The Wandering Investor: Cap rate analysis of condo in Medellin – decent real estate rental yields in El Poblado

Medellín’s upscale Provenza neighborhood is emerging as a rare market where lifestyle‑focused real estate can also deliver solid rental returns. A recent case study of a brand‑new two‑bedroom, three‑bathroom apartment illustrates the financial dynamics for investors targeting mid‑term rentals in the city.

Tourism and Demand

• In 2023 Medellín welcomed 1.5 million tourists, overtaking Cartagena as the country’s top destination.
• Tourist arrivals have risen over 50 % since 2019, expanding the pool of short‑ and mid‑term renters.
• Occupancy rates for daily rentals (under 30 days) average 78 %, while longer‑term rentals (over 30 days) achieve 92 % across a portfolio of 80 units managed by a local realtor.

The visitor profile is shifting from backpackers to digital nomads, “snowbirds,” families, and groups of foreign professionals, many of whom stay for several months and prefer high‑end amenities.

Property Overview

Ongoing Expenses

• Closing costs: US $7,000 (notary, transfer, legal fees)
• Property tax: US $1,200 / year
• Maintenance/insurance allowance: up to US $100 / month
• Utilities & internet: US $190 / month

Rental Income Assumptions

• Target rent: US $2,500 / month (compatible with long‑term contracts)
• Expected occupancy: 92 % (based on portfolio average for rentals >30 days)

Net Yield Calculation

Using the figures above:

• Gross annual rent: 2,500 × 12 × 0.92 ≈ US $27,600

• Annual expenses:

  • HOA: 120 × 12 = US $1,440
  • Property tax: US $1,200
  • Maintenance/insurance: 100 × 12 = US $1,200
  • Utilities: 190 × 12 = US $2,280
  • Total expenses: ≈ US $6,120

• Net operating income (NOI): US $27,600 − US $6,120 ≈ US $21,480

• Net yield (NOI ÷ total cost): US $21,480 ÷ US $270,000 ≈ 7.9 %

The study reports a net yield of about 7 %, before local income tax.

Mid‑Term Rental Market

Medellín’s regulatory environment restricts traditional Airbnb‑style rentals to a minimum of 30 days. Consequently, the market is dominated by mid‑term leases ranging from one to six months, often aligned with visa durations:

• Tourist visa: up to 3 months, renewable for another 3 months.
• Digital Nomad visa: up to 2 years, attracting longer stays.

Landlords favor tenants who commit to three‑month or longer contracts, as these reduce turnover costs and align with building administration policies.

Investment Considerations

• Lifestyle vs. pure yield: High‑end new constructions command premium prices per square meter, delivering respectable yields but primarily appealing to investors who also value personal use. Older units that can be renovated may offer higher cap rates at lower acquisition costs.
• Currency advantage: Local businesses and landlords prefer USD, providing a natural hedge for foreign investors receiving rent in dollars.
• Risk factors: Macro‑economic volatility in Colombia, potential changes in visa regulations, and the reliance on a tourism‑driven rental market should be evaluated. Diversification across property types and locations can mitigate these risks.

Practical Advice for Prospective Buyers

• Verify occupancy data for the specific building and neighborhood; Provenza’s 92 % occupancy is a strong indicator but may vary by unit quality.
• Factor all acquisition costs (closing fees, furnishings, HOA) into the cash‑on‑cash return calculation.
• Assess visa options for target tenant profiles to ensure lease lengths align with legal stay periods.
• Consider renovation opportunities in older properties to lower cost per square meter and potentially increase net yields.
• Engage a local realtor familiar with mid‑term rental preferences and building administration policies to streamline tenant placement.

Medellín’s Provenza area thus presents a compelling blend of lifestyle appeal and investment potential, especially for investors comfortable with mid‑term leasing structures and seeking exposure to Colombia’s growing tourism sector.