The best options to invest in Colombia in 2019
What makes Medellin so special? As Kathleen Peddicord, founder of Live and Invest Overseas, said, misperception is what keeps this place special. The more thinking they wouldn’t dare to set foot in Colombia, the less discovered that the paradise remain. And this results in real estate prices remaining affordable, especially when compared with similar metropolis in other parts of the world. But there’s much more in Colombia than just real estate, and unique opportunities in other industries remain undiscovered and unseized.
Where precisely are those investment opportunities? What can a foreign individual investor do in order to take advantage of them? In this newsletter, we will explain step-by-step details on, how and where to invest in Colombia. We will be writing this guide based on our experience of more than 10 years in serving foreigners who are willing to live and/or invest in our country.
First, let’s tackle the most important premise for any international investor: the exchange rate. Colombia’s currency is the Colombian Peso (COP). Having an economy dependent on oil exports makes the country vulnerable to oil prices. The lower the price of oil, the weaker the COP is against the US Dollar. There’s a clear inverse correlation between the price of the oil and the price of the COP/USD exchange rate.
According to Gutierrez Group, current prices of oil, plus a combination of several other macro and micro economic factors, have created a perfect setting for investors holding US currency wanting to invest in Colombia That’s mainly because they get to trade their currency at historically high levels. Today (February 28, 2019), at an exchange of $3,072+ COP per 1 USD, foreign investors have 60%+ more purchasing power than only 4 to 5 years ago, yet opportunities haven’t necessarily gotten more expensive. This can be considered as one of the best investment opportunities available for them to invest their money in.
Exchange Rate Behavior (1991 – 2019)
Now, what can the 60%+ extra acquisition power will buy you? Well, opportunities are everywhere. From the safest alternatives offered by the largest banks and securities brokers, where yields from 3% to 5% per year can be easily obtained; to tourism-related real estate, with expected average annual returns of 5% to 8%; to private financing alternatives featuring safe returns of between 10% and 12% per year; to the always promising and governmentally-subsidized agro-industry, where 15%+ yields can be expected. In between all of this, you may find lots of entrepreneurship and alternatives in other types of businesses, especially in the digital, tourism and gastronomic arenas.
Next, and in no particular order as each alternative suits different needs, expectations and the risk appetite of each investor, you’ll find Gutierrez Group’s top options and recommendations on where to invest in Colombia this 2019.
Mutual Funds, Money Market or interest-bearing accounts
The option for the most cautious.
If you want to invest in Colombia but are not sure precisely where, or you are waiting to close on that perfect piece of property, but still want to secure the best possible exchange rate, you can always send USD, convert to COP and simply hold funds in an interest-bearing account. Our suggestion is to use Securities Brokers, which are much easier to work with, instead of banks. In Colombia, the most-reputed firms provide a set of mutual funds where you can earn 2% to 6%, depending on the underlying assets and their associated risk, which is usually very low.
Gutierrez Group holds tight relations with several reputed Securities Brokers in Colombia, with which hundreds of clients are shared.
Fixed-rent traditional alternatives
Bonds, CDs and T-Bills. Secure assets offering much better yields than US entities.
These are also offered by banks and Securities Brokers. In Colombia, yields of these assets are much greater than in the North American and European markets. You may expect annual returns of between 5% and 8% depending on the issuer and term of the particular asset. If you stick to the safest ones, you may expect 5%.
The constant dilemma between traditional (long-term) and touristic (daily rentals) rental income.
Let’s face it. When investing internationally, it´s hard to beat brick and mortar. It’s familiar, perceived as safe, specially by traditional investors, because you get to see and touch it, in other words, it´s tangible. For most newcomers to Colombia, Real Estate is the very first step they want to take, and we’re thrilled to be there for them, helping our clients to hunt, close and manage their properties.
Real Estate in Medellin, as in any other big city, offers different paths of action. The conservative route being traditional rentals, furnished or unfurnished, mainly in neighborhoods of predominantly locals. The other, more adventurous route, is short-term rentals, aiming at tourism or temporary (monthly) rentals to foreigners, in the most vibrant neighborhoods of the city. For both, although more importantly for the latter, it becomes indispensable to count with a reliable property manager.
4 bedrooms unit in the best scene of Medellín: Provenza One of the apartments that we manage.
2 bedrooms penthouse in trendy Barrio Manila. One of the apartments that we manage
In our expertise, despite what rental agencies like to think, average annual net returns of 4 to 5% may be expected in traditional real estate, and 6 to 8% in tourism-related real estate, not including a potential valuation of the property. Think over when you hear promises of double-digit returns in real estate, those are very rarely achieved. It’s important to be cautious, retain professional and perform proper due diligence before engaging in any major real estate purchase.
If you ever wish to inquiry about our Property Management service feel free to reach out to our division’s leader e-mailing her here.
Private Mortgage Financing
A hassle-free alternative to real estate, with the same underlying asset and better yields.
This is a solid alternative for those willing to secure their investment with a traditional asset such as real estate, but not having to deal with the daily hassles of owning a rental property. In Colombia, interest rates are elevated, and local banks are stubborn. When you take a look at investment banking, you need to pay a lot of attention towards this fact. Hence, investment companies can be considered as the best option available for you to proceed with. They don’t service foreigners and are inflexible with terms. In other words, they are unable to provide tailor-made solutions to their clients. This represents nothing but a unique opportunity to make money in the business of lending money. Assuming a very low degree of risk, using short and medium terms, lending only up to 60% and collateralizing the loan against a liquid property, yields of between 8 and 11% can be made. And the best thing is that no property manager, nor lousy tenant, gets involved.
To know more about our private mortgage lending opportunity click here.
Factoring against public debt
A best kept secret that will soon fade away.
Feasibly the most truly unique Colombian opportunity of them all. While you can invest in factoring alternatives in most financial markets, you won’t find this type of factoring anywhere else in the world. The product consists in buying non-recourse settlements that have been already won by their claimants, against the Colombian government. After these claims are settled, the government takes 3 to 4 years to pay, depending on the fiscal budget. Money from investors is used to pay off claimants in advance at a discounted price (hence the term factoring), at which point they become the new lawful owners of the economic rights of the judgment. Expected annual yields of 10 to 13% can be expected in this very safe product, where the government is the counterparty.
And why will this product soon fade away? Because the lawsuits that are being bought correspond to events related to the armed conflict, which have decreased more than 97% since the peace agreement was signed in 2015, and with it the availability of new claims to finance.
This product is the main reason why mutual funds in Colombia offer such good yields, as most securities brokers include this asset in their funds. So, when investing into these funds, you’re ultimately buying the same asset, in a small proportion.
Some investment companies, wealth management firms, or Family Offices like Gutierrez Group offer the possibility of investing in this asset directly, without intermediaries. If interested in learning more about this opportunity click here.
One of the country’s hottest picks right now.
Along with development of tourism, agriculture is the government’s most important bet right now. It is greatly incentivized by means of subsidies and income tax exemptions, depending on the features of the given development, such as location, economic, social and environmental impact.
Colombian Timber Plantations in Vichada
Santa Elena Silletero Tours
Traditionally, Colombia has had very solid coffee, flowers and banana industries, among others. These industries are highly competitive, with strong, aggressive players controlling the market, thus opportunities are limited, and specialization, or being able to produce a premium, value-added product, is a must. However, there are other industries in their growth or consolidation stage, where better opportunities can be found. Today, the two fastest-growing industries in Colombia are avocados and timber.
Gutierrez Group is involved in the largest timber project of the country, located in the eastern plains of Colombia (Province of Vichada), where more than 65,000 hectares (160,000+ acres) of land is being planted with fast-growing species, destined to be converted into wood biomass for the generation of clean energy. Investors may expect annualized returns of 16%+ in this venture. To know more about this project go to www.colombiantimber.com
Medellin as an innovation hub and digital nomad paradise.
Medellin has become one of the most desired destinations for expats, from full-time retirees to young digital nomads, thanks to powerful reasons: spring-like weather all-year-round, cost of living, and lifestyle options, to mention just a few.
But it doesn’t end there. The city has changed its strategic business planning, from a city driven by the old traditional industries, being textiles the most important one, to one driven by innovation, science and technology. The city counts with a few of the best universities in the country, the most important economic groups operating locally, and a private sector fully committed to the development of the region.
The city is known for its welcoming business framework and its willingness to promote any initiative that contributes to the social and economic wellbeing of the region.
If you’re wondering which door to knock on first, feel free to reach to us for business and/or legal advice. We’ve helped 1,500+ foreign individuals and companies insert into the local business atmosphere. Click here to read more about our services.
Different options for all needs and tastes at not necessarily high entry levels. With a minimum amount of only USD 50,000 an investor may get to diversify into 2-3 different options.
The following graph shows the expected average returns of these alternatives:
Average Expected Annual Yield per Product
Now, for first-timers, how to invest in Colombia?
After having assisted several hundreds of clients to invest in Colombia, we can say that the process is simple and safe, as long as you allow a professional to hold your hands. Here’s what you need to do, step-by-step:
- Open an account of your own at a bank or securities broker. We can introduce you to a reputable one and help you throughout the process, which should only take 4-5 days.
- Once the account is ready, send funds and convert foreign currency (any) into Colombian Pesos.
- Register funds. At the moment of conversion you’ll be asked to register funds by completing a currency exchange form.
- Decide where to invest and trigger funding upon execution of the corresponding documentation.
We cannot emphasize strongly enough on the need for you to retain expert advice, regardless of the business you decide to pursue. Good advice is also an investment, and there´s a timeless saying that explains it: Prevention is cheaper than cure.
Here are some of our client’s testimonials about their experience with us:
Gutierrez Group is a Multi-Family office whose main goal is to help foreigners relocate, invest and/or do business in Colombia. We have a comprehensive practice that includes legal, investment, real estate, wealth management, back office and more. To reach out to us visit our website or send us an e-mail.