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Rent vs Buy: Downsides of Renting and Buying Property in Medellín - Medellin Guru
In Medellín, the decision to rent or buy is not a straightforward one and varies based on individual circumstances. It's advisable for expatriates to consider renting initially for a few months before committing to a purchase. This approach is particularly relevant in Colombia, where the dynamics differ from the U.S., such as the lack of significant tax benefits for homeowners and the common requirement for foreigners to pay entirely in cash for property purchases. Utilizing a rent vs buy calculator can provide a personalized assessment of which option is more cost-effective, taking into account all expenses, including opportunity costs.

Rent vs Buy: Downsides of Renting and Buying Property in Medellín

Rent vs Buy: we look at the advantages and downsides of renting vs buying property in Medellín. Which is better for expats – renting vs buying?

The choice between renting or buying an apartment or casa (house) in Medellín is one of the biggest financial decisions that foreigners moving to Medellín make.

For many years in the U.S., buying a home was a measure of financial success. But the housing crisis in the U.S. changed that. The United States housing bubble affected over half of the U.S. states. Housing prices peaked in early 2006, started to decline in 2006 and 2007, and reached new lows in 2012. And since 2006, the percentage of renters has been increasing in the U.S.

In 2016, I surveyed over 200 foreigners living in Medellín and found that 31 percent owned their apartment/home. A majority (49 percent) rented unfurnished apartments and 19 percent rented furnished apartments or furnished rooms.

Several readers have asked about renting vs buying. There are arguments on both sides of the rent vs buy decision. And we look at the advantages and downsides of renting vs buying in Medellín.

Foreigners wish the comfy and peaceful lifestyle of Laureles
Foreigners wish the comfy and peaceful lifestyle of Laureles

Advantages of Renting Property in Medellín

Rents are very cheap in Medellín. We recently surveyed 70 unfurnished apartments in four popular neighborhoods for foreigners (El Poblado, Envigado, Laureles-Estadio and Sabaneta) that were also for sale. And we found that annual rents were 5.9 percent of the purchase price of the apartments we surveyed. In other words, the price to buy on average was 17.1 times higher than the annual rental price.

We previously surveyed 1,000 unfurnished apartments in the five most popular neighborhoods for foreigners to find out unfurnished apartment rental prices in Medellín. Also, we recently surveyed rental costs of 300 unfurnished apartments in 6 inexpensive neighborhoods in Medellín where you can save over 30 percent compared to El Poblado.

In addition, when you rent in Colombia, you don’t have to pay for repairs, maintenance, administration fees (homeowner’s association fees) or property taxes. These ongoing fees and taxes are paid by the property owner.

Also, renting isn’t throwing money away as some people seem to think. With your rent payment you get a place to live.

Furthermore, buying property in Colombia by foreigners normally requires having 100 percent of the purchase price, as mortgages are very difficult for foreigners to get. It requires much less up-front money to rent in Medellín.

Finally, with renting you get flexibility. You can move to another neighborhood anytime, when your lease is up. If things change in your life and you need a bigger or smaller place or your current neighborhood has become less safe or you find a better place to live, it’s easy to move to another place when you rent.

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Our reliable partner, a leading real estate company, offers a wide range of services:

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Downsides to Renting Property in Medellín

There are two major downsides to renting property in Medellín: the fiador requirement and the fact that rents can increase by inflation, which we look at in more detail.

1. Fiador requirement

Real estate agencies in Medellín and Colombia require a fiador (cosigner) for renting unfurnished apartments.

Once you start looking at unfurnished apartments in Colombia you will quickly find that real estate agents in Colombia generally require a fiador. Fiadors are not unique to Colombia and are common in other countries in Latin America such as Mexico and Peru.

A fiador is essentially a cosigner who guarantees a tenant pays rent. So, the real estate agent can go after the fiador of the tenant stops paying rent. In addition, a fiador must be an owner of local real estate.

Under Colombian rules, a real estate agent is normally responsible for collecting rent. Essentially you have a contract with the real estate agent and the real estate agent has a separate contract with the apartment owner. And the real estate agent pockets the difference between the two contracts as his commission.

So, the real estate agent is responsible for collecting rent from the tenant and paying the owner. And this is why almost all real estate agents require a fiador.

But there are several ways to overcome the fiador requirement. The most common ways to overcome this requirement include:

  • Paying rent in advance
  • Renting directly from an owner
  • Pay a deposit
  • Use a CDT as a security deposit

We previously looked at overcoming the fiador requirement in detail.

Apartment Rental Guide: Renting Unfurnished Apartments in Medellín - Medellin Guru
Apartment Rental Guide: Renting Unfurnished Apartments in Medellín - Medellin Guru

2. Rents Increase by Inflation

The annual rent increase for unfurnished residential properties is limited to inflation in Colombia. There can be an increase in the rental price every 12 months. This increase is limited to 100 percent of the inflation increase (consumer price index) in Colombia for the preceding calendar year.

Colombia’s inflation rate was 2.25 percent in 2021. So, in 2021, landlords can increase rent by a maximum of 2.25 percent at renewal time.

But this is negotiable. In several of my apartment renewals I had no rent increase or I was able to negotiate an increase lower than the inflation rate. In nine years of rental contracts, only twice did my rent increase and both times the increase was less than the inflation rate. And twice my rent decreased due to moving to a new place.

In addition, if a tenant thinks that the increase by a landlord is higher than the inflation rate, the tenant has six months to request a revision with the Mayor’s office of the city where the property is located.

Advantages of Buying Property in Medellín

When you buy an apartment or casa, you own it – it’s yours until you sell. You eliminate the monthly expense of paying rent for housing.

Buying a home can be good for someone who plans to settle down for the long haul and who doesn’t want to be beholden to the whims of a landlord.

When you buy a home, you get home improvement freedom. So, there is no landlord telling you what you can and can’t do to improve your home.

Also, when you own a home you benefit from property appreciation. But keep in mind that property appreciation in Medellín is in the local currency and doesn’t factor in the currency risk.

The Colombian peso has been weak over the past four years. Due to this currency risk, foreign investors who bought properties five or more years ago in Colombia may have lost money in terms of U.S. dollars (USD). This is even though properties may have appreciated in terms of Colombian pesos.

Graphic of USD/COP at January 13th, 2024
Graphic of USD/COP at January 13th, 2024

The exchange rate may be favorable now as it has been in a higher range over the past five years than in the prior five years. But exchange rates are very difficult to predict. What happens if the Venezuelan crisis become worse and many more Venezuelans come to Colombia? What happens if there is another global financial crisis?

Downsides to Buying Property in Medellín

In addition, there are several downsides to buying compared to renting including:

  1. Mortgages are difficult to get for foreigners
  2. Closing costs
  3. Administration fees – ongoing
  4. Property taxes – ongoing
  5. Repairs, maintenance and remodeling – ongoing
  6. Opportunity cost
  7. Prices for real estate are dropping in Colombia

We look at each of these downsides in more detail:

Buying a new house in Colombia is a delayed process
Buying a new house in Colombia is a delayed process

1. Mortgages are Difficult to Get for Foreigners

If you are a foreigner it is extremely difficult to get a mortgage in Colombia. If fact, it’s even difficult for Colombians to get a mortgage. So, the mortgage market remains very small in Colombia. In 2016, reportedly less than 4 percent of adults in Colombia had a mortgage.

To be considered for a mortgage as a foreigner in Colombia, you will need to have residency and have lived in Colombia preferably for several years. You will also need to have a bank account in Colombia and a credit history in Colombia. And you will likely be asked for proof that you file taxes in Colombia. You need to be well-established in Colombia before banks will even consider lending to you.

Also, Colombian mortgage rates are much higher than in the U.S. Colombian mortgages typically have an interest rate of over 9 percent with a range of amortizations of 5-20 years but still require 30-40 percent down payment for those who can qualify.

For this reason, most property purchase by foreigners in Colombia are done with cash. So, to buy property you need to come up with 100 percent of the purchase price plus closing costs. Also, since you aren’t financing there isn’t a tax break for mortgage interest that is common for buyers in the U.S.

One way around the mortgage challenge with banks in Colombia may be to arrange a private mortgage with the seller of the property. But in most cases, such private mortgages are usually for short periods of no more than five years.

2. Closing Costs

Also, you need to factor in closing costs when buying and selling apartments and houses in Colombia. You obviously don’t incur these closing costs when you rent. Closing costs include notary and registration fees as well as legal fees and real estate agent commissions.

Closing costs in Colombia include:

For the Buyer:

1% of withholding. Paid by the seller.

1% for registration fees. Split 50-50 between seller and buyer.

1.05% of goverment taxes. Split 50-50 between seller and buyer.

Usually less than 1 million pesos of notary fees. Split 50-50 between buyer and seller.

For title study, purchase contract, and title change, typically a fixed price (around 2 million pesos)

Total estimated closing costs for buyer: Approximately 6 million pesos.

For the Seller:

1% for registration fees. Split 50-50 between seller and buyer.

1.05% of goverment taxes. Split 50-50 between seller and buyer.

Usually less than 1 million pesos of notary fees. Split 50-50 between buyer and seller.

For title study, purchase contract, and title change, typically a fixed price (around 2 million pesos)

3 to 5%,normally paid by the seller. Lower commission typically means fewer services provided.

Total estimated closing costs: Roughly 7.5 to 9.5 million pesos (5.5 to 7.5% of the purchase price).

Note: These costs are estimates and may vary based on specific transactions and negotiations.

3. Administration Fees

Administration fees are for apartments in Colombia and are paid monthly by owners. An administration fee is like a homeowner’s association fee in the U.S. and covers shared expenses in high-rise apartment buildings for things like security, pools, building landscaping and maintenance of shared areas.

Administration fees vary by building and neighborhood for apartments and are normally paid monthly.

We surveyed the administration fees in 70 apartments located in four popular neighborhoods for foreigners (El Poblado, Envigado, Laureles-Estadio and Sabaneta) and found that the annual administration fee ranged from 0.58 to 1.10 percent of the purchase price. The average annual administration fee for the apartments we surveyed was 0.85 percent of the purchase price.

Also, administration fees are not fixed and typically increase each year by the inflation rate.

6. Repairs, Maintenance and Remodeling

If you own an apartment or casa you will responsible for ongoing repairs and maintenance. In the U.S., many websites recommend budgeting 1 percent of the purchase price of a property annually for maintenance.

But I believe property maintenance costs are lower in Colombia with the lower wages and the fact that most apartments and casas in Colombia don’t have yards to maintain or heating or cooling systems to maintain. Some expats I have talked to in Medellín have told me they budget about 0.5 percent of the purchase price annually for ongoing maintenance and some home improvements.

Maintenance can include painting, regular pest control, repairs to water heaters, toilets and water leaks. In addition, home improvement and remodeling costs could include a kitchen or bathroom remodel that can be costly.

Also, age comes into play here. A new home built within the last five years will probably not need much maintenance, while homes 5 to 20 years old will need more. And once a casa turns 20 or 30, there’s possibility that major components, such as the roof, may need to be replaced.

6. Opportunity Cost

When you buy a property, you incur an opportunity cost. Keep in mind that the amount you use to buy a property including closing costs you could otherwise invest. So, this is an opportunity cost.

It is very difficult for foreigners to get a mortgage in Colombia. So, to buy in Colombia most need to pay cash when buying an apartment or casa in Colombia. So, you are paying 100 percent of the value of the property on day one with no financing. If you rent, you could invest this money in more liquid investments like stocks or bonds.

7. Real Estate Prices are Dropping

The growth in real estate prices in Colombia has come to an end due to the coronavirus pandemic.

There are few buyers currently in the market based on conversations we had with several real estate agents in Medellín recently. Agents we talked to expect that prices are likely to drop even further with so few buyers in the market.

Due to the coronavirus pandemic, Colombia is currently a “buyer’s market” with the supply of apartments and houses on the market is more than the pool of buyers. This is when prices typically drop.

Real estate prices are now dropping in Colombia. So, investors should question capital appreciation projections for rental real estate projects.

Are you looking to buy or sell Real Estate in Colombia?

Medellin Guru has partnered with Real Estate by expatgroup.co to provide real estate services to foreigners and locals interested in buying and selling properties in Medellin and across Colombia.

Recognizing our readers’ demand for real estate guidance, this partnership with Real Estate by expatgroup.co, desires to deliver trustworthy and comprehensive real estate services to our audience.

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Medellin Guru Real Estate Service

Our reliable partner, a leading real estate company, offers a wide range of services:

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Medellin Guru’s Airbnb Series

Medellin Guru's guide to buying, selling and renting apartments and choosing a neighborhood

On the Medellin Guru website, we have a comprehensive and up-to-date guide to buying, selling, and renting apartments and choosing a neighborhood in Medellin found in several articles, including:

Buying and Selling Apartments

Renting Unfurnished Apartments:

Renting Furnished Apartments:

Choosing a Neighborhood in Medellin:

Also, we have several articles that can be used to help foreigners choose a neighborhood in Medellin:

The Bottom Line: Rent vs Buy – Downsides of Renting and Buying Property in Medellín

The bottom line with the rent vs buy decision in Medellín is that neither option is inherently smart or dumb. To each his own and everyone’s situation is different. However, we do highly recommend renting for at least a few months in Medellín before buying.

Also, with no real tax benefits for ownership and the need for most foreigners to pay 100 percent cash to buy properties, the rent vs buy considerations are different in Colombia for foreigners than in the U.S.

So, it’s worth looking at a rent vs buy calculator for your individual situation to see what option is cheaper for you. And make sure to consider all the costs involved including the opportunity cost.

Rents are cheap in Medellín and a majority of foreigners living in Medellín chose to rent. But many foreigners I have talked to also have bought properties and are happy with their decisions.

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11 thoughts on “Rent vs Buy: Downsides of Renting and Buying Property in Medellín”

    1. Daniel Rusteen December 16, 2020

      I cannot find this article on Patreon

    2. Jeff, excellent article. One of the reasons we are choosing to buy is because it helps us to be able to get a 5 year visa. We can also put the place on AirBnB when we travel for more than a month at a time. Not sure if renters have the same flexibility. Not sure, but I believe by renting the apartment, that opens up a bunch of potential tax write-offs back in the States. Lastly, although landlords are responsible for fixing things, to what standard and in what timeframe can vary dramatically.

    3. – CDT (security deposit) is the way to go for foreigners. You’ll be asked a deposit from 3 to 10 months worth of rent, with an insurance company. That’s it. Save a lot of hassles otherwise. Nobody in Colombia wants to be a “fiador” (guarantor).

      – As for buying, it’s a personal choice. Like someone told me once: for the same money, would you be able to buy something similar or better in a more stable country? So, yes, there are pros and cons.

    4. Hi Jeff, good and informative reading as usual. With regard to the fiador requirement, if an individual chooses the CDT route, does the bank return these funds with interest at the end of the rental term?

      • Yes, the bank returns the funds with interest at the end of the rental term if no issues with the rental.

    5. Graeme Ruddick August 22, 2019

      Hello. I am from the UK and house prices in Devon where I live are always on the rise. How does this compare now in Medillen ?

      • The prices continue to rise in Medellín in terms of pesos. New homes tend to increase in price each year by the inflation rate, if not more. I understand there hasn’t been a down year in Medellín for the real estate market in at least the past decade.

    6. Brian Cosier August 22, 2019

      Thanks another good read Jeff.

      It would be interesting to know the average number of days properties are available for sale until sold.

      It would also be interesting to hear how successful tenants have been when taking their rent increase issues to their local municipality.

      BC

    7. Nice post that should be required reading for foreigners moving to Medellin. We decided to rent as rents are so cheap and we also like the flexibility of renting.

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