Dateline: Medellin, Colombia
Medellin has always been a traders’ city. For years, many of Colombia’s largest industries — ranging from manufacturers to commodities — have called Medellin home.
For foreign capital, some of the investment opportunities here are excellent.
Colombia has been on my radar for a long time. The country has a negative image from the days of Pablo Escobar, yet Medellin feels far safer to me than any city half its size in Central America. As a result, American and Canadian capital, in particular, have yet to make it this far south, at least en masse.
However, Colombia is changing rapidly. Practically every US franchise concept you can think of has either just opened or is setting up shop. Additionally, Medellin has a sort of California vibe to it, with an endless array of trendy, modern-looking restaurants that would easily fit in on the Sunset Strip.
In short, combine an unfairly scorned economy with rising middle-class optimism, low prices, and a currency that will rise in the coming years, and you’ve got almost all of the things I look for in a country.
As far as South America goes, there is no other country on my radar that comes close. Not even Chile.
One thing that I find quite interesting about Medellin as an investment destination is that it is developed enough to have a wide variety of both hands-on and hands-off opportunities, but still developing enough to have a lot of room left.
Reasons to invest in Medellin
Personally, I see a lot of promise in Colombia for a number of reasons:
First, the currency has been battered by a strong dollar. The Colombian peso isn’t going to be a bellwether currency any time soon, but it has been unfairly trashed by the dollar’s ascent. As the dollar comes back to earth in the coming years, I don’t think it’s unreasonable to at least see a 33% increase in the peso.
Heck, today’s values of nearly 3,000:1 against the dollar are low compared to the 2,000:1 values when I was here earlier in the year.
Second, the country is on the upswing. Colombia may not be my #1 place to hire people, but it is the second-most free economy in South America.
The Spanish-speaking world is rather insular, and I expect Colombia to play a role in the growth of the region, especially as trade liberalizes.
Next, it’s becoming a haven for expats. Medellin, in particular, is full of digital nomads, retirees, and everything in between.
Finally, it’s more mature. If you’re looking for a frontier market, South American countries such as Paraguay certainly offer that. However, even in Paraguay, you won’t find acres of land near the city for $500 the way some pie-in-the-sky bloggers would have you believe. You can find deals at similarly low entry points but without the risk of more frontier markets here in Colombia.
On the whole, people in Colombia, and Medellin, in particular, are optimistic. This city is becoming a haven for tourists due to its “eternal spring” status, fun vibe, and beautiful people.
Here are several of the investment opportunities we discussed at my private mastermind this weekend:
1. Real estate investing in Medellin
Real estate is one of the easiest ways to invest in Medellin and among the most popular among expats for obvious reasons.
However, much like Asians, Colombians have a great reverence for owning property that many westerners don’t quite understand. The historical fluctuations of the peso, as well as a demand for the security of hard assets, have driven Colombians to use real estate as a form of alternative bank.
It is certainly possible to find bad real estate deals here, but it is also possible to find some home runs if you know what you’re doing.
While I personally prefer to get my hands a little dirty in exchange for higher yields, the “pre-fab” real estate deals that simply send you a check every month pay anywhere from 7% to 10%. No work, no sweat.
That’s before any appreciation in either the property or the currency.
If you’re willing to get a little more involved, I’ve seen several penthouses here that could yield around 12% annually without a lot of management. I think it’s possible to do even better if you’re willing to put in a little work and make sure your real estate is fully rented out.
For example, I came across one deal that I was able to negotiate down to a purchase price of about $139,000. The place needed a little touch-up and some nice furniture, which I estimated I could do for about $12,000.
Total all-in price: barely $150,000. Just about enough to qualify for a free bonus: instant permanent residency and Colombian citizenship in five years.
Basically, I can earn a 12-13% yield by maintaining a little better than 50% occupancy at the same rates as nearby four-star hotels that aren’t as nice and don’t offer the space. I’ve also built in a contingency plan for longer-term rentals as I expect that will be the direction in the next year or two.
My definition of cheap, good-quality property starts at around $100 per square foot. For example, I’m paying about $82 for a finished product in Tbilisi, Georgia.
This penthouse comes in at about $95 per foot and, including some other small assets, I could probably pare off to recoup a little cash. On top of that, Medellin also meets my “worst-case scenario” standard: I would be happy to live in my own penthouse if everything else fell apart.
2. Investing in commodities
Colombia is a resource-rich nation, with commodities ranging from precious metals like gold to more basic metals like copper.
Medellin has historically been at the center of many commodities-related businesses, and the people here “get” the idea behind natural resource investing.
At our event this weekend, one of the attendees who lives in Medellin discussed an area outside of the city where locals spend one month out of the year panning for gold in a stream rich with the yellow metal. They bust their bums for that month and fund much of the rest of their annual income with it.
Mining and other resource projects are the source of mixed opinions here. Taking physical delivery of a salable metal is one thing, while investing in actual production is another. I’m keeping an eye on the resource sector here and forming a better opinion as I get more information.
3. Investing in local companies
For as little as approximately $22,000, anyone can start their own Colombian company and get a residency visa that can be converted into Colombian citizenship in ten years; invest $158,000 in a company and that is reduced to five years.
There is even a way to start your company and get residency without investing the already low amount.
For investors not looking to become entrepreneurs in Colombia, there are a number of growing local companies looking for financing. I looked at one of these companies this past weekend and the offer is compelling.
Basically, you have companies that have contracts with large firms but need capital to fulfill orders and bring their goods to market.
If you’re interested in venture finance in companies already past the seed round, there are some interesting offers that take advantage of Colombia’s growing economy, as well as international markets for things like resources, tourism, and services.