The Most Obvious Investment in Chile Today

Chile Coast

By Darren Kaiser, Talca, Chile

Every once in a while I hear one of my Chilean colleagues tell someone that property in Chile is one of the best investments in the world these days.

I have to say I really don’t agree with that statement. Many aspects of the Chilean real estate market actually seem quite overpriced to me right now. When evaluated on an income basis, apartments, homes, and offices throughout Chile normally offer rental yields between 3.5% and 8%.

If you’re buying pre-construction or purchasing several units at once, you can usually bump that up another percent or so (one way to make them more attractive) but if you have to collect rent monthly and factor in wear and tear on an apartment or building, these kinds of yield don’t seem all that exciting to me.

Farmland in Chile’s central valley, if bought well, can yield between 4% and 5% when leased annually or anywhere from 8% to 18% averaged out over the long term if planted independently.

Unfortunately, as farmland prices have been pushed up in recent years, it’s becoming harder and harder to find well-located parcels that yield over 4% as rentals and when you arrange a crop independently, you have to factor in the headache of management and the risks of a bad season.

An Exception to the Rule:

Ocean View Farmland in the Path of Development

Even though it normally doesn’t provide an annual rental return, I’d still have to say that to me the most obvious investment opportunity in Chile today has to be ocean view farmland in the path of development.

I’ve personally been using this strategy ever since I first arrived in Chile over four years ago and it’s consistently outpaced just about every other kind of investment I’ve considered making here.

Just a couple days ago I was out in a small town on the coast of Chile’s 6th Region working on the subdivision of a property I bought there in late 2011. I brought a local realtor with the most listings in the area out to take a look at the property and give me an idea what I could sell the lots for after the subdivision is finished. I knew I had done quite well with this purchase but still his answer surprised me.

The per square meter price he quoted as an absolute minimum price he could sell them for was 453% higher than what I paid a little less than three years ago. I’ve literally made zero improvements to the property during that time and the subdivision fees are going to be quite minimal. (By the time everything is said and done, they should add up to about 2% of the price I originally paid for the property).

Farm Land, Maule Region, Chile

Back in 2012, I regularly recommended buying in this area but with the big price increases we’ve seen over the last couple of years, I have to say that I think the upside potential is limited these days.

There are other areas though where I see just as much potential today as I did a few years ago on the coast of the 6th Region. Off the beaten track kind of places where infrastructure projects are planned for the coming years and micro climate conditions allow you to grow fruits and vegetables right next to the ocean.

Often times, these kinds of properties are completely exempt from annual property taxes, meaning holding costs are very low–you might have to repair a fence or two every five to ten years–and while there isn’t a huge agricultural rental market in most of these areas, the dynamics of supply and demand make appreciation potential very high in my opinion.

Back when I lived in the US, worked for a state funded enterprise, and didn’t own any agricultural land, I regularly worried about where the global economy was headed. These days, being heavily invested in ocean view farmland and path of development property in a nation with next to zero net debt and vast reserves of natural resources, it’s a lot easier to feel confident about the future.

Sincerely,

Darren Kaiser

Darren grew up in Chicago, then lived near Seattle, Washington, for several years before moving to Chile over 4 years ago. He now operates as an outdoor tour guide, an interpreter, and a real estate agent with focus on real estate these days. Darren runs real estate investment tours near Talca, in the Maule Region, a prime farming area. Information about those tours is at his web site. Real Estate Tours