Jan. 18, 2010
Panama City, Panama
PLUS:
- Rentals And Cost Of Living In Languedoc, France...
- How To Live 100% Tax Free In Panama...
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Dear Live and Invest Overseas Reader,
Every successful investment consultant or experienced investor has a method to his success. An approach that fits no matter which market or situation you're in.
To make money in global real estate, I look for opportunities that fall into one of these four categories:
1. Buying Wholesale
This is buying at a price below what the property would sell for to the general public, with the opportunity then to sell on (that is, to flip) to the general public at some key point in the future.
This is where my worldwide network of property investing contacts really pays off.
To make money using the Buying Wholesale method, you've got to be in a position to act early. You have to know about opportunities well before the general public knows.
Buying Wholesale is a strategy that can be particularly effectively employed when buying into a development. Early on is the time when a developer needs that all-important initial inflow of funds to get the project off the ground. To make early sales, in advance of infrastructure, for example, developers are typically willing to offer the best prices and financial terms to those first on the scene.
2. Path of Progress
Buying in the "path of progress" can mean two things:
You're buying property in the path of new or planned infrastructure, such as a new airport, bridge, or highway, for example.
Or you're buying in a place where there's an emerging market trend that's not yet apparent to the mainstream property buyer.
One of the most important parts of my job is keeping my ear to the ground in key markets for major infrastructure projects. As soon as I hear of a new road, bridge, or airport, I'm on the ground investigating how to position myself to take advantage of it.
And watching international markets for emerging trends is only half the battle. You've then got to decide how long the trends will continue, so you can establish the timeframe for your exit strategy.
3. Crisis Investing
This is investing in a market when everyone else is running the other way, typically as a result of an economic or political crisis that is creating a market distortion.
A good example is the financial crisis in Argentina in 2001. While CNN was showing riots in the streets, my clients and I were buying apartments for blood-in-the-street prices. Because we were able to offer distressed sellers cash, we were able to buy for what amounted to 50% off and more. We shopping specifically for apartments in Buenos Aires prime neighborhoods that would make good rental properties long term. As Buenos Aires bounced back, we enjoyed appreciation rates of 100% in just under three years.
Not to mention net rental returns in excess of 7% per year.
Similar situation in Ecuador during their crisis in 1999-2000, when savvy investors bought properties for pennies on the dollar.
I'm not the only one who can identify crisis, of course. Anyone who keeps up with the international news knows where trouble is unfolding. But that's only the first step.
The people who make money from Crisis Investing are those able to identify which markets will rebound. You've also got to be in a position to act and to formulate an exit strategy that maximizes the opportunity.
4. Real Productive Assets
This is where the solid returns are being made today.
Real Productive Assets are property assets that generate income as their primary objective. They can also yield capital appreciation, but I view that as a secondary objective. My own clients moved into this strategy and began investing in Real Productive Assets in early 2008.
When evaluating this type of investment, I make my case based on a solid plan for productive yields. I view capital gains as icing on the cake.
One market that has my attention right now in this context is the Philippines, where rental returns on a new project I'm investigating look like they'll exceed 15%. I continue my research.
Investing in Real Productive Assets is not a new idea, of course. But the trick is knowing when it's most productive.
There is no such thing as a recession-proof investment. But investing in Real Productive Assets is as close as you'll get. These are the kinds of investments that are most likely to continue to produce in all economic cycles, good and bad.
Lief Simon
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"My wife and I are thinking of taking an extended (minimum one-year) break from our home in Australia. Our desire is to spend this time living in
France, specifically the Languedoc or Aquitane region. I am keen to see if you have any comprehensive reports on these areas. Getting an accurate fix on rentals and cost of living is imperative for us at this planning stage. Appreciate any comments."
-- Les V., Australia
Our best resource in this part of the world is France Correspondent Lucy Culpepper, who has written a Country Retirement Report for us focused on the Languedoc.
More here.
"I have learned so much from your newsletter, and now I have a question.
"I read that
Panama is an offshore investment haven and that I could live in this country tax free, but I am confused. If I relocate to Panama and run a local business or an Internet business, does that mean I pay no Panama taxes or no income taxes at all, including in the United States?
"I also keep hearing that the IRS is cracking down on 'offshore investments.' How does this affect Panama investments?"
-- Doug H., United States
Yes, you could live in Panama tax-free, even as a U.S. citizen (that is to say, paying no income tax either in Panama or in the United States). However, some work and preparation are required. You have to set yourself up properly.
If you're retired, you won't pay taxes on retirement income you bring into Panama or on any dividends or interest income earned outside the country. You would still pay taxes in the United States on the dividends and interest income, and, depending on the source of the retirement income, you'd pay the same tax to the IRS as you would if you lived in the States (although, if you live in a state that taxes retirement income, you'd avoid that tax by moving to Panama).
To live completely income tax free in Panama as a U.S. citizen, you must have a business generating earned income for you as an individual and that income must be derived from outside Panama. Panama taxes residents on income earned in the country only, so your non-Panama business would pay no taxes in Panama and assuming it is a business where you can legitimately claim that you are earning your income outside the country, your individual income wouldn't be taxed there. Typically, this means a consulting or an Internet-based business.
If you start an active business in Panama, with sales in Panama to Panama residents, then that income would be taxable in Panama, as would any related personal compensation you receive.
In either case, your salary up to the annual Foreign Earned Income Exclusion limit (US$91,400 for 2009) can be excluded for U.S. income tax purposes. The key is that it be truly earned income.
The U.S. Internal Revenue Service is cracking down on U.S. citizens going offshore to evade taxes. Specifically, they are going after U.S. citizens who have bank accounts, investments, and businesses that they aren't reporting to the IRS.
In fact, the IRS has just opened an office in Panama, which they intend to use as a hub for their activities in Latin America. If you report all overseas bank accounts and income, you have nothing to worry about. If you are an American and hiding something, then, yes, you should be aware that the IRS is out there actively trying to find that out.
