| December 01, 2013 | | | | | | | |  | | | | Three Rental Yields in Absolutely Beautiful Foreign Locales... | | | | | | | | | | The Daily Reckoning's Sunday Investment Review |
Dear Daily Reckoning Reader,
This week, Ronan McMahon returns to share three specific locales spread across Central and South America that promise to show you 8% rental yields. One of these cities, Medellin, Colombia, we know for a fact is a great place (our fiancee came to the States from there a decade ago). "I know of only a handful of places around the world right now where you can buy a property for $150,000… and have it throw off $1,000 a month in yield right from the start," writes Ronan. "In the months I spend scouting every year…the hundreds of markets I visit and analyze…I'm lucky to find two of these at any one time. Now we have three." But before you continue on for the full scoop on all three… be sure to take a moment to look at our experts' investment recommendations. I'm confident at least one of them (by Stephen Petranek) will shock and entice you... Read on… [We're still sorting through all of your suggestions for alternative investments -- like art or collectables -- you'd like to see discussed in this space. If we have answered you yet, we will. If you haven't emailed us yet with your suggestions, you should: peter@dailyreckoning.com] | | | | | | |
Enjoy your Sunday,
Peter Coyne
Editor, The Daily Reckoning
| | | The Sunday Investment Review Presents…
| | | | Three Towns Offering 8% Rental Yields Right Now | | | | by Ronan McMahon |
I know of only a handful of places around the world right now where you can buy a property for $150,000…and have it throw off $1,000 a month in yield right from the start. These are the rental-yield super-stars. In the months I spend scouting every year… the hundreds of markets I visit and analyze… I'm lucky to find two of these at any one time. Now we have three. These are places where you're looking at an 8% yield… more than double the norm…
The first place is in Medellin, Colombia. Colombia is on the up. The income of the average Colombian has doubled in a decade. Demographics (approximately 40% of the population is under age 20) are in its favor. The country has gold, oil, and hydroelectric power. It grows coffee and forests as well as anyplace else. Debt levels are low. Professionals who left are returning. Resource contractors for Canada, the U.S., and Europe are coming. After two decades of liberalizations, the government is one of the most forward- and outward-looking in the region. It is becoming quite the mover and shaker on the world scene.
Colombia recently closed a free-trade deal with the U.S. Wealthy Venezuelans are flooding into the country, also bringing oil expertise. Growth is running at 6%. Inflation is low, at 3.4%.
Multinationals like Hewlett-Packard are making Medellin their home. Domestic Medellin-based multinationals are strong in cement, financial services and food products.
Strong opportunities are to be found in Medellin.
For much of the last three decades, this city, which spreads along the Aburra Valley in the Andes, had a reputation as being the world's murder capital, thanks mostly to the notorious Medellin cartel and Pablo Escobar. Real estate values reflect this reputation, not the reality. We can buy cheap.
Medellin's so-called "Golden Mile" of banks, offices, boutiques, and outdoor eateries is buzzing with traffic and commerce. Close by, the leafy, high-end area of El Poblado is a great place to sip coffee or enjoy a nice meal in the shade next to one of the many streams that roll down the hillside. On weekends, the nightlife is in Parque Lleras in the Zona Rosa.
| These are the type of buildings the new upper-middle-class will want to buy or rent | The best opportunities are in this area, known as the golden triangle.
You'll find that short-term rentals (less than a month) aren't permitted in the nicer owner-occupied buildings. These are still the best buildings to buy in -- the best maintained and the quietest. These are the type of buildings the new upper-middle-class will want to buy or rent. Your target market is growing in numbers and affluence.
At $130,000 for a 1,000-square-foot condo in an older building, in a high-end area of an extremely desirable city with a fast-growing middle class, prices are seriously low.
You could bank a net yield of 8% by renting to a visiting executive from abroad a few months at a time. There's a constant flow of renters and agents who specialize in this market. Demand is set to grow as Colombia and Medellin continue on their growth curve. Hand in hand with that growth will be an increase in real estate values and rents as the city shakes off the Escobar reputation.
Moving on, our second rental-yield superstar is Las Terrenas, Dominican Republic. Here you'll find 20 miles of walkable public beach, palm trees, warm breezes, and bright, starlit night sky. French and Italian expats have been settling here for years. They brought their culinary skills and now the beachfront is lined with excellent French and Italian restaurants. Las Terrenas is stunning. Chic, but very unpretentious. A great place to visit or spend time.
The rental market is strong. There's almost year-round demand from Europeans. Wealthy Dominicans (of which there are many) flock here during their holidays and during the big Latin holidays like Carnival and Easter. Canadian snowbirds come to escape their harsh and long winter. There is rental demand by the night, week, month, and year. You have rental demand from multiple sources or renters who want to come at different times of the year -- just the type of situation I look for to ensure high occupancy of your short-term rental. And when you aren't dependent on one group of renters you are less exposed to a shock… like a recession in one place.
And rental demand is set to grow. A new road means that Las Terrenas is now only an hour and 45 minutes from the capital, Santa Domingo. Flights come from New York (JFK) and Toronto to the El Catay airport 25 minutes from town.
Las Terrenas has been discovered by Europeans. Americans are just starting to catch on. They are starting to visit in numbers. Demand for rentals is rising. Meantime, permitting is tightly restricted in Las Terrenas. It is -- and will stay -- boutique. Development is very tightly controlled. This means that your future competition from other landlords will be restricted.
| $106,000 could buy you a fully furnished condo, ready to rent, in a gated community. | And you can buy cheap, a key ingredient in maximizing your yield. Rents here are in line with other high-end beach destinations but prices don't reflect this. And you can snag a killer deal if you can find a distressed seller who needs to get out fast because they are in a bind back home.
$106,000 could buy you a fully furnished condo, ready to rent, in a gated community. The beach and the chic cafés and restaurants run by French and Italian expats are 60 steps away. You could expect to rent for $300-400 a week. Even figuring on conservative 50% occupancy, a little condo like this meets my income analysis criteria.
The third location is in Tulum, Mexico. The sand is white and the water turquoise. In the jungle you will find Mayan ruins. The world's second-longest coral reef runs along the shore. The biosphere at Sian Ka'an is a great place to hike, kayak, and study nature. The coral reef offshore attracts divers and snorkelers. Golf, hiking, spelunking in ancient caves… it's all here.
Yet, amazingly, you can get here from the U.S. with a two-hour flight, followed by a drive of an hour and 45 minutes. This area is desirable to different types of people from different places. You hear U.S., Canadian, and British accents. You hear Italian spoken, Brazilian, Portuguese, and Russian. Golfers, nature enthusiasts or yoga enthusiasts, and sun worshippers all come en masse. As at Las Terrenas, you have multiple sources or renters who want to come throughout the year.
And a government plan calls for major growth in tourists numbers here over the next decade. Demand will likely increase. The road to Tulum has been upgraded, including a flyover at Playa del Carmen. Government plans call for an international airport here. (This project, however, has been beset with delays. I wouldn't base any plans on its going ahead.) Tulum is becoming jet-set chic, but real-estate prices are still a fraction of what you could pay on the beach in Playa del Carmen or Cancun. You can still buy cheap. And rent high. Demand is set to grow and development is tightly constrained by permitting restrictions and by nature preserves that can't be developed.
The rental market is strongest five minutes from the beach (and five minutes from the town) in the Aldea Zama community. The beach is "off grid," so staying right on the beach is for the more adventuresome. The town is becoming congested with traffic and can be dusty. In Aldea Zama you are close to the beach. But you have home comforts like a powerful shower, robust fan, air conditioning, and washer/dryer. A new high-end supermarket with an excellent gourmet selection is a short bike ride away.
These condos are new. Many people don't even know they are there. Yet the rental market is still strong. It can only grow as word gets out. And more renters compete for the very limited number of quality rentals. Two-bedroom, two-bathroom condos here stay full at a nightly rate of $100. Peak season is January and February, but here there is year-round demand. This type of condo will set you back $160,000. You are getting in early at a price with strong prospects for capital appreciation, in a location where demand is set to grow and the risk of a glut of new condos is low. Apply conservative occupancy again of 50% and my income-analysis system gives it a green light.
Regards,
Ronan McMahon
for The Daily Reckoning
[Ed. Note: Ronan McMahon scouts the globe to find the most unique and value-oriented real estate opportunities the world has to offer. He writes regularly for International Living, where this article first appeared, and for Real Estate Trend Alert. You can follow -- and profit from -- his insights here.]
| | | | | | |  Ronan McMahon has been an active real estate investor since his early twenties. He is currently the Executive Director of Pathfinder Ltd. and writes International Living's Real Estate Trend Alert. | | | | | | | BE SURE TO ADD dr@dailyreckoning.com to your address book.
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