How To Retire Overseas

Easy As 1, 2, 3…

Dec. 12, 2010, Panama City, Panama: Here are the seven steps to take to organize your retirement overseas.

Dear Overseas Opportunity Letter Reader,

"I'm ready to make my move, Kathleen," explained an attendee at our conference in Panama City earlier this month. "I'm ready to go for it.

"But I'm so confused. I mean, what do I do first? And then what do I do second?

"Could you break it down for me, as though I were a child? Seriously, speak to me like one of your children. I need a step-by-step plan..."

• Step 1: Identify a destination. Where depends on what's important to you, what kind of lifestyle you want to lead, and how much money you have to fund your retirement...


• Step 2: If you intend to relocate full-time, arrange to meet with an attorney in your chosen destination, one experienced helping foreigners established residency, to determine the best residency visa option given your circumstances. If you don't intend to relocate full-time, skip to Step 3...


• Step 3: Speak with a tax advisor (an attorney who specializes in taxation is best) in your chosen destination...and, as well, with a tax advisor (again, an attorney experienced with international tax issues) in your home country. If you're an American, it's especially important that you identify two advisors and connect the dots of your new tax life with those of your old one...


• Step 4: Research rental options in your destination. I strongly recommend you rent first, to give yourself a chance to try your new home (country, town, neighborhood, street, beach) on for size before committing to a real estate purchase...


• Step 5: Research health insurance options, comparing local, in-country policies (cost, coverage, restrictions) with those of international options like Bupa...


• Step 6: Take your administrative life virtual. Make sure you can access all bank accounts, brokerage accounts, credit card accounts, and investment portfolio online and that you can move money around from one to another electronically...


• Step 7: Figure out what to do with all your stuff. What's coming with you, what's going in storage, what's being sold, and what's being given away...

Piece of cake.

This is the approach we've decided to take for our first-ever general Retire Overseas Conference, which we're planning to hold Stateside in May 2011. City and venue will be finalized this coming week, and registration will be open before year-end.

Meantime, the program is set. We'll walk you through the process, step-by-step, of how to get from where you are now to where you want to be.

We'll even help you identify the best place for you to think about retiring overseas, given your preferences, your priorities, your personal circumstances, and your retirement budget. The conference will consist of a series of workshops, very interactive, each led by a panel of experts.

Come with a dream. You'll leave with a plan.

The colleagues, correspondents, advisors, and expats we're convening for this hand-holding event will be coming from far and wide to make sure of it.

I've been putting on live and invest overseas conferences for more than 20 years. This one is going to be different.

Full details soon.

Kathleen Peddicord

P.S. What else this week?

• At our Emergency Offshore Summit earlier this month, we discussed the advantages, in the current global climate, of putting some of your available investment funds into dirt.

I don't mean burying cash in your back yard. I'm talking about diversifying investment funds into foreign real estate, especially productive land.

First, real estate is a real asset.

Second, foreign real estate is outside the United States and therefore difficult for U.S. authorities to seize or attach.

Third, real estate is one of two asset classes that you needn't report to the U.S. tax authorities.

This week, I shared some of the global real estate opportunities highlighted during the conference, starting with a back-to-basics buy that I like as a lifestyle option, as a long-term investment play, and because it comes with a very modest capital requirement.

I'm talking about a riverfront retirement community called Carmelita being developed in western Belize, in the fertile Belize River Valley...

• Historically, timber has enjoyed the best risk/reward ratio of any investment sector. Depending on whose chart of historical returns you consult, timber as an asset category has produced an annualized ROI in the 12% to 15% range every year since they started keeping records on investment risk versus return.

A friend calls timber "a long-held secret of the world's wealthiest people." It's low volatility, a hedge against inflation, and an asset class that operates independent of the stock market.

On top of this, timber is the kind of investment I like. It's real and productive. This is more important right now than it's ever been. If you don't have some of your money in this kind of real, productive asset, you should.

Here's how a direct timber investment should work...

• "Why did Panama do it?" was the question on everybody's mind throughout our Emergency Offshore Summit in Panama City last week.

Here's the background:

On Nov. 30, Panama and the United States signed a U.S. Tax Information Exchange Agreement (TIEA), granting the IRS the power to request information related to the accounts of any U.S. citizen who has taken advantage of the bank secrecy laws in place until now and deposited money in a bank in this country.

What does this mean?...

• "Belize is a custom-made banking haven," explained Peter Zipper to the group convened for our Emergency Offshore Summit last week. Peter is a banker with more than three decades of international experience.

"With their Belize Act in 1981, the Brits built themselves a banking haven. They looked around at the top banking havens worldwide at the time and cherry-picked the best elements of the banking laws in each case. These elements were incorporated into the banking law for the about-to-become independent nation to be known as Belize.

"Until that point, Belize had been British Honduras, a colony of the Crown.

"The constitution for this new country was based on the Canadian constitution. What does this mean?" Peter asked the crowd.

"That means boring. Boring politics, boring everything. Not much to rock anybody's boat.

"As a result, in the nearly three decades since, Belize has managed to remain largely under the radar. Ambergris Caye drew some attention as the setting for TV's 'Temptation Island.' Otherwise, other than from global divers and sun-seekers, Belize has been really successful at attracting very little attention.

"I spent many of the first 27 years of my 30-year banking career in Europe," Peter continued, "working with Swiss banks, for example. We Swiss bankers back then would turn up our noses at the mention of 'Belize banking.' Bank in Belize? Who would give their money to a Belize banker, we wanted to know. Bankers in Belize can't count, can they?...

Also This Week...from resident global real estate investing expert Lief Simon:

I'm currently generally neutral on the idea of new real estate investment in Panama City. While you can find a great opportunity in this city today if you invest time on the ground, the amount of ongoing construction (we count 23 working cranes in view from our window) will ensure that both condo prices and rental rates, which have fallen by perhaps 20% over the past year, will remain soft for some time to come.

In other words, it is possible to buy today and get a good yield on a rental investment, but the risk of falling rents is real.

That said, as I remind you often, investing for rental yields is one of the smartest long-term plays you can make in the current climate. I'm focused on this strategy and aggressively on the lookout for new opportunities. I've identified one here in Panama City, a new condo-hotel project in Bella Vista.

The condo-hotel is a concept that you won't find in the United States, where their structure would put them under the jurisdiction of the SEC. However, elsewhere in the world, they can be an interesting investing option.

Condo-hotels operate by pooling rental revenues and distributing net profits to unit owners. While each unit is individually owned, the hotel operations and financial management work like a co-op.

Pooling revenues not only simplifies the operations of the hotel, but it also helps to eliminate the potential for corruption in the rental process. If each owner were paid based on usage of his particular unit only, then individual owners would jockey hotel management to ensure that their units were rented as often as possible. This jockeying could range from owners installing better furniture in their units to bribing the reception staff.

Essentially, though, other than the fact that each unit has a separate owner, a condo-hotel functions like a regular hotel. Every unit owner is required to put his rental unit under the management of the hotel. Central systems are installed--a phone system, for example--and all rooms are furnished alike and stocked with the same towels, etc.

All these centralized expenses increase the cost of each individual unit above that of a straight apartment. This means you can't compare the cost of a similar-sized apartment to a condo-hotel unit...even if you back out the cost of furniture.

How, then, do you value a condo-hotel unit? In a previous life, I worked for a hotel design and consulting company. I was their CFO so wasn't directly involved in the design or the consulting, but I picked up a few things about the business. The rule of thumb for a hotel is that you should be able to get US$1 in room revenue per night for every US$1,000 you have invested per hotel room. So a US$20 million hotel with 200 rooms should be able to charge average room rates of US$100 a night.

Of course, occupancy rates play a role in total revenue. Rule-of-thumb thinking assumes an average occupancy of 65% for a profitable operation.

Therefore, if you're buying a condo-hotel and paying US$200,000 for your unit, you'd want the projected average room rate to be at least US$200. A simple calculation, but, remember, it's just a rule of thumb, a quick check to make sure the numbers are in the ballpark. You'll want to do more critical thinking from there.

The opportunity I've found in Panama City is a boutique hotel called Unicorn. It has 96 suites ranging in size from 47 square meters to 61 square meters. Amenities include the normal hotel fare, such as a restaurant and a bar, a gym, a pool, a business center, and meeting rooms.

The developer has put together a management team to operate the hotel that has decades of experience in Panama. And he has chosen an international flag from the Carlson Group, Park Inn, for the reservation system and branding.

The location in the Bella Vista neighborhood means the hotel is in an active area and one of the nicer downtown zones, with easy access to the banking district, restaurants, and parks. The target market is business travelers looking for more personalized service than generally found in the larger chain hotels in the city.

Specifically, Unicorn is focusing on an all-suite platform geared toward business travelers. This is a strong and right now under-serviced niche within this market.

The developer, Bruno Carnsella, has 38 years of experience in residential and commercial development. Most of that experience was in Florida, but Bruno has also been involved in some international projects, including a project in Panama years ago. As the Florida real estate market came to a screeching halt, Bruno was contacted by friends in Panama proposing the idea of a project in Panama City. Unicorn is the result of those conversations.

The numbers are straightforward. Pricing and share of rental income are based on unit sizes. The smallest unit is 47 square meters and priced starting at US$255,000. The next biggest unit is 50.5 square meters, priced starting at US$273,000, and the biggest unit is 61 square meters, priced starting at US$329,000. The revenue splits are 68%, 70%, and 75%, respectively, and prices go up US$1,000 per floor in each building.

This means a 50.5-square-meter unit gets 70% of the net income from the hotel, and the management company keeps 30%. Using this unit as an example, the investor would earn an average yield of 10.87% over the first five years of operations. The projection for the fifth year hits 13.47%.

Those are the kinds of long-term yields that can build your wealth, and you can expect some appreciation on top of them. Assuming a 4% rate of annual appreciation, your total average annualized ROI could reach 14% over the first five years.

Throw in some leverage (remember, it's possible to borrow money from a bank in Panama, even as a foreigner, to purchase real estate in this country), and your returns could increase significantly.

With the available financing, this opportunity falls at the lower end of the scale from a capital-requirement point of view. And even without the leverage, the projected yields are a bit higher than my general expectation of 5% to 8%. The reason is the 70/30 split the developer is offering owners. A split of 60/40 is more typical, but, from the developer's point of view, giving 70% to the unit owners rather than taking on long-term bank financing makes the project more worthwhile for everyone involved.

As I explained to attendees at our Offshore Summit last week, at this point in my real estate investing career, I invest as much with the developer as I do in a particular opportunity. The developer in this case is a serious guy. That's why we invited him to participate in last week's conference. The recording of his presentation is included as part of our Emergency Offshore Summit Self-Preservation Kit, available now, while it's still being edited, at a 50% discount. Details for that are here.

You can find out more about Unicorn directly from the developer's team by getting in touch here.