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Is renting out a property a good business proposition?

This question has probably been asked asked many times before but I cannot see anything recent.

I am envisaging buying an appartment and renting it out for a few years until I need it later. But is this a good business proposition?

The way I see it is that if I do it the rental income must cover the lost interest on the cash I have used (say 8% p.a. based on current CDT's) together with the other costs I would have to support (Condo fees, something for maintenance...and what else?)

I have an eye on an appartment in Poblado (Medellin) close to Park 10. It would cost around Peso 150 million and is approx 145 M2 plus 35 M2 terrace (3 bedrooms). Condo fees are about 200,000 per month. Its in a pretty bad shape and would need some fixing up.

My first thoughts are this would require a monthly rental of at least 1,300,000 per month. But can people afford this?

By fecherklyn on Aug 21, 2007, 17:18 in Friendly Talkzone.

BAQ says on Aug 21, 2007, 17:54:

In short, NO, in fact, HELL NO. I have seen more people get screwed trying to rent their properties, UNLESS, you are HIGH END,and I mean VERY HIGH END. The average Colombian cant affrord anything even close to 1.3mil per month and 99% of those who CAN afford that amount are buying, not renting.

Semper Fidelis !

jaramillo says on Aug 21, 2007, 18:27:

Right on BAQ. However,fecher, you need to add the gains from the increase in price of your property. In my family's experience this has often met or beat that 8%.

Gator says on Aug 21, 2007, 18:32:

Bad business -lots of people trying to rent their apartmententos at this time, at least in our neighborhood of Rosales. Sales are flat.

"Brevior Sltare Cum Deformibus Mulieribus Est Vita!" .

robi666 says on Aug 21, 2007, 18:39:

Is the apartment in Sotoverde? Go for it!

"I am a citizen of the most beautiful nation on earth. A nation whose laws are harsh yet simple, a nation that never cheats, which is immense and without borders, where life is lived in the present."

robi666 says on Aug 21, 2007, 18:47:

I bought an apartment (150 sqm.) near Park 10 just one year ago. It got rented in 15 days , and it is giving me a good rent (1,5 millions with furniture).
You can make 7% NET, after paying taxes, agency fee, administration, etc. (plus, of course, the gain from the increase of property)
1 million per sqm. should be a VERY good price right now (of course i don't know exactly, so I'd have to check...)
You can decide to buy furniture and rent it for days. It is a good site for it.
Rent is doing super fine in El Poblado. Selling is beginning to slow down because of the high price. Good luck.

robi666 says on Aug 21, 2007, 19:06:

BAQ, Medellin is not Barranquilla. Infact, not even in the same league. So, I think you're right about Barranquilla, but Poblado is something different.
If I would invest in Barranquilla, I'd buy in Estrato 3, let's say something in the area c.ra 18 con la 47 (just north of the Elmo's pig meat area :-) ). A 60 sqm. apartment can be rented at around 400.000 450.000 pesos there. Administration can be something like 50.000 pesos per month. That can be a easier property to rent. But I would not do it, anyway...

robi666 says on Aug 21, 2007, 19:11:

fecherklyn, send someone to ask at the same building if there are apartment for renting. And if there are other apartments for sale. That's a good indicator...

robi666 says on Aug 21, 2007, 19:25:

Again, I would NEVER invest in Colombia if I was not living here. But, you'll need the apartment in a few years and I understand you'll be living here, so, why not?

poco says on Aug 21, 2007, 19:26:

It is amazing the price people pay for CONDOS. You couldn't give one away in a small town. 200,000 fee ??? You could rent a nice HOUSE for that kind of money where I live.

What are people thinking???

Is there a thought that there won't be any more Condos for sale?

Are condo prices going UP ??? and the urge to get rich takes over a persons common sense?

What about the exchange rate,, does that matter???

Oh,, does anyone know what happened to real estate prices when the government started watching transactions??

I can BUILD and nice NEW three bedroom, three bath with a garage,, 135 m2 = bout 1300 sq. feet,, for 80 million and it would be on a 225 M2 lot. The patio would be??? middle of house,, or rear of house??? but it would be integrated into the design.

This is a 3 bedroom, 1 bath "redo". The lot is 6m X 40m. Original cost was 24 million, fixup was 4 million,, the final cost will be about 30 million. The house will have a totally new kitchen, bath, wall and patio.

Living in a city is for wussies. I can't imagine trading life in a U.S. city for a Colombian city.

"Violence is the first refuge of the incompetent" - Isaac Asimov

robi666 says on Aug 21, 2007, 19:33:

Poco, I can sell you an ha. (10.000 sqm.) in the Sierra Nevada for 1 million of pesos. Wanna go for it? :-)

robi666 says on Aug 21, 2007, 19:39:

The floor is teak from my finca... you may like it! :-)
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robi666 says on Aug 21, 2007, 19:43:

Gres from Cucuta... 11.500 COP per sqm.
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robi666 says on Aug 21, 2007, 19:50:

Piedra Pizarra Gris... 36.000 COP per sqm.
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poco says on Aug 21, 2007, 20:15:

Humm,, well,, gosh,, Today I started on the patio walk,,,

Bricks,, $20 USD.
Looks like it will take one man,, two days.

My answer to the original question,, high value absentee rentals should be avoided. I'd personally NEVER invest in Colombian Real Estate and I live in Colombia half the time.

"Violence is the first refuge of the incompetent" - Isaac Asimov

poco says on Aug 21, 2007, 20:18:

I forgot to mention,, check out the PUD POUNDER (the black plastic covered item) I had fabricated. I might do a post about pounding your pud in Colombia. I've seen pud pounders all over the valle.

"Violence is the first refuge of the incompetent" - Isaac Asimov

robi666 says on Aug 21, 2007, 20:56:

Sappan 33.000 COP (machimbrado)
Never use anything softer than Sappan en la costa. The white Comejen (the angrier one) would eat it up in a month...
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Hey Poco... have you seen that the police got the owner of the multimillionaire caletas in Cali... alias "Chupeta"?

robi666 says on Aug 21, 2007, 21:08:

But, of course, for a 8 meters long beam you have to go Abarco... a good poison would do the job then.
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Poco, building, like you do, is a kind of... investing... isn't it?

BAQ says on Aug 22, 2007, 10:41:

The only way I wold ever consider investing here would be to buy a prooperty right next door to my own home so i could keep a good eye on it every day.

ROBI666, I agree, Barranquilla isnt close to Medillien, but regardless of where you live, as far as apartments go, there seem to be SO MANY, and more being built all the time, that trying to sell one would appear almost impossible, given all the competition of new ones for sale and others trying to sell theirs..

All I can speak for is Barranquilla cuz thats where my house is. I see lots of new apartments being built, many vancant and have seem MANY used apartments with for sale signs that have been up for over a year. HOUSES, on the other hand, seem to turn much quicker. A guy 4 doors down from me,has a nice house and placed it on the market 3 months ago, sold it last week and got his asking price of 220 million pesos. I live in Estrato 5 and most of the houses here sit on a third acre of land, and are approx 2000 to 2300 SQ ft of living space. Hope the comparason helps.

ROBI666, NICE HOUSE BY THE WAY !!!!!!!!!!!!

Semper Fidelis !

MaBarker says on Aug 22, 2007, 12:04:

I'm visiting Bogota, Rosales, and paying $1300USD a month for a two bedroom, no laundry.

This is comparable for the area.

Why not buy an apartment and rent it out? Seems more than profitable to me.

robi666 says on Aug 22, 2007, 15:47:

Hi Ken,
for teak... I did not pay anything for teak... it is from the finca (well, just half of it ;-). I also made some furnitures (beds, tables, chairs, etc.). That finca is not in Medellin, but on the coast. In Barranquilla, in madera El Triunfo (very very bad service, but the best in Barranquilla, figure it out), teak machimbre goes for something like 66.000 pesos per sqm. In Medellin is more expensive but better quality, I guess it would be like 100.000, but i don't know it first hand. Of course, you don't have to handle those f* costenos so i guess you pay for a much better service and quality. By the way, Colombian teak comes from Choco and get to Barranquilla by boat, so it has a better price.
Sandalo is very expensive and precious, too.
Sappan, very good for a floor, goes for 33.000 more or less, even in Medellin.
Abarco is really hard to find in Barranquilla and it costs a little more than in Medellin.
On the coast, they sell a very bad quality Abarco, the one they call small Abarco in Medellin; of course they swear it is Abarco...
I don't know about oak, but what do you use it for?
Where are you building?

BAQ says on Aug 22, 2007, 15:52:

Robi666 is correct, lots of it here in Barranquill. my next door neighbor sells teak and is exporting it to the USA: He is making a truck load of pesos.

Semper Fidelis !

poco says on Aug 22, 2007, 18:22:

------- Poco, building, like you do, is a kind of... investing... isn't it? -----

It is entertainment. Cheaper than going to Las Vegas. Plus, I don't put much money into houses anymore. The girl has made enough to buy/sell houses. I think of this as my late entry into the peace corps.

I see you know about the downside of building with wood. I'd think a soaking in Dursban is a requirement. There is another item called Lorsban. I've used it with good results.

I am curious about the treatment of the wood floor. Is teak resistant to Colombias version of termites.

This is another of my small projects I'll finish this year.

Removed the INSIDE of an existing window. No small task. I furnished exact CAD drawings to a local carpenter who made the inside portion of wood to match the kitchen cabinets.

I gave this a liberal spraying/soaking of almost straight Lorsban.

"Violence is the first refuge of the incompetent" - Isaac Asimov

Tinto (Moderator) says on Aug 22, 2007, 18:27:

Lorsban and Dursban - Many moons ago I had a college internship with Dow Agri-Chemicals. Mix 'em together, add some gasonline and you've got yourself Agent Orange. Haha.

Tinto (Moderator) says on Aug 22, 2007, 18:35:

Lorsban and Dursban - Many moons ago I had a college internship with Dow Agri-Chemicals. Mix 'em together and you've got Agent Orange.

Just kidding - as you know, they're insecticides, not herbicides.

Tinto (Moderator) says on Aug 22, 2007, 18:36:

Lorsban and Dursban - Many moons ago I had a college internship with Dow Agri-Chemicals, the manufacturer of both. Mix 'em together and you've got Agent Orange.

Just kidding - as you know, they're insecticides, not herbicides.

robi666 says on Aug 22, 2007, 19:31:

Poco - about teak. Yes, I am curious too. Found out that they haven't got any experience with teak in the Santa Marta or Barranquilla area. All they do is... export it to USA. My carpenter (and none else) did not have a disk to cut it, so I had to buy one from Germany. It made the job.
Now my concern with the teak furniture is: paint it with a "sellante" or leave it natural and apply a teak oil? Also, I found a teak oil in Homecenter and it does not look to be top quality...

In Medellin there is a quite good company working with teak: Bosquema (www.bosquema.com). They are near San Diego. An Italian started it, too. Bosquema is selling teak oil, but really expensive, like 70.000 for one liter!

Ken - wow, that must be a wonderful lot! Quite curious to have a look at Durapanel... The finca is near Santa Marta and no neighbour selling teak... just me chopping down some trees :-) The hard part was to deliver it to SM for working... night ride on a truck and I had to bribe there and there... but that's another Colombian story... I'll PM you my cell and see if we could catch up one of these days for a corriente to talk our stories...

houstongal says on Aug 22, 2007, 20:55:

Hey Robi - Really beautiful home. Love the octagon room and the exposed wood. And great shower stall! Really nice work!

Culture is language and language is culture - Dr. Annamaria Napolitano

Cerealkiller says on Aug 23, 2007, 01:24:

Fecherklyn, I believe you could find someone willing to pay th 1.3 million pesos easy, you could rent the flat for years, Id say most colombians HATE moving, so you'd be safe there. What worries me is that sometimes you do not know what te people living in your flat are like, they can pretty much destroy it, leave and itll be up to you to refurbish it.

Conservatives are not necessarily stupid, but most stupid people are conservatives -John Stuart Mill

Wastelandlive says on Aug 23, 2007, 08:39:

Colombian teak is beautiful. But I always wondered - during my boat restoration days - what the obsession with teak was.

It was originally used in the boat industry because it is a heavy wood. It's saturated with oil, and resists the sun and bugs quite well.

But Colombia has a number of great tropical hardwoods. Cheaper. And interesting. I used a black wood called "Guayacan de bola" that practically sank when tossed in the water. THAT was some hard shit... cost me a few bits. And then there is this deep red wood on the coast... can anybody remind of its name? Dirt cheap, attractive if finished, and every bit as durable as teak...

I envy you Robby. It looks like a great life!

Wasteland

robi666 says on Aug 23, 2007, 08:48:

If you talk about Ceiba roja, i was told it is expensive, but I neer asked its price.

robi666 says on Aug 23, 2007, 08:56:

Wastelandlive, when you have a boat you begin to hate teak... ;-) Fiberglass and gelcoat, that's what I like!

Wastelandlive says on Aug 23, 2007, 09:37:

Indeed.

But I was doing interior carpentry... and I couldn't mix woods. As it was, I often had to stain the Colombian teak before varnishing to match colors.

I dealt with - at one point - a short run of boats rumored to have been built by a German architect in Medellin. He clearly wasn't an engineer: everything was two and three times as strong - and heavy - as necessary. But ISYN: not an inch of plywood. Even bulkheads were made of solid, notched, teak panel.

And yes: I think it was ceiba I was thinking of. Expensive? Not to my recollection: it was the wood of choice for things like docks. I watched a Frenchman restore a totalled, turn of the century herschoff with whatever woods he could get his hands on - he couldn't afford teak. It came out quite nicely. He had cieba decks.

From your pictures, I see that you do great work. I was totally unimpressed with the construction I saw while there. Where exactly do you build?

Wasteland

robi666 says on Aug 23, 2007, 09:52:

Wasteland, that finca is a dream I had since the first time I got to Colombia. A no-stop sail from Martinica to drop the anchor in Bahia Cintho, Parque Tayrona. It is 35 kms from Santa Marta. Almost done...
Another dream is to build a small catamaran... it's just that labour is cheap here and wood too. Who knows... maybe one day.

fecherklyn says on Aug 23, 2007, 11:04:

robi666,

You said much earlier "If it is an apartment in Sotoverde, go for it".

The original apartment I posted about was not there but I am curious about why you are so emphatic about Sotoverde. What is so special about it?

Also, does anyone have any idea about what SHOULD BE the difference between prices of old and new? For example, new developpements in Envigado and Poblado are going for from 1.8 M. COP to 2.5M COP the m2, whereas older properties are approx 25% less (depending on age). How can this work (by definition, a new property becomes "old" within a few months of "delivery"....much like a car). As I presume a "new" property does not depreciate in value by 25% a few days after construction, does one have to assume the "new" prices automatically imply a revaluation of "old" prices?

robi666 says on Aug 23, 2007, 13:02:

1) They just sold an apartment in Sotoverde, more or less the area you described, more or less same administration fee, last floor, duplex, for 200 millions of pesos. It is a good unit with a good location.
2) If you want to rent it, do not buy new. New is over valued.
Where is the apartment you wanted to buy?

fecherklyn says on Aug 23, 2007, 13:38:

robi666,

I am prospecting for something in the immediate vicinity of the Park 10 hotel and have already seen several appartments in blocks within 100 metres of there that are going for in the range of 1.1 to 1.4 M. COP per m2 (calculated on constructed areas EXCLUDING terrace areas).

The appartment I wish to check out in Sotoverde seems to be more expensive than those I have seen previously and I wonder if its prime location warrants the extra? Apparantly it is 135 m2 plus 70 ms of terrace and has an asking price of 230 M. COP which equates to 1.7 M. COP....quite a bit more than the others. It also seems the asking price is high in comparison with the appartment you know of that was just sold.....which being a top floor duplex sounds better?

Do you have any comments to offer? Thanks

robi666 says on Aug 23, 2007, 14:03:

Actually, you should calculate the terrace area with a 30% - 50% coefficient.
Be cautious. On paper, like on the prepurchase agreement, the constructed area (area construida) includes the terrace. You should look at "area cubierta" and "area descubierta".
I don't know that particular apartment in Sotoverde, so i cannot give you a detailed answer. Yes, of course a duplex apartment at the last floor is better than one on another floor. Also, I give you the area of one of the top floor duplex apartment in Sotoverde, area construida 153,24 m2, area cubierta 126,94, area descubierta 26,30.
So, are you sure about 135 70 figure... with that big terrace, is it at the first floor or where? I do not remember an apartment with that big terrace in Sotoverde...

jaramillo says on Aug 24, 2007, 18:39:

My dad has done more than well with his Sotoverde apartment. I have not seen property prices go down in this area. And I've been looking for 20 years.

robi666 says on Aug 24, 2007, 18:47:

No, jaramillo... for a Real Estate PBH study, they will go down to almost nothing in the next year or so... ;-)

robi666 says on Aug 24, 2007, 19:02:

If you know something about real estate in Medellin, you know that there are units to avoid... too many traquetos living there or a bad history that will make it hard to sell it. One example is Las Piscinas, gorgeous 300 m2 apartments each one with a swimming pool. So, be sure to talk with an honest agent...

jaramillo says on Aug 25, 2007, 06:32:

Lol! Absolutely. The other thing is the kind of scenes my brother calls "operaciób chancleta", or "operation flip-flop". The kind of apartment buildings with zero caché, in less than desirable locations. Prices there can flat or even depressed.