Renting Overseas Rule #1: Think twice before renting new construction or just-completed renovation. You don't want to be the first person living in a place. It makes you a guinea pig, forced to work out the kinks. This was our very frustrating experience in our second rented home here in Panama City, in Casco Viejo. The owner hadn't done a punch list after the extensive renovation he'd undertaken just prior to our moving in. We were left, therefore, to discover a long list of things that didn't work and that hadn't been properly addressed (including a roof that leaked in nine places, no hot water in the guest bathroom, and bedroom doors that couldn't be closed because they bumped into the ceiling fans). We discovered too late that the long-distance owner didn't seem to care whether anything worked or not, leaving us to deal with his incompetent and unresponsive property manager. Thus our third rental... Renting Overseas Rule #2: Investigate the reputation of the management company responsible for the property. Ask around. If the feedback is all negative, consider finding another place to rent. This also applies to building management in the case of a high-rise apartment building. In Panama City, most new buildings come with loads of amenities (swimming pools, grill areas, children's playrooms, basketball courts, tennis courts, even putt-putt golf). However, if the building administration isn't maintaining the amenities, and you therefore can't use them, what's the point of paying for them (as you will, through your monthly building fees)? Renting Overseas Rule #3: Understand what documents you will need to rent. Depending on where you're moving, the answer could be none. On the other hand, in some markets (France, for example), you're going to have to prepare a complete dossier of paperwork (including, for example, recent bank statements, pay stubs, reference letters, and letters of guaranty) to submit for approval before you'll be able to sign a lease. In Panama, you generally don't need any documentation to rent. You find a place, sign a lease, pay your deposit, and move in. In Paris, on the other hand, again, you'll need a folder full of paperwork—unless you rent on the black market. Renting long term on the black market can be more expensive, but it overcomes the dossier hurdle, which, depending on your situation, you may not be able to meet. Renting Overseas Rule #4: Understand what deposit you will be required to make. The general rule is that you'll have to pay the first month's rent plus a deposit equal to one month's rent. Sometimes, the deposit can be one-and-a-half or two months' rent. Whatever the deposit, don't expect to see it again. Friends in Paris joke that the best way to think about any security deposit you make in that market is to amortize it over the lifetime of your rental. In other words, consider it part of the rent. (I'm speaking about long-term rentals, not short-term tourist stays.) In Panama, if your landlord is following the law, your deposit will be posted with MIVI (Panama's department of housing). MIVI holds the funds and then releases them at the end of the rental term. If something is to be deducted for damages, the landlord informs MIVI, and the renter (you) are given a chance to sign off on the amount to be withheld for repairs. Unfortunately, not all landlords do this (many foreign landlords aren't even aware that they're supposed to do this). This means your deposit is at risk. In the case of our first rental in this country, an apartment in a high-rise, the landlord returned our deposit within a couple of weeks of our moving out. He made no deductions, and we got our deposit back in full. In the case of the house we rented in Casco Viejo, the property manager refused to return our deposit, citing "damages." However, he refused to tell us what the so-called damages were or to itemize the costs for repairs. He kept the full amount. As he hadn't posted the amount with MIVI but kept it himself, we were out of luck. Renting Overseas Rule #5: Use an attorney. You know to use an attorney when you buy property overseas, but you should also use one when signing a rental agreement in another country. Unless you are very familiar with tenants' rights and the particulars of rental contracts in the country where you're renting, it pays to have someone who is reviewing the documents before you sign. A good attorney will also inform you of any negotiable clauses—that is, any opportunities for you to adjust the terms of the agreement to your benefit. Lief Simon
Continue Reading: Gringo Pricing And Bribery In Ecuador
"Ecuador law requires a two-year minimum for rentals," Graciela pointed out. "You don't want to deal with that until you're certain of your plans." Again, the best news about the rental market in Cuenca is that rental rates remain very low on a global scale. A typical monthly rent for a standard, unfurnished, one- to two-year rental is US$300. "When trying to find a rental, don't believe everything you read on the Internet," counseled our man in Cuenca, Ecuador Correspondent David Morrill. "You can find a lot of information about apartment rentals on blogs and social media, but you really need to get in the market and see for yourself. "Tell an expat in Cuenca that you're considering renting an apartment for US$500 a month, and he's likely to say something like: 'What?! Why would you pay that much? I'm renting for just US$300 a month!' "Maybe he is, but those kinds of conversations usually don't consider differences in neighborhoods and building amenities, for example. If you were renting an apartment in New York, you'd understand that you'd pay more in downtown Manhattan than you would in Queens. The same is true everywhere in the world, including in Cuenca. Neighborhoods can be very different when it comes to rentals, both in terms of what's available and also in terms of cost." Expats in Cuenca typically prefer to be near the historical district, not in it. More than 70% of Graciela's rentals are in this area, within walking distance of the city's historical center. How do you launch a search for a rental in Cuenca? As most anywhere in the world these days, the typical place to start is the Internet. When you go online, search in Spanish. Look for arriendas or se renta. Local newspaper classifieds can also be a good place to start, especially if you are looking for something long-term. Otherwise, you can walk the streets looking for rental signs and asking around. The best deals are found through word-of-mouth. "It's important, when renting a place to live in Ecuador," Graciela explained, "to try to understand the culture. Many of my clients will say, 'In the United States, we do it this way...' "You need to remember that we are not in the United States. In Ecuador everything is different—the culture, the workers, how we work, the legal system, the bureaucracy... "'Unfurnished,' for example," Graciela continued, "may mean no appliances, no curtains, no lighting fixtures...very basic." To state the obvious, rental agreements are going to be in Spanish, so you'll want someone who speaks Spanish and English and who you trust to review your agreement before you sign. Confirm how to get your deposit back, for example, and, very important, who is responsible for what. "It is common for the tenant to be responsible for small repairs like a leaky faucet," Graciela said, "but we've had cases where the landlord has said, 'I'm not responsible for replacing the roof.' "Or there could be an old microwave that's not working," she continued, "and I mention it during the inspection. The owner might say, 'Well, the tenant needs to pay for it, because it's in their hands.'" "None of this should frighten you off the idea of renting in Cuenca," David added. "We're just trying to help you understand so you can be prepared. You want to do more due diligence here than you would back home, not less." Kathleen Peddicord P.S. Graciela and David's detailed and tell-all discussion of how to be a renter in Cuenca during last week's Live and Invest in Ecuador Conference was recorded, along with every other presentation over the two-and-a-half days of this event. These audio recordings are being edited now to create our all-new Live and Invest in Ecuador Home Conference Kit. You can purchase your copy of this everything-you-need-to-know-about-Ecuador resource pre-release and save more than 50%. Do that here now.
In one case, the land is collateral for eight investors. If you've ever tried to get eight people from different countries and backgrounds to agree on a single path forward and been successful, please get in touch. You have skills I lack and could benefit from. In another case, my collateral is an apartment. This is even more complicated. The short story is that the contractor walked off the job after having been paid a substantial amount of money for the construction but before finishing the work. Somewhere between the developer signing the agreement with the contractor and the contractor bailing, the contractor stopped paying on his insurance bond that guaranteed completion. The condo development is unfinished, and we who invested along with the developer are left holding the bag. In addition to the direct-developer investment, the lady who wrote in to me last week has lost in other ways, too, though the other investments she told me about aren't write-offs, at least not yet. One is a lot in a development where the developers haven't fulfilled all the amenities. The lot has value but no real market right now. The woman also invested in a renovation project in a colonial city. That didn't work out because the architect she chose (on the recommendation of an attorney I recommended) turned out to be a scoundrel. She managed in this case, though, to come out a little to the good after all was said and done. The nice thing about real estate is that, unless you're leveraged, it's difficult to lose all your investment. Still, holding property that you want to sell but can't can seem the same as losing your investment. I've been investing in real estate for more than 20 years and have bought in more than 20 countries at this point, more than 40 purchases and counting. Most have been positive and profitable experiences. Some are still playing out, and, for these open investments, the current values of the properties are greater than what I paid for them in every case except one. The key is to manage risk. To that end, I follow a few mantras. I break them regularly but do so knowing that I'm breaking them. When I do, I carry out more due diligence and I'm prepared to lose my money. Mantra #1: I don't buy property in a place where I haven't been. The corollary to this rule is to visit any property before investing in it. That's not always feasible. Further, visiting a place and seeing the piece of real estate you intend to invest in before you invest is no guarantee the investment will play out in your favor. I've visited properties and decided, as a result of my on-the-ground research, to invest only to have things fall apart. That said, probably my best and my worst investments to date both have been in properties that I didn't visit before buying. The one that didn't work out was a pre-construction project in the UK. Everything looked good on paper. The location was central in the town where the building was going up. A colleague had a friend involved in the project. Both assured me I couldn't lose. So I acted without making the trip to see the place myself. Unfortunately, thanks to overbuilding in the town, which I would have recognized had I gotten on a plane, the rental projections were optimistic, to put it politely. Worse, I bought with leverage. In the end, this was a total loss. On the other hand, I also acted on an opportunity in Panama City without seeing the project for myself. Again, this was on the recommendation of a colleague. This investment, though, has been, you could say, the most successful of my career. I've made far greater returns in whole numbers from loads of other buys, but, on paper, by the percentages, this one is near-perfect. The property has appreciated nicely in value, year on year, and has generated a double-digit net yield every one of the seven years I've owned it. It has been occupied by renters better than 90% of the time. Lief Simon
Granada is built around a large, shady, and bustling town square, anchored by a stately, neoclassical cathedral at one end. The streets are narrow (built prior to the automobile) and lined with rows of those cheerful, well-kept Spanish-colonial homes. Granada usually has a good inventory of colonials in a good state of restoration. Granted, colonials can be found in plenty of places around the Americas...but there are a few things that set Granada apart:
The rental market is good in Granada, especially if you have a pool. One home I looked at recently had an asking price of US$150,000 and rents for US$600 per week. Another cost US$389,000 and rents for US$1,500 per week. Occupancies can run between 65% and 75%. The least expensive houses I saw were priced at US$35,000, and they needed a good bit of work. But for just a bit more, you can buy something that's fit for living, as is. One such property is listed for just US$37,000. With one bedroom and one bath, this corner property is ready to move into with practically no work. The best buy I found is a larger, two-story home with three bedrooms, four baths, a garage, air conditioning, and a swimming pool located just four blocks from the central square. The second-story bedroom has a good view of the city rooftops, as well as the extinct Mombacho Volcano in the distance. The asking price is US$145,000, but I understand that this one will go out the door for around US$125,000. If there's a downside to Granada it's that it can be hot. I didn't really find it unpleasant, but I did sleep with the air conditioner on, as will most people. Also, if you want to be a pioneer—one of the first few expats to discover a city—this isn't the place to do it. There are definitely a fair number of English-speakers already in residence. If you'd like to invest in Spanish colonial property, or would enjoy the Spanish-American lifestyle, then Granada should be high on your list. Located less than two hours from Miami, the cost of living is low, the properties are inexpensive, and the inventory of colonial-style homes is unparalleled, especially at these prices. Lee Harrison Editor's Note: Today's essay on the property market in our favorite Spanish-colonial city, Granada, is excerpted from Lee's Overseas Property Alert. If you aren't on the list to receive this once-a-week dispatch on the world's top property markets direct from Lee's laptop to your inbox, sign up here now. It's free.
Sept. 1, 2014
"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?" -- 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$99,200 for 2014) can be excluded for U.S. income tax purposes. The key is that it be truly earned income.
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Kathleen Peddicord is the founder of the Live and Invest Overseas publishing group. With more than 25 years experience covering this beat, Kathleen reports daily on current opportunities for living, retiring, and investing overseas in her free e-letter.
Her book, How To Retire Overseas—Everything You Need To Know To Live Well Abroad For Less, was recently released by Penguin Books.
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