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Why My Next Real Estate Investment Will Be In Colombia

11 Jun
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Why My Next Real Estate Investment Will Be In Colombia

The World’s Most Undervalued Currency (Means One Of The World’s Greatest Investment Opps)

I don’t try to predict currency exchange rates when shopping for real estate investments overseas.

I focus on finding a good opportunity in a market I believe in.

I don’t then wait to make the buy depending on whether the local currency is over- or undervalued relative to the currency I’m shopping with.

In 2011, I was in the market for an apartment in Medellín, Colombia. I found one I liked… made an offer… and then wrote about my plan in one of these dispatches.

A reader responded with an email to tell me that he thought I was crazy.

The guy also believed Medellín real estate was a great investment, but, he continued, he also believed that the currency was overvalued.

He intended to buy in Medellín… but not until the Colombian peso was weaker against the U.S. dollar.

He even had a specific target exchange rate in mind. He wasn’t going to buy property in Medellín until the Colombian peso hit 3,000 to US$1.

The peso did hit that mark… four years later, in 2015.

By that time property values in Medellín had appreciated to the point where the guy would have had to pay more in U.S. dollar terms than he would have paid in 2011 for the same property.

All the while he was waiting for the currency to hit his arbitrary “buy” mark… the market was moving.

Duh, right?

Meantime, I’d had four years of rental income and personal use from the apartment I bought in 2011.

The Colombian peso has hovered between 2,800 and 3,100 to US$1 for the last three years… and, all these years since I made my first investment in 2011, Medellín’s property market has continued strong. Real estate values have continued up, and rental returns have carried on reasonable to strong.

Why I Am Long On Colombia

So… should you be looking to buy property in Medellín or anywhere else in Colombia today?

Definitely.

Because the fundamentals behind the market remain strong.

The Colombian economy is expanding. Exports, for example, are expected to grow by more than 10% overall this year.

Inflation rates are on track to hit the stated target of 3% by the end of the year. Unemployment rates are declining. GDP growth is not huge but steady at around 3%.

Tourism figures are way up. The country saw more than 3 million tourists for the first time ever in 2017… up 20% over the previous year.

One of the healthiest signs of the overriding strength of this country’s economy is the fast rate of growth of its middle class… which is helping to fuel still-appreciating property values from Medellín to Cartagena, Cali, Bogotá, and beyond.

But what about the currency?

Deutsche Bank publishes a regular study ranking the world’s currencies one to the other. The most recent study has the Colombian peso as one of the cheapest—i.e., undervalued—in the world.

Friends and colleagues in Colombia have been making this point for some time, but it’s nice to see a formal study on currency values collaborating the position.

In other words, yes, you could make the case that this is an even better time to invest in Colombia than when I first invested in 2011… especially if you’re buying with U.S. dollars, Canadian dollars, or euros.

I’m all in on Colombia and in the market right now for my next investment.

This would be the case even if Deutsche Bank hadn’t named the Colombian peso as one of the most undervalued in the world. Remember, I don’t let currency exchange rates dictate my investment timing.

But I have to admit that reading the Deutsche Bank survey brought a big smile to my face.

Lief Simon