Our Panama City-based team huddled around the conference table in our office the better part of Friday afternoon trying to find an answer to this question.
Here's the first thing to know on this subject: Rents in this city have fallen significantly over the past 12 to 18 months.
When we moved here two years ago, the rentals market was at a frothy peak. Owners could name their price, and would-be tenants would bid against each other for even modest digs. If you found a place you liked and could afford, you knew to offer a cash deposit on the spot, lest you follow up even later that same day to discover the place had in the interim been grabbed up by someone else.
Our young Marketing Manager Harry, for example, rented a studio outfitted with what amounted to a nod toward a kitchenette (no kitchen sink, for example, and only a hot plate to cook on), because anything bigger was outside his budget.
"Do you remember that place?" Harry joked on Friday. "I can't believe I lived there as long as I did. I guess those few months qualify as character-building..."
Harry paid US$650 per month for the privilege of renting that tiny kitchen-less studio.
And we, shopping for a three-bedroom apartment with space for an office at the time, had four such properties snatched away from us before we learned to bring a pocketful of cash with us to any viewing.
What's the current state of the Panama City rentals market?
Rents have fallen 25% on average, and Harry's US$650 today would afford him a one-bedroom apartment (with an actual kitchen) in a decent building in a convenient location.
What's changed? Well, it's a different world today than it was 2 or 2 ½ years ago. But, specifically, here in Panama City, a whole lot of new inventory has hit the market. New condo towers with units renting in all budget ranges (low-income local to international business executive) have come online, making the long-term rentals market more competitive.
Meantime, hundreds of new hotel rooms (including, notably, in the new, mega-sized Riu Hotel, the city's biggest, opened last month) have also become available, having the same effect on the short-term and tourist rentals markets.
This is all good news. The Panama City rentals market was ridiculously over-heated two years ago. What we're seeing now is a natural, welcome correction. And it's creating an opportunity for you to rent for less in this town than has been possible for years.
We've agreed to reduce the rent for the tenant in our investment rental on Balboa Avenue. The nice Brazilian banker lady who has rented from us for the past two years wants to renew her lease again, but she has asked for a reduction in cost, as she recognizes the realities of the current marketplace along with everyone else.
We could have refused (as I know many other rental property owners are doing) and then hoped to find another long-term renter for a higher amount or maybe tried our luck on the short-term market.
Both those things seemed risky. In a market like this, you take the rent in hand and count yourself lucky to be able to continue to realize a reliable return.
Our net yields over the past four years we've owned this investment property have, at times, been absurdly high (more than 20% per year, for example). We knew that wouldn't last and recognized that we were enjoying an anomalous period in this market's cycles.
Our return last year, given the amount of rent our Brazilian banker lady was paying, netted to about 13%.
Our return this coming year, at the new rent she'll be paying, will net to slightly better than 10%. On a global scale right now, a double-digit net yield is hard to come by. Again, we're counting ourselves lucky.
Can you still buy today at a price that would allow you to realize a reasonable net yield (I'd say up to 8%) from rental income, even given how increasingly competitive this marketplace is growing?
Yep. We'll detail how and where at our Live & Invest in Panama Conference later this month.
We'll also walk through how much you should expect to pay in rent, neighborhood by neighborhood in Panama City and region by region beyond the capital.
This event has been sold out for some time. However, we'll be recording all the sessions and presentations and will make the recordings available as soon as possible following the conference.
We're planning our first Live & Invest in Panama Conference of 2011 for March 29-31. We're not ready yet to take registrations for this event, as we're still shopping for a venue. We need someplace bigger than where we've been holding our Panama City conferences, so we can accommodate more readers. We're thinking the new Riu Hotel will be the place. It has capacity for up to 1,300 conference attendees. That should fit us!
We'll publish full details for this program as soon as possible. Meantime, you can get your name on the pre-registration list to be eligible for special discounts off the registration fee.
Do that here now.
Kathleen Peddicord
P.S. What else this week?
Friend and developer in Belize Phil Hahn wrote this morning to report that he has received the environmental permits for his latest project in this country, Carmelita Gardens. This is an important milestone for Phil that creates an opportunity for you.
Phil now can proceed with his plans to build 18 cottages on the river, the start of his Carmelita Gardens community. In addition, there will be a pool, a café, and a property management office. With these services in place, cottage owners will have an easy outlet for renting their places when they aren't using them.
I'm a big fan of Belize and was sold on Phil's Carmelita community from the first time I saw the property. This is Belize at its best. And you have the chance now to become a part of it at the earliest stage (meaning the best pricing).
Lots are priced at US$35,000, but Phil is offering Live and Invest Overseas readers a 10% discount until his house plans are completed.
That means you could buy your riverfront lot atCarmelita Gardens today for just US$31,500.
In addition, if you start building within one year, Phil will give you another 10% credit on the lot price toward your construction costs. He's doing this to stimulate early construction, which he knows brings big dividends as the project matures...
Here are 11 things I've learned from the school of hard knocks after three international moves across three continents with two kids, a dog, a turtle, a husband, and two businesses...
Thailand is arguably the cheapest place on earth to live well. Intrepid Correspondents Paul and Vicki, on-and-off residents of the country for more than two decades, have long been teasing and tempting me with tales of US$1 Pad Thai lunches and US$11-a-night hotels (including breakfast and free Wi-Fi)...
"In the 1990s," writes Intrepid Correspondent Paul Terhorst, "Vicki and I lived in Las Vegas for two years. Nearly everyone in Las Vegas, we discovered, comes from somewhere else.
"One night at a party, people took turns explaining how they happened to wind up there. My favorite story: 'This is where my car broke down.'
"This woman was on her way from somewhere in Ohio to somewhere in California. Her car broke down in Las Vegas, and she had no money to pay for repairs. She got a job in a casino. That was 26 years ago; she's still there.
"You see this often. People let life happen when they are in their 20s or 30s. The car breaks down. A friend has an inside track to a job at a fine restaurant. Grandma dies. The bank is hiring. We have nothing much going on, so we get a job in a casino, at the restaurant, or in the bank. We move into Grandma's house...
"Then--and here's the point--somewhere in our 30s, we refuse all further change. The purest coincidence got us to where we live. The merest fluke put us in the present job. Now other parts of the world may beckon, other jobs may offer more. No matter. However capriciously we got to where we are, even if simply because our car broke down, we insist on staying there. Further change has become out of the question, no matter how miserable we are.
"This behavior has always mystified me. I'm a fan of capitalism and freedom. Capitalism assumes that if you're unhappy with what you're doing, you'll change.
"But that's not how the world works. If people are unhappy with their jobs, they agitate, join a union, go on strike, lobby for political change, maybe blow up the workplace. But most never even consider changing jobs.
"Similarly, when the landlord raises the rent, people vote for rent control, or sue, or withhold payment, or seek help from city hall.
"But most people never consider moving.
"Everybody behaves this way--except you and me..."
ALSO THIS WEEK From Global Real Estate Investing Guru Lief Simon:
My beat is real estate, but timber qualifies in my view...assuming you're investing in land planted with trees rather than in shares of some timber company.
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...
You buy the land. A management company plants trees on it and maintains them for you. They take care of everything--from insect and weed control to thinnings--until harvest time. Come harvest time, the management company organizes the cutting and the sale of the trees. The revenue from the harvest goes to you, as the owner.
Here's the best part: You still own the land, meaning you can replant and start the process over for another harvest.
I'm over-simplifying things, of course, but the point is that you want to be buying the land.
I've seen offers where you buy only the trees and the management company owns the land. Once you harvest the trees, your investment is done...closed out.
And I've seen many offers where you buy shares of the operating company that owns and manages the land and the timber. I find this option much less appealing, because you're not buying a real productive asset; you're buying a company. You have no control over the land, the timber, or how the business is operated. The only thing you control is the timing for when you sell your shares.
On the other hand, you probably don't want to learn how to grow and manage a forest. That's why I recommend direct ownership of the assets--land and trees--with a management company in place to take care of everything for you.
One opportunity that I've long recommended is teak farms in Panama. A friend, Robert Kroesen, who I met years ago during my first few scouting trips to this country, has a reforestation company that today owns and manages more than 3,000 hectares of teak plantations (and that is aggressively working to acquire more land).
With Robert's help over the past seven or eight years, I've learned a little about this business and have come to appreciate the opportunity tremendously.
Robert's company, United Nature, was founded in 1993, meaning he is now getting into full harvest for some of his early plantations. Growth rates have been good in the region of Panama where United Nature has cultivated its plantations, and Robert is positioned now to achieve an excellent return on his initial investment.
Robert started United Nature with a single partner as a personal investment undertaking. About 10 years ago, six or seven years after he'd been planting for his own portfolio, Robert began putting together packages for other investors. This had never been his intention, but, when people saw what he was doing and that he had the infrastructure in place to manage the plantations, they came to him asking to invest.
Rather than sell those people shares in his company, as other plantation operations in Panama were doing, Robert segregated out specific parcels of land for people to own directly. He continued to manage the plantings, the maintenance, and the harvesting, but each investor was given the opportunity to own his own piece of land and the trees planted on it outright.
Each investor with United Nature decides himself when to take the final harvest (though I'd say the sensible thing would be to take Robert's team's advice on this). And each investor can sell his land and/or his trees whenever he wants.
There is an active and expanding market of investors looking to buy older plantations. As other investment types become increasingly volatile and uncertain, more and more investors are looking to things like timber for long-term safety. However, many don't want to have to wait the full 17 to 25 years from initial planting to harvest. They're willing to pay a premium to accelerate the exit and the payout.
Robert's projected annualized ROIs are in the low teens.
This modest statement, though, doesn't do justice to the real opportunity here. Because this is such a long-term proposition, the total return come harvest time can be extraordinary. US$1 can turn into US$13.
Yes, I'm invested with Robert.
To learn more about investment options with United Nature, go here.
Another benefit to an investment in Robert's teak plantations, by the way, is that it can bring you a residency visa in Panama. With an US$80,000 investment in a registered reforestation project (United Nature's reforestation plantations qualify), you can arrange permanent residency visas for you and your dependents (that can lead to Panamanian citizenship).
