How to invest like a wealthy Colombian?

InvestingI was debating with one of our buyers recently the topic of “how do wealthy Colombians invest their money?” and I thought I would share my thoughts here on the Casacol blog as well (I know it’s been a while).  There are a lot of differences in how typical North Americans/Europeans invest vs. the typical Colombian in my experience and if anything it presents an opportunity for foreign investors looking at Colombian real estate (and/or Medellín real estate where we specialize).

Generally speaking, Colombians like their real estate and Americans like their equities.  Americans will brag at the dinner party about when they bought APPL or GOOG stock, and Colombians will brag about the new finca or the latest construction project they are investing in. Americans are trained by their investment advisors to invest a lifetime in globally diversified stocks and bonds and to one day live off dividends and fixed income coupon payments to supplement their monthly pensions. Colombians on the other hand know that a lifetime of employment means a meagre pension and therefore fill their investment portfolios with term deposits and rental properties first and then stocks and bonds a distant second, third or fourth.

The Colombian Dream

Obviously there are exceptions to the rule, but generally speaking Colombians like love their real estate. They don’t trust the stock market, they don’t trust their banks, hell they don’t even trust pre-authorized debits for their utility bills.  But they have nothing but faith in buying and renting apartments/condos and for the most part, Colombians are often quite sophisticated property investors for this reason.

This is why at Casacol we often see clients/families with 5, 10, 15 or more properties in their portfolio who spend their days managing their property managers such as yours truly. That’s what I would call living the Colombian dream.  And often times I actually think of the service we provide at Casacol more like that of an investment advisor than strictly Colombian/Medellín Realtors or property managers.

So if you’re ever wondering “who’s buying all these new apartments they’re building,” now you know why.  It’s not for lack of demand, it’s just that Colombians would rather put their savings into bricks, mortar and steel than stocks, bonds and hedge funds.

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Got stocks amigo?

What I learned recently is that capital gains from owning Colombian stocks is actually tax free for individuals in Colombia. Personally, I think the average Colombian mistrust of the stock market is probably somewhat misguided and related to the near-sighted thinking that some Colombians are so famous for. Over time (or a generation) if this changes and Colombians start allocating more of their wealth to the Colcap Index and Colombian economic progress remains on the right track then maybe we see a long-term sustained boom in stocks in Colombia like we saw in more developed North American/European markets in the 80-90s.  A Serfinco/Alianza Valores brokerage account may not be such a bad idea after all.

The Opportunity (for foreign investors)

Interestingly, expectations for the average Colombian on their real estate investments are rather low. If a rental apartment has a series of months between clients or even a more prolonged period without rental income that’s considered pretty normal from time to time. Even if their asking price is far too high, the Colombian would rather wait months for someone to pay their price than negotiate to current market conditions and get it rented/sold in 15 days. Not to mention that local property managers aren’t exactly known for high-efficiency property management either.

The sophisticated foreign investor on the other hand understands that a month without a client is a month of rent gone forever – you never get it back. The foreigner understands that every day of utilization of an income property is worth something and therefore will try and find the market price to keep it rented 95, 98, 100% of the time thereby maximizing annual rental yields that can be reinvested!

This is the opportunity for the foreign investor in Colombia and every day we are helping foreigners (and our Colombian investors) achieve revenue maximizing, high-efficiency utilization of their monthly income properties.

I’m always available for a coffee, email ([email protected]), or phone call (+573005471031) for those looking to make smart real estate investment decisions in Latin America’s fastest growing economy and one of the fastest growing on the planet.

Brad Hinkelman.

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