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.
So, for investors large and small, starting out, winding down or just diversifying some assets, whatever your goals are: here’s how to invest safely and securely in Medellin real estate.
Step 1: So you want to invest in Medellin?
The first question you need to ask yourself is why?
Here are the most commonly stated reasons:
I maintain a blog here and recently wrote about this very topic on the difference of making a home buying decision or an investment buying decision.
To sum it up, the places that make great homes to live in and show off to your friends (large apartments, fincas, etc.) are not usually the best investments.
Likewise, the best investment properties (generally smaller and short-term rental apartments) are not usually where you want to live. It’s important to decide early on where on the curve you wish to be.
We also have a lot of buyers wanting to buy because they want a visa/cedula/residency/second passport. I tell everyone in this category:
If all you need is a Colombian visa, then find a lawyer you like (Casacol has two on staff), and there is always a solution. Bottom line, 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
It’s true everywhere on the planet, and it’s true here in Medellin as well. Once you’ve decided that you’re either going to live or invest 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 business and leisure travelers.
Based on our property management experience, I’m going to steer you towards certain buildings more than others where I know we can generate good returns.
Another 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 renters will eventually find something better!
Looking for a place to live? The world is your oyster.
We can go anywhere from studio apartments to farm land, Laureles, Bello, Sabaneta and everything in between.
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 blogged about Laureles here last year.
Step 3: New vs. Old
There are two philosophies on this topic:
Older buildings
There are some beautiful, high-quality and well located older buildings in town.
Properly renovated (or not), they could be the kind of places you want to live in with large spacious bedrooms (usually three to five), 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 3-5 bedroom apartments in buildings with elderly neighbors can also be a problem.
Many of these older buildings are instating minimum one-year rental periods to avoid the influx of short-term and often illegal furnished rentals.
Newer buildings
Newer building usually have the long list of amenities that your renters want (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 500,000 pesos/square meter (almost $200 USD/sq ft) which are the highest prices you’ll find in Medellín at the moment.
Higher prices in newer buildings, however, come with higher rental prices as well, so the math usually works out in your favor.
If the new building is designed with short-term rentals in mind like Energy or our Soul and Loma Verde projects, then you’re definitely buying into a secure income producing asset.
I don’t think there’s a right or wrong answer, but generally speaking, 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, you can skip to that section here.)
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 get paid.
As website Medellin Living wrote earlier this year, Serfinco/Ultrabursatiles (they’ve just merged) is a fantastic bank to work with and Andrés Cardona (andrescardona@ultrabursatiles.com) and his team manages accounts for hundreds of foreigners in Medellin.
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-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.
I have personally decided to maintain almost all of my properties in the name of my company because it affords me lots of flexibility taxwise.
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 to buyers or refer you to my accountant if you want in-depth advice.
Step 5: The negotiation and offer
It’s important to know where this process ends before you begin as this is often the most stressful 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, a purchase contract that works for you, negotiation advice, and all the paperwork at the end of the transaction.
Remember, 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.
Always remember, 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 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, 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 or just walk away.
A knowledgeable agent will know the market enough to advise you in any negotiation, and in fact, Ana in my office (acastano@casacol.co) is a trained and certified appraiser by the Lonja (the real estate association) of Medellín.
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.
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.
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 if 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 contract, 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 will remove, including light bulbs, curtains, appliances, etc.
We’ve seen some weird stuff, so just get it in writing (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 percent, but if the owner has a mortgage, they may ask for more.
We’ve seen up to 30 percent 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.
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 exists a gap between commercial values (what you pay) and declared values (what the government thinks it’s worth).
You absolutely need your 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.
5. Settling of any mortgages/liens
In Colombia, it is not possible to transfer titles unless the property is entirely free of mortgages/liens/building administration/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 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
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) 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.
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.
We’ve seen errors in registro after 20 years when someone thinks they owned property that they didn’t. Mistakes aren’t a problem unless they go uncorrected.
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.
Notes: Buying in new construction projects
When buying pre-construction, it is important to note that there is a slightly different process involved.
The process starts with signing a no obligation “hoja de negociación” or basically a letter of intent with the builder or developer.
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 usually banks/insurance companies that offer an escrow-like service to builders/developers to handle all the money/contracts associated with a new development.
They also provide a high degree of safety to the buyer because if for some reason there is an issue with the project there is recourse to get some/most/all of your money back while another builder comes in to finish the project (very rare, until it happens of course).
It also offers safety to the builder because the Fiduciara will enforce the buyers contracts as well to make sure they are paying on time, etc. 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.
You may also sign a series of other paperwork including the certification of exactly what apartment you will receive with specific dimensions and with specific apartment features/building amenities down to tiles, bathroom fixtures, appliances, etc.
Payment terms for new construction projects can be 1-5 percent at the time of signing and 40-60 percent of the total purchase price paid in monthly installments over the course of the construction period.
What you are paying for pre-construction is a right to purchase and at the end of the construction period, that’s when the other 40-60 percent is due, either fully paid or with a mortgage (in the case of a Colombian).
When you are paid up, the builder creates a title/escritura, and that gets signed into your name.
Summary
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.
The key is to seek advice from people who are licensed, trained, specialized, and have a deep set of experience in doing what you need them to do.
My company Casacol has a team of trained agents, expert property managers, internal and external legal experts, bankers and accountants to help foreigners looking to invest in Medellin.
We help foreign, local, novice and professional buyers realize their investment goals in Medellin and across Colombia where appropriate.
We work with everything from $50,000 studio apartments, penthouse properties, hotels, and even raw farmland, and there are excellent opportunities and value in each category.
Plus we don’t sell anything that we wouldn’t manage, which means you get highly efficient and effective property management and solid returns on your money long after you’ve made your purchase.
You can read more about my company here and can contact me directly at brad@casacol.co to discuss your investment priorities at any time.