged about Laureles in the past, Blog: “Why is everyone talking about Laureles?“. Not to mention in 2020 we launched one of the most beautiful and successful projects in Laureles, Laureles Factory Lofts and even maintained a 65%+ occupancy rate during the worst of the pandemic.
Step 3: New vs. Old Construction
There are two philosophies on this topic:
- Buy something old and “cheap,” fix it up nice, rent it out, flip it, etc.
- Buy something new, modern, no need for modifications/improvements, furnish and collect rent.
There are some beautiful, high-quality and superbly well located older buildings in the Medellin real estate market.
Properly renovated (or not), they could be the kind of places you want to live in with large spacious bedrooms, lots of parking and an abundance of storage space.
If you’ve done renovations before, understand the language or can do some of the work yourself, then you may be up for the challenge in Colombia as well. About half of these stories, however, are horror stories like anywhere else in the world renovating older buildings, so be forewarned.
Also, older buildings are often amenity-poor with high administration fees which can affect the demand as a rental and therefore, your return as an investor.
Renting older apartments in buildings with elderly/wealthy neighbours can also be a problem. Who do you think rents large 3-5 bedroom apartments? Larger groups of younger, single males. Not always consistent with being a good neighbour.
Many of these older buildings are instating minimum 6-12 month rental periods to avoid the influx of short-term and often illegal furnished rentals. However over the years our clients bought out the residents in the Ayamonte Provenza building and successfully converted it to short-term rentals. We had a 95% occupancy rate in this building in
December 2020! Teaching old dogs new tricks…
Newer building usually have the long list of amenities that your renters often want to enjoy (pool, gym, sauna/Turkish bath, jacuzzi, floor to ceiling views, open kitchens, modern layouts, and finishings, etc.).
Combined with a lack of buildable land and an ever-strict city planning department, this is why new construction in Poblado is approaching $8,000,000+ pesos/square meter in 2021 (almost $2300 USD/sq meter or apprx $220 sq/ft). And other buildings like Energy Living where we manage the vast majority of sales and rentals, you’ll find the highest prices (and rental rates!) in Medellín at the moment at $10,000,000 COP/m2 and beyond.
Higher prices in newer buildings, however, come with higher rental prices as well, so the math often works out in your favor. Not to mention liquidity; it is much easier to sell in newer, professionally managed buildings.
If the new building is designed with short-term rentals in mind like our Soul and Loma Verde projects (see all of our Medellin apartment rentals here), then you’re definitely buying into a secure and steady income producing asset. Even during the height of the pandemic, nobody here lost money in any month during 2020.
I don’t think there’s a right or wrong answer, but generally speaking, maybe living in an older building and investing in a newer building might be a reasonable course of action for many would-be Medellín real estate buyers.
(At the end of this article I’ve included some special notes that apply to buying in pre-construction projects as well, both opportunities, risks and important questions to ask the promoters and developers)
Step 4: Money and banking: to SAS or not to SAS
You want to set up your Colombian bank accounts as soon as possible if you’re going to make a purchase.
It can take up to two weeks to open an account, and the sellers will take your offer a lot more seriously if they know you’ve already gone through this phase.
Too many foreigners start negotiating without even having the ability to execute financially, and I’ve seen good deals fall through as a result of anxious Colombians who just move on if they don’t sign and get paid quickly.
Alianza Valores is a great Colombian banking resource (our preference) and one of the only ones who really know how to handle foreign investment in Medellin real estate. Many foreign investors know Felipe Chavez (private banker) personally and you can contact him directly at email@example.com. Bancolombia, while they have a strong local retail brand and presence is a very difficult/impossible bank to work with as a foreigner.
Buying within a SAS
At this same point in time, you may also want to make the decision of whether to place the property in your name or in the name of your company, which has a two to three week set up time.
An “SAS” in Colombia is the equivalent of an American LLC with the same kinds of rights, flexibility, and legal separation of your assets.
I have personally decided to maintain almost all of my properties in the name of my company because it affords me lots of flexibility tax wise and don’t particularly like my name showing up in public records. However if you’re buying just a couple properties it might not make a lot of sense. Maintaining a SAS in Colombia is a lot more time consuming, and MUCH more expensive than other countries. I’ve seen some lawyers and accountants recommend a SAS blindly to foreigners because they can charge more fees vs. a SAS being the right ownership vehicle for the client.
However, this is not an article on taxes, which you should take the time to understand. I’m always happy to explain my personal experiences and strategies with Colombian taxes with our clients, and at Casacol we use a standard tax strategy developed by Deloitte Colombia to limit your Colombian income taxes on Medellin real estate to 20% vs. 32% for a SAS.
Step 5: The negotiation and offer
It’s important to know where the Medellin real estate investment process ends before you begin as this is often the most critical part of any real estate transaction but especially in Colombia.
This is where the fun part stops and the serious part begins. This is also where you want your lawyer and agent heavily involved; a full title study if you have any doubts about who the seller is, a purchase contract that works for you, negotiation advice, and all the paperwork at the end of the transaction.
Colombians (Paisas at least) rarely use lawyers for Medellin real estate conveyance instead placing the administrative burden on the agent to do the running around in the notary. But as a foreigner, you’re probably paying a lawyer to make this stress free, do your homework and pick the lawyer that you think will accomplish that for you. Beware of lawyers who don’t specialize in real estate transactions.
Also remember when doing transaction with locals, that Colombians are on average pretty sophisticated buyers and sellers of property. Most Colombians don’t trust the stock market or even government or corporate bonds, so buying and selling property is much more common and emotional here than you would think.
They can also be shrewd negotiators. I saw an 86-year-old woman once not give one peso in her negotiation in what was not a cheap unit, and she got her full price.
If the price is negotiable, the seller will let you know, or you should ask up front. If the price is clearly inflated, then that is another invitation to negotiate (low-ball) or just walk away. A good Medellin real estate agent who is interested in a long-term relationship with you will help you navigate this, it’s their job. If you have doubts, then ask for a professional, 3rd party appraisal (at your choosing and cost) to have an extra data point for your negotiations.
Step 6: The purchase agreement
A verbal negotiation on price and terms ends with a signed and notarized purchase agreement in Spanish known as the promesa de compraventa a legally binding document.
While the Paisas are known for their foreign hospitality, you may see that stop when it comes to money matters.
It’s not uncommon for your Colombian negotiating partner to make demands or renegotiate verbal offers right up until the actual promesa is signed in the notary. Words and handshakes mean a lot less in Colombia than it might in your home country. But a signed document is where the buck stops and you have a deal.
Don’t take it personally, it’s just a part of the culture to negotiate hard and up until the 11th hour here. Feel free to make demands you deem necessary, no one will be offended, it’s just business.
We’ve seen this process take from three days to three months end to end. It all depends on the buyer and seller, strong legal/notary support, the existence of a mortgage will delay closnig, etc. Every transaction is somewhat unique.
The most important clauses to be negotiated in a promesa de compraventa are the following:
1. What’s included in the price?
Parking, storage, appliances, ceiling lamps, furniture?
Generally speaking anything that isn’t fasted to the apartment the owner may want to remove, including light bulbs, curtains, appliances, etc. We’ve seen some weird stuff, so just get it in writing (again, in writing!) if there’s something you want to keep.
2. Deposit/down payment or the anticipo.
This is to secure the deal and is usually 10%-20%, but if the owner has a mortgage, they may ask for more so the mortgage can be cancelled.
We’ve seen up to 30% and for the right price it may be a good deal for the buyer to make a larger anticipo, sometimes you can negotiate lower prices for higher down payments as well.
This can cause heartburn to some foreigners because you are technically giving the seller some money without getting anything (like a title) in return. No escrow.
However, you are in fact protected by the penalty clause which is a serious legal matter if not satisfied (see the next point).
3. Penalty clause or the cláusula penal.
This states that the buyer and seller do what they are contracting to do in the promesa on the timelines and in the amounts of money that they promise.
After signing this legal document, if you don’t proceed as a buyer you could lose your anticipo, and if you don’t proceed as a seller, you could be sued and have your property “embargoed” with a lien for the amount of the agreed upon penalty, usually 10-20 percent.
4. Commercial and declared values aka the valor comercial, valor catastral.
In Colombia, like much of Latin America, there usually exists a gap between commercial values (what you pay) and declared values (what goes on the title).
You absolutely need your agent or lawyer to advise you on what is right for you here, and especially if you are talking about visa/residency matters as every case is unique. Through the 2019/2020 tax reform the government is closing this loophole of under-declaring property values. The best practice is require the full value on the deed, unless you want to assume the seller’s tax obligations when you eventually go to sell.
5. Settling of any mortgages/liens.
In Colombia, it is not possible to transfer titles (notary conveyance) unless the property is entirely free of mortgages/liens/building administration/property taxes.
It’s good protection for the buyer, but it can delay the process by up to a month due to lack of escrow and bank processing of the mortgage, etc.
A good lawyer is on top of this every single day to make sure this is done in weeks and not months.
6. Proration of taxes/rent/HOA fees.
This is just a math exercise. The property taxes need to be paid for the entire calendar year and then prorated to the date of title transfer or if the seller is giving you keys early, date of delivery or entrega.
Same for monthly HOA fees and in the case of buying a property that is currently generating rental income, that rental income should be split and prorated appropriately as well between buyer/seller.
7. The signing of escrituras or the titles.
The promesa will state a date, time and location of a notary visit/signing for all parties to exchange final payment via cheque or bank transfer, hand over keys, and sign the title over from the previous owner to the new owner.
This is essentially where you finish the purchase process.
Step 7: Final paperwork and deed registration
If all has gone smoothly, then you’ve signed titles in the notary, exchanged cheques/money transfers, paid your share of notary fees/taxes (budget 1.25-1.50 percent of purchase price plus lawyer fees for closing costs) and have keys to your new place.
There are a series of steps however that your lawyer should now do to make sure everything flows properly in the department of Registro, which oversees land titles/registries. Again unexperienced real estate lawyers will often disappear here.
This process ends with a refresh of the certificado de tradicion y libertad which can be pulled online and will show that you are the official owner and that all electronic records have been updated. Don’t forget about this part!
We’ve seen errors in registro after 20 years when someone thinks they owned property that they didn’t = nightmare.
You’re also now free to instruct your lawyer to start the central bank registration of your invested funds if you intend to use your property purchase for visa/residency purposes.
Obtaining a Colombian ID card (the cedula) will follow as well. But you are essentially done.
Buying in pre-construction projects
When buying Medellin real estate from pre-construction developers, it is important to note that there is a slightly different process involved. There is also some risk here, be forewarned about who you are doing business with.
The process often starts with signing a no obligation “hoja de negociación” or basically a letter of intent with the builder or developer to hold your place. You may be asked to put a small amount of money down at this stage, and it can be from 1-5 percent and usually gets deposited at the Fiducia (escrow) account.
Fiduciarias in Colombia are regulated, financial entities that offer an escrow-like service to builders/developers to handle all the money/contracts associated with a new development. They guarantee NOTHING however. If the project aborts they have little obligation to help you out, it’s mostly symbolic confidence. You NEED to know who you are doing business with, their experience, track record, property management strategy.
The Ficudia does offer some safety and organization to pre-construction projects however because the Fiduciara will enforce the buyers contracts as well to make sure they are paying on time, etc., paying the builder in installments as he meet sales goals. The Fiduciarias acts as a “traffic cop” to ensure both buyers and builders are doing their part on-time.
Instead of signing a promesa de compraventa for new construction you will sign the encargo with the Fiduciaria which serves a similar purpose and legal obligation as a promesa de compraventa of a titled property.
“In general, after all my years of WITNESSING both successful and failed pre-construction projects, my conclusion would be to watch the marketing strategy of the developer/promoter very closely.”
The most successful developers either build for themselves (build to own – because they believe so much in the product) or market to their existing clients first, in a private fashion without fancy sales rooms, without “Call now” banners hanging from the sidewalk, no billboards, no Instagram, no free steak knives. Because by definition, they have a long-term successful money making relationship with those investors who return to invest again and again.
“One-timers” are going to have the fanciest marketing materials, renders, videos, social media you’ve ever seen, almost like they need to compensate for something. Let’s be honest, real estate needs to be marketed to be sold, but the most successful developers sell out projects in days or weeks with a simple “Hey everyone, new project” email to their client base, not with Instagram. Younger, or smaller investors <$100k USD can often fall prey to the “sizzle” vs. the “steak”.
In Summary: 8 questions to ask before you invest in a pre-construction Medellin real estate project if you have any doubts.
- Who’s the whole team? Lead developer, architecture, structural and civil engineering, project management, sales/promotion? Resume (hoja de vida) for each team member.
- What stake does any/all of the team have in the final project? Or are they just going to sell out to investors?
- Is there a construction license approved? Ask to see the submitted plans in PDF, compare them to what you are being sold, floor by floor. It’s unfortunate that even in 2021 you might be very surprised what you find.
- Does the builder/GC have any grey hair? Medellin is full of junior engineers looking for their first real project.
- If they are claiming something like “X% already sold, act fast” – how many buyers and how many units/shares have they bought each? Have they done business with you before? Can I speak with 2 or 3 of them personally?
- If it’s an investment property, who’s the property manager or operator? Check their resume, references, experience. Compare their REAL, delivered, historical ROIs, track record of meeting expectations to what is being promised/suggested by the sales promoter.
- Financial engineering, do your ROI projections include appreciation (hope and a prayer) or are they cash on cash returns? Big difference!
- Liquidity, what about when I sell? Who’s going to help me exit the investment in the future?
Thoughts on $USD/$COP in 2021
Today the USD stands at $3415 COP, still a historically low point for the COP. Many people ask me for my thoughts on what the COP will do in the next X months and while I always have an opinion, I’ve been right as much as I’ve been wrong. Nobody knows for sure.
However the COP, while not a “petro-currency”, is strongly correlated to the price of oil plus related to other emerging markets (Brazil, Mexico, etc.) and trends in the USD/COP rate are often more associated with trends in the USD than the COP. Colombia is in reasonably good fiscal shape going into 2021 and while I’m not a huge fan of the President, he has a very strong finance minister who has navigated COVID19 and general public finance policy much better than I would have imagined.
I don’t expect major moves in the COP during 2021 failing international risk factors which may drive up the USD. My personal guess is that the COP will end up slightly stronger maybe 5-10% by the end of 2021, absent of any major global macro event. More global risk usually = a stronger $USD.
Medellin Real Estate Bubble?
Here’s another question I get asked a lot, is Medellin in a real estate bubble? It seems like since 2008 everyone is a bubble watcher. The first question I always ask is, do you know how an investment bubble is defined?
An investment bubble typically goes through stages of 1) boom, then 2) euphoria, then 3) profit-taking, then 4) panic/selloff.
Given that foreign investment in Colombia is still low, credit is relatively hard to get for locals, mortgages not possible for foreigners, interest rates are high (10%+), mortgage down payment requirements are 30% and that Colombia already learned dearly from their 1998-1999 real estate bubble and subsequent financial crisis, I don’t see conditions for a bubble in Medellin real estate. I wouldn’t even say we are in a “boom”, I think the market here on average is well balance between supply and demand. Regardless, I always enjoy these debates with new and existing clients of ours.
Buying property in a foreign country like Colombia can be exciting and very rewarding both personally and financially, as I can attest to in my experience after 12 years of investing and doing business here, helping primarily foreigners find high quality real estate investments in Medellin.
The key is to seek advice from people who are licensed, affiliated to local and national organizations, trained, specialized, and have a deep set of knowledge experience in doing what you need them to do.
At Casacol, I’ve built a team and ecosystem of highly trained agents, project managers, expert property managers, legal experts, bankers and accountants to help foreigners looking to invest in Medellín.
Medellín Living readers can read more about my company here and can contact me directly at firstname.lastname@example.org to discuss their investment priorities at any time. PS: Meet our sales team and see our Medellin real estate sales listings here.
Thanks for reading, I hope this article has been useful.