Whether you are considering purchasing a small beach condo for your personal use or a couple of units in a long- and short-term rental complex, buying property is an exciting and time-consuming experience.
That time and stress can multiply when the property is in a foreign country, where you’re less familiar with the culture and may not speak the official language. Still, investing abroad offers benefits and opportunities you may be hard-pressed to come by on your home turf. If you’re willing to do the research and learn about your country of choice, you could be rewarded with a diversified portfolio and the chance to build equity while realizing a consistent income stream.
With more than a decade of experience selling and managing real estate in Panama, I’m happy to provide you with a few things you should consider if you are thinking about making an investment in Panama.
Location Location Location
We’ve all heard that numerous times, but it is especially true when you are thinking about buying property outside your home country. In addition to a country’s real estate market, you’ll need to consider its geographic positioning, government, economy, culture, and standing as an international business and travel destination.
For years, Panama has been quietly moving up those Best Places To Invest In Real Estate lists. Today, Panama is the number one choice for the real estate consulting firm Live And Invest, and the fourth-best for GoBankingRates.com, a company which advises on financial topics worldwide.
“Panama’s high rental yield, low taxes and solid rents keep it high on the list of best countries to invest in real estate. Investors also benefit from Panama’s retiree-incentive program and robust property ownership rights for foreigners.” – – GlobalBankingRates, 25 Best Countries to Own Property, 2019
Not Just About the Numbers
It’s important to know about rental yields and taxes, but you also need to consider the cultural and logistical aspects of your proposed location. For example, the Philippines is number one on the GoBanking list, but some investors find the widening wealth gap troublesome. Others prefer a region with more accessible flights from North America. It’s important to consider all the aspects of your new country and consider which are of most importance to you.
What about Panama?
Panama is welcoming to foreigners and ripe with opportunity, with a booming economy fueled by foreign investment, the recent expansion of the Panama Canal, and growth in multinational companies choosing Panama for their headquarters.
It’s the only country in Central America with a robust public transportation system, including a modern subway. You can drink the tap water, feel safe walking along the waterfront at night, and access modern and affordable healthcare.
Its international airport– the largest in Central America– offers direct, affordable, and routine flights from many cities in the U.S., Canada, and a growing number of European countries.
Many countries, like the Philippines, are prone to natural disasters such as typhoons, earthquakes, floods, and landslides Panama’s privileged geographic location not only enabled the Panama Canal, it also protects Panama from the hurricanes and tsunamis that plague many a tropical paradise.The only volcano in Panama– Volcan Baru, in the cool mountain region of Boquete–is inactive and not a threat.
Know Your Motivation For Investing
Know why you want to invest in foreign property and make sure the location you select fills that need appropriately. If you are purchasing for private use, come and visit to make sure you feel comfortable in Panama. The weather is always very warm and there is a prevailing “mañana” attitude!
If you are buying for an income stream, it’s not enough to say you would like to rent the property. You should look into who you would be renting to, average prices in that area, and how you would manage the process from wherever you may be. Will you manage the rentals yourself or use a local property management service?
I encourage buyers to consider how they are allocating their funds and make sure they aren’t suffering from tunnel vision. A beach property plus an investment in a rental unit in Panama City might be better than two beach properties—or the other way around. It’s all about knowing the facts, weighing that information, and being able to bounce it off professionals with plenty of experience.
Work With a Team
It doesn’t matter how smart you are, you need some professionals to help you see the total picture of purchasing property overseas. First, work with a real estate professional who knows the country and the current real estate market. You may have an agent in your home country you like to work with, and that’s fine. With an agent in your country and another one in Panama, you should be well covered.
You will also need a good lawyer to help you keep everything legal. In Panama, you will pay around 1% of the property price in fees and you may have the opportunity to be tax-free for several years. It’s not always clear cut in Panama, so make sure your team knows how to get you the very best deal.
Consider All the Financial Angles
The price of the real estate you’re considering is important, but it’s just the beginning. There are plenty of other financial aspects to consider before signing on the dotted line.
Consider your available funds, and if buying property is the best use of it. Consider if you might need liquidity or if you have the luxury of allowing the property to gain equity over a longer period of time Consider the tax ramifications both in your home country and in Panama. This is why we suggest having two real estate professionals, one from each country!
There are tremendous tax benefits in Panama so you should be very clear on how you might use that to your advantage. Do your research, seek expert advice, and find a real estate professional who is aware of every tax option.
Financing Property in Panama
If you are financing the property, know where and how you will obtain the funding. Panama does lend money to foreigners, but the process in obtaining that mortgage will take time and the amount of supporting paperwork will be daunting.
Usually, the interest rate is a bit higher than you can find in your home country and you will need to have between 20-30% of the down payment.
Panamanian real estate developers are accustomed to providing financing for buyers, both local and foreign, which is a very attractive way to make purchases. Second mortgages on current real estate is also a possibility. The bottom line is again, do your research and find real estate professionals you trust.
Keep Up with Current Events
Know what is going on in the country where you are considering buying property. Current events and planned development are strong indicators of the country’s financial health and future.
Becoming a member of Boldly Panama is a great way to do this. You can also follow other blogs about Panama (thought be ready to fact-check), create a Google Alert for Panama news, and join relevant Facebook groups. It’s best to have someone you can trust, however, to put events into context and offer their expert opinion. The person commenting in all caps on Facebook may not be the most reliable source
Panama Investment Options to Consider in 2020
If you are considering investing in Panama real estate, these are a few properties I recommend that offer remarkable potential for return on investment. While these are great deals, it’s important to speak with a real estate professional about your specific needs so they can point you in the best direction.
In the City
Panama City is the Central American hub for international business thanks to its strong economy, high standards of living, well-connected international airport, and financial incentives for multinational businesses.
Much of that growth has occurred in Costa del Este, a planned community in Panama City complete with supermarkets, trendy restaurants, specialty food and wine shops, great green spaces and bike and jogging trails.
The waterfront has several residential towers catering to the executives working at companies such as Dell, Procter & Gamble, Estee Lauder, Lufthansa, Nestle, and Adidas. They all need places to live and it’s ultra-convenient being able to walk or bike to work when living in one of these amenity-filled buildings.
Medical Tourism Offers Opportunity for Investors
Costa del Este is also becoming a hotspot for medical tourism, as evidenced by the city’s second John Hopkins International Hospital, now under construction in the Costa del Este community.
People travel to Panama from all over the world for its excellent and affordable healthcare. Get a hip replacement for $20,000 and a five-night hospital stay with specialized physical therapy, as opposed to $125,000 for a 23-hour stay for the same procedure in the United States.
The growing number of medical tourism patients, and their trailing families, need accommodations and tend to prefer luxury. These short-term renters produce higher yields as opposed to long-term rentals at lower rates.
On the Beach
If you’re more interested in beachfront, consider Royal Palm– a resort-like development in Playa Gorgona, just over an hour’s drive from Panama City.
A 754 square foot unit overlooking the Pacific Ocean can be purchased for $175,000 and developer financing at 4% with a 20% down payment. With a less than $500 a month mortgage, the property would only need to be rented a few nights each month to cover the costs while building equity. Larger units in Royal Palm with 1,453 square feet can come with developer financing at less than 1% depending on location and down payment.
With an on-site property management office, Royal Palm is a convenient option for anyone interested in renting their condo. Many buyers reside in their units part-time, and rent it out the rest of the year. Others buy more than one unit, reserving one for themselves while renting the others out full time. There are so many arrangements I’ve seen people make work.
