The Strong Dollar Makes Real Estate In Colombia A Bargain

If you’re holding U.S. dollars, you have a window of opportunity right now to take advantage of super-charged buying power in key overseas markets.

The dollar’s current strength is creating irresistible bargains in some countries where real estate trades in the local currency. I refer to this temporary distortion (no one can predict how long it will last but you can be sure it won’t continue forever) as a “currency discount.” It’s a metric I watch closely, and it amounts to a big, bold “Buy!” signal.

The difference of a percentage point or two in the rate at which one currency is able to buy another isn’t going to change your lifestyle day to day, but, when buying property, even 1% can start to look like real money.

When Kathleen and I purchased our apartment in Medellín in 2011 and reported on the experience to our Live and Invest Overseas readers, one wrote in to tell us we were “foolish” to be buying property in Colombia at the then exchange rate of around 1,800 pesos to US$1. He was going to wait to buy until the exchange rate hit his target of 3,000 to the dollar.

More than four years later, the peso finally fell to 3,000 to US$1. However, property values in Medellín had risen 40% or more in the same period. If the guy who’d written in to chastise us was still looking at property in Medellín in 2015, when the exchange rate hit his target, he would have been able to buy a property for maybe 10% less in U.S. dollar terms than he could have in 2011. Meantime, he’d missed out on four years of cash flow and personal use.

For us, the exchange rate didn’t matter. We saw Medellín as a buy, a market we wanted in on. We found and purchased an apartment that we still own. Today it’s worth three times what we paid for it in peso terms; in U.S. dollar terms, it’s a double.

In addition, we have had use of the property all these years and look forward to every chance to return. For our money, Medellín, Colombia, offers the best city living in the Americas. Its El Poblado neighborhood, where our apartment is located, is pretty, clean, safe, and pleasant, with shady streets, upscale shopping, and lots of restaurants, cafes, and parks.

Short-term rental yields in Medellín were an impressive 15% to 18% net when we bought into the market, but that lasted only a few years. Markets always revert to the mean. Today, rental yields in Medellín fall into our target range of 5% to 8% net, but other Colombian markets have stronger cash-flow potential, including Santa Marta on the Caribbean coast.

Property prices in cities across Colombia can be expected to appreciate at a nice clip for the foreseeable future thanks to the country’s growing middle class, and short-term rental yields are strong in many markets due to improving tourism numbers.

The clincher right now is that, at the current exchange rate of 3,300 pesos to the dollar, you could well be buying at a currency top. Your strong dollar will go far in peso terms, then the asset could appreciate with the support of a strengthening Colombian peso.

For the record and in case you harbor concerns, Pablo Escobar was killed in 1993, FARC has laid down its weapons, and Colombia has enjoyed one of the strongest economies in Latin America for the past decade.

In addition, Colombia now qualifies as one of the easiest places to obtain residency. You have 17 visa options to choose from, and qualifying requirements are minimal.

A friend obtained Colombian residency in less than an hour at the ministry in Bogotá following the instructions on the government’s website. He managed the process on his own, without the help of an attorney.

We don’t recommend that approach even if you, like our friend, speak fluent Spanish, but you get the point. Colombia is working hard to make itself as user-friendly as possible for the would-be foreign investor and retiree.

As I survey the global landscape this 2020, Colombia continues to stand out.

Lief Simon