Some interesting information to go over today: how to actually make money (instead of losing it) from your investment of a vacation rental by owner home.Today we are focusing on the Caribbean resort city of Cartagena in Colombia for the simple reason that this is the city we operate our business from. However, I believe these simple rules apply to any destination you choose to invest in.
Cartagena is a costly location and has some, if not all, of the most expensive real estate in Colombia and perhaps South America. Vacation rentals by owner especially oceanfront or beach rentals and luxury homes in Cartagena can well exceed USD 450,000 for an apartment (not such a big one either). These costly homes and new resort complexes are going up each day in a market is already saturated (at least for the moment). Surely nobody in their right mind would consider this kind of real estate as an investment! Beautiful these units may be but just how much higher can prices grow to make such an investment worth while? Prices of real estate are at an all time high here and it’s difficult to see the possibility of making heafty profits from these luxury vacation rentals in the near future. We mustn’t forget about the monthly building administration costs either, which can go up to and well over USD 200 a month. By the way that is over $2000 a year! That surely eats into your investment like a plague of killer ants. Naturally it is of no importance if you occupy the unit a day, week or all year … you have to pay your fixed costs on your vacation rental investment home..
A Question For You …
So we’ve already seen some of the negatives for these upmarket vacation rentals and beach homes in Cartagena, now try answering this question: Would you buy a stock if it cost you $2000 a year just for the pleasure of owning it? Of course you wouldn’t, then why would you want to buy into a holiday beach rental, as an investment, with such high up-keep costs? Such costs mean that in just over four years you would have eaten a chunk of almost $10,000 from your investment. Translated, this means if you wanted to sell for a profit after four years you’d need to be looking at somewhere around $15,000 just to break even.
As I have said, and I believe I have made the point quite clear, Cartagena is VERY expensive. However, if you are looking for investments in real estate interesting properties can be found … if you look hard enough.
My experience here has taught me to keep things simple and to work with lower priced units that hard working Colombians can rent. Forget about fancy condo units, beach rentals and luxury apartment complexes for foreign tourists. Such properties generally rent out for two months a year. I prefer to have my properties rented out twelve months a year.
I want to tell you about a personal experience that happened with us last month (July 2009). We managed to find a small 3 bedroom apartment in a middle-to-low class gated complex that had a price of 40,000,000 pesos (20,000 USD). After negotiations we managed to get the price down to 37,000,000 pesos (18,500 USD) and placed a “For Rent” sign in the window. No ad in the local paper, just a simple sign in the kitchen window. We were getting on average of 5 calls a day from people wanting to immediately rent the apartment. Even after removing the sign we were still getting a couple of calls a day! We were able to rent the apartment for 450,000 pesos a month (225 USD) with no trouble whatsoever. That is more than 1% return on investment.
We are now negotiating a second apartment in the same complex and are currently talking to an architect who is interested in renting it for 1,000,000 a month (USD 500). Needless to say we are very interested. There are many gems like this available that won’t eat into your saving and can give you a very healthy return. We are fortunate enough to own a handful of these properties and they give us very healthy returns. If you want to live in a luxury apartment then by all means buy one, but don’t buy one here as an investment. Vacation rental by owner homes in Cartagena can be found to fit your budget, just don’t stop looking. Of course it takes time and effort but the important thing is that you don’t need to follow some over-priced, hyped-up, course on real estate investing, all you need is dedication and common sense.