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What I Really Think About Life In Panama City

Dec. 22, 2013
Panama City, Panama

Dear Live and Invest Overseas Reader,

Georgia M. wrote from the United States this week to say:

"Kathleen, I see you are planning to move back to Paris. Being totally honest and understanding that all experiences are positive, how would you contrast Paris and Panama City and what are your reasons for moving back to Paris?"

First, before I respond to these questions, an update:

The offer we made a couple of weeks ago on a small apartment in Montmartre has been accepted. Lief is working with our notaire to finalize details of the purchase of this new Paris pied-a-terre (it's but 35 square meters in size, so toe-a-terre might be more appropriate) that will serve as our Live and Invest Overseas Euro-base starting in the New Year.

We won't, though, be moving back to Paris, at least not full-time. Starting in 2014, we'll divide our time between Paris and Panama City, our current base.

Why? Because Paris is my favorite city in the world. It's pretty and romantic. I like pretty and romantic, and Panama City is neither of those things.

On the other hand, I also like contrast and the unexpected. Life in central, historic Paris is what you expect it to be--pleasant. Nothing about life in Panama City is predictable. Both those realities appeal to me, and my ideal lifestyle is one that embraces both the charming and the challenging.

Thinking more practically, how would I compare Panama City to Paris?

The cost of living can be more similar than you might imagine. This is because Panama City is not the super-cheap destination it used to be and also because life in Paris can be more affordable than you expect. Your cost of living in both of these cities is hugely variable.

You could rent an apartment in Panama City for US$1,000 (this is the minimum monthly rent I'd budget for comfortable digs in a neighborhood where you'd want to be based)...or you could rent an apartment in Panama City for US$5,000 per month (in Punta Pacifica or front-line avenida Balboa).

You could rent an apartment in central Paris for 1,000 euro per month (again, this would be a minimum monthly rent) or for 5,000 euro per month, depending mostly on where in the city you choose to settle.

A couple could spend US$200 per month on food in Panama City (shopping at local markets and eating only locally produced items)...or US$1,000 per month (shopping at the U.S.-style Riba Smith grocery store for brand-name food items).

A couple could spend 400 euro on groceries per week or 1,000 euro per month, depending, again, on where and how you shop.

Utilities will cost you more in Panama City than in Paris if you run your air conditioning around the clock (as we do). Transportation, too, can be more affordable in Paris, where you can get most anywhere you'd want to go using your own two feet or a monthly Navigo (metro/bus) pass. A cable/internet package will cost you 40 euro per month in Paris or US$50 in Panama City. You'll spend about US$50 per month on a cell phone in Panama...and about 50 euro per month on a cell phone in Paris.

Your entertainment budget in either city could be the equivalent of US$100...or many times that.

Help around the house is a bargain in Panama City compared with Paris. In Paris you'll pay 20 euro or more per hour for household help, while you can hire a full-time maid in Panama City for US$200 to US$300 per month. In other words, in Panama, you could walk away from household chores forever.

What about Paris versus Panama City beyond the cost of living? Paris is a city for walking; in Panama City, you take your life in your hands every time you set off as a pedestrian.

Both are cities of apartment-dwellers. In central Paris, the apartments can be 200- or 300-years-old. In central Panama City, they're typically two or three years old.

Paris is a city built on a river. Panama is a city built on a bay that opens to the Pacific Ocean at the entrance to the Panama Canal. Both bodies of water define and help to brand the cities they're attached to.

Service is taken seriously in Paris. You should expect good service everywhere. Good service, when you encounter it, is a surprise in Panama, as are (I know I'm going to take heat for this remark) good manners.

On the other hand...

Few places in the world are as dramatically alive as is Panama City right now. It's being reinvented in real time, and witnessing this transition as an insider is an opportunity that Lief and I appreciate and savor. Keeping things in perspective, I think that, years down the road, we'll remember this time on the ground in this emerging world boomtown very fondly.

The other thing we appreciate about living in Panama City is that it means we live and run our business tax-free. That trumps a lot of the day-to-day downsides.

We could not have built the business we've built in Paris, and, frankly, I don't know of anywhere else in the world where we could replicate the team we've assembled here in Panama City. We're in Panama for the long haul...and happily so.

But we're looking forward to regular chances, starting next year, to enjoy the best of both the Old World and the New.

Kathleen Peddicord

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The first grapes for champagne from the new areas will be harvested in 2019, meaning we'll see the first bottles of champagne produced from the new vineyards on store shelves in 2021.

I'm not recommending running out and trying to speculate on villages and then which specific pieces of land that might be reclassified to allow for growing “Champagne” grapes.

However, I do have a recommendation from another region of France that is as romantic but far more turn-key. After Champagne, we traveled to Limousin, in the middle of the country, where we toured an interesting chateau resort project.

While I'm sure you've heard of Champagne, you may never have heard of Limousin. This is a far less touristed part of this country. It's mostly farmland that one passes through to get from the north of France to the south and the coast. However, I'd say Limousin is under-appreciated. This unsung part of France has beautiful countryside as well as some special, classic, and historic chateaux.

One of these, Chateau Cazine, has been purchased by a U.K. developer and is being transformed from a modest hotel with an excellent restaurant to a full-fledged destination resort with a spa, a golf course, and that same excellent restaurant.

The heart of the property is a “petit chateau” whose foundation dates back to the 12th century. This picture-postcard-perfect and very historic structure is being renovated into the new resort's luxury spa center and is expected to be an important draw.

However, the main event is the main chateau, imposing and grand, built in 1898, and every bit the picture of French chateau life. This building has been renovated already and is up and running as a boutique hotel with 18 deluxe rooms and the fine dining restaurant.

In addition to the main chateau and the petit chateau, the property includes several other large stone outbuildings, many of which are currently being converted into a collection of rental apartments. This work is expected to be completed in the next 12 to 18 months.

Other of the outbuildings will also be renovated and some new structures will be built to create additional studio, one-bedroom, two-bedroom, and even three-bedroom apartments, all of which will be operated as rental units. In all, when the project is completely built out, the property will include about 140 rental units.

All of that is colorful, charming, romantic, and interesting, but, you may be wondering, where's the investment opportunity?

The investment opportunity is in the rental units, which are being developed and which will be managed and operated as part of the French leaseback program. This affords investors in the units two key benefits:

  • First, France's 19.6% value-added tax (VAT) normally charged on new construction is waived for all leaseback purchases.

  • Second, your purchase comes with a minimum nine-year lease contract with the hotel management company, meaning nine years of turn-key rental management and guaranteed yields. This, of course, is the primary benefit--the reliable annual return for the lifetime of the leaseback agreement.

The French government initiated these “leaseback” programs (which include benefits not only for the investor, but for the developer, as well) more than 30 years ago to help incentivize investment in the development of additional inventory for this country's short-term rental industry. As France is one of the most visited countries in the world and has been for decades, the demand for short-term rentals and hotel rooms is tremendous and expanding. More than 80 million people visit France each year, and they all need places to sleep.

I've reported on French leaseback offers in the past. Typical for these offers are guaranteed annual returns of 3% to 6%. Generally, the return is guaranteed over a 9- or 11-year lease agreement with the hotel management company and indexed to construction inflation. This developer is doing things a bit differently, and, in fact, different leaseback terms are in place for different phases of the project. The most recently released phase is the one I want to bring to your attention.

The newest building in the project is to include one-bedroom and studio units with a leaseback return of 10% per year for 15 years. In the meantime, during the construction period before the leaseback term begins, the developer will pay you 5% a year until the building is completed.

Why is this developer offering a 10% return when other French leasebacks offer from 3% to 6%? First, the 10% isn't a net figure. Owners will participate in future refurbishment costs equally with the developer. This amount isn't expected to be huge, but it will cut into your 10% yield every five years (the typical period between refurbishment efforts for a hotel). You'll also have to pay a small annual management fee and some insurance. Factoring all of that into the equation, you should expect to net around 9% per year over the 15 years of the leaseback agreement.

At the end of 15 years, you'll have two options. You could continue to own the property, keep it in the rental pool, and receive a 50/50 split of net room revenue going forward. Or you could sell the property back to the developer for 150% of the original purchase price. You have to give proper notification if you want to execute this strategy, but this option gives you an easy potential exit for a guaranteed return.

A third option would be to put the property up for sale on the open market. It's possible that you could resell the property for more than 150% of what you paid for it. You'd have to consider the market at the time to make your decision.

Factor in the 50% profit from the resale at the end of the 15-year leaseback term (assuming you exercise your buyback option), and your annualized returns push into the low double digits.

These one-bedroom and studio apartments can be bought either as complete units or as fractionals. Fractional units start at £9,500 for a 1/26th fraction (two weeks) and £18,500 for a 1/13th fraction for a one-bedroom unit. Studios are offered only as 1/13th fractions at £11,500.

The full unit price is £130,000 for a studio and £200,000 for a one-bedroom. The price includes furnishing for the hotel room.

Note that the pound sterling is up 2% in the last month against the U.S. dollar and is at a high for the last two years. If you're investing with U.S. dollars, this means this investment is more expensive today than it would have been a month ago. However timing investments to currency rates is difficult, and I don't recommend you try. This investment provides decent currency diversification if all your assets are in your home currency otherwise (assuming your home currency isn't the British pound).

Also note that, while your guaranteed return is tied to your initial investment in pounds (as is the 150% buyback), should you decide to keep the unit and participate in the 50/50 net room revenue split after the guarantee period, your currency risk switches from the pound sterling to the euro, as the hotel operates in euro.

Given the level of returns and the standard of the project, this is the most interesting French leaseback program I've found in the 15 years I've been paying attention to and reporting on these opportunities.

The Chateau Cazine is an extraordinary property and is included in the Chateau and Hotel Collection. This is one way that guests looking for unique and interesting places to stay in France will find it. The chateau is being developed as a spa and golf resort, meaning those are two other ways potential guests will find it (when they search for spa or golf properties in France). This will also be an ideal venue for corporate events and weddings.

The local Limoges airport is served by Ryanair from London, Leeds, Kiverpool, East Midlands, and Bristol in the U.K. as well as a couple of low-cost French airlines. Low-cost airline access has opened up many real estate and tourist markets in Europe.

The developer owns the property outright and has no debt. Bundle that with the buyback option, the 15 years of guaranteed returns, and the fact that the hotel is already up and running and enjoying very good occupancy rates, and you've got an investment for which the overall risk is nicely mitigated.

Furthermore, you are not likely to find another leaseback property anywhere in France offering this level of return.

For more details, you can get in touch with the developer here.

Lief Simon

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The first foreign property market I got into was Spain. After driving most of the coast of this country to see what I could see and to learn what I could learn, I met with a developer on the Costa del Sol. This developer had a long track record and had just launched a new pre-construction project the day before I arrived. I met with the developer’s agent, who made his pitch, showed me the floor plans, and answered what questions I thought to ask. I did have the presence of mind to ask to see the site, so we got in the guy’s car and drove to where the apartment buildings would be built.

The site was a stretch of sand with fishing boats tied up in one direction and some restaurants in the other. The onsite sales office was under construction, but otherwise we were standing on a scruffy parcel of raw land in front of the ocean.

Nevertheless, I was sold. The terms of the pre-construction offer were 5% down when signing the reservation agreement and then staged payments of 5% apiece over the two years of construction. This was back before the real estate glut in Spain, when pre-construction purchasing was very much in vogue and lots of people were making money buying and flipping. I wanted in.

Kathleen wasn’t as sold as I, though, when I called her that night from the hotel to say that I wanted to buy one of these units and needed to sign the next day as most of the best units in the first building had already been reserved (remember, the developers had only launched the project the day before I met with them). Kathleen finally, reluctantly agreed, and I signed the reservation agreement the next morning. Then I went in search of a Spanish attorney to review the deal and the developer for me.

Of course, that was backward. I should have engaged an attorney before signing anything. Fortunately, my instinct about the developer was right. The group had a good track record and was part of a large conglomerate in Spain, which meant they had money backing them.

Jumping ahead two years, when the building I’d invested in was close to completion, I got a call from the developer saying they had a buyer for my unit. I’d listed my unit for resale almost immediately after signing the purchase agreement with the developer who, in this case, was willing to re-list units for sale through their sales office. The buyer wanted to move in right away rather than waiting for a unit to be completed in another building, although that would have cost him less. We closed the deal a month before I would have had to come up with the final 50% of the purchase price and close on the condo myself.

I realize today how lucky I got with this. The timing worked out perfectly...meaning no unpleasant conversation with my wife.

If a buyer hadn’t appeared on the scene for me when he did, I had a Plan B. If I’d ended up in a position where I had to close on the unit myself, I could have obtained a mortgage for the remaining 50% of the purchase price. The property was right on the beach, which meant it was part of a limited supply compared with the big volume of cookie-cutter condos elsewhere along the Spanish coast sitting back from the beach. I wasn’t concerned about flipping this property.

I took the plunge, mostly on the strength of instinct and very aware that I didn’t know everything I needed to know about buying property in Spain. I acted on what I believed to be a great deal because it was in front of me when I was ready to act. Could I have found a “better” deal. Probably. Should I have tried? No. If I’d decided to wait and seek out a “better” opportunity, I likely would have missed out on the opportunity altogether.

That’s what happened to a seasoned U.S. real estate investor I met years ago at a conference in the Dominican Republic. This guy had gone to Costa Rica some years before I met him looking for real estate opportunities. He did his due diligence on the country and the buying process and then proceeded to look for deals. He turned down buy after buy as opportunities presented themselves, because he was waiting for the “best” deal.

After four years of looking for the best deal, the guy finally realized that the market has passed him by. Anything he was finding after four years still may have been a good deal, but he had missed out on many great deals.

His conclusion? To move on to the Dominican Republic.

When I met the guy, he had been shopping in the Dominican Republic for two years. After he told me his Costa Rica story, I figured he must have learned his lesson. Surely now, after two years of time and effort, he must have invested in something in the DR. But no, he hadn’t. He was still looking for the best deal.

Had this guy bought anything...and I mean any piece of property with good title...the day he stepped off the plane on his first trip to the Dominican Republic, he would have realized at least 25% and likely closer to 40% appreciation on that investment by the time I spoke with him. The market in the DR had gone up significantly in the two years before my first trip there...and it continued to go up at a good clip for several years after.

What was most interesting to me about this guy was that he wasn’t a novice real estate investor. He owned dozens (maybe more) of rental properties in the United States. He just couldn’t make himself pull the trigger in a foreign market.

Moral of this story? You can’t wait around for the perfect or the best opportunity. Get yourself up-to-speed and put yourself “in the market,” as I like to say. Then allow yourself to recognize a good deal when you see one...

And act on it.

Lief Simon

P.S. I’m hosting a Global Property Summit in April that will educate you on the general concepts you need to know when investing in real estate overseas while also introducing you to particular opportunities that I find most interesting right now. This will be a low-cost and efficient way to get yourself up-to-speed while, at the same time, putting yourself in key markets of opportunity for 2014.

More details are here.

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As early as the 13th century, the Marais began to serve as the heart of Paris’ Jewish community. Today, the Marais is one of Paris’ most trendy and desirable neighborhoods. It is the hub of the gay community in Paris. The Marais is also home to many restaurants, cafés, and boutiques, many of which stay open on Sundays, an unusual practice in France. 

Despite this modernization, the Marais still retains so much of the medieval character that was bulldozed in the 19th and 20th centuries for bigger and better structures in other parts of the City of Light—but thankfully not the medieval smell. The most prevalent smell these days emanates from the numerous seductive boulangeries (bakeries) and pâtisseries (pastry shops). And built on what was once swampland, the land where my Marais apartment sits is not even deemed a flood zone.

Just about anyone who took French in high school has thought, seriously or hypothetically, about moving to France one day. The romanticism of Hemingway’s Paris or "Midnight in Paris" does still permeate central Paris, but it is juxtaposed against a certain reality that is not always as rosy. I speak from experience, as I am an American expat who has lived and worked in Paris for the last six years and who recently purchased property here in the Marais, one of Paris’ most loved neighborhoods. 

What makes the Marais stand out from the other districts of Paris? To live in the Marais is to live in the heart—geographic, cultural, historical, architectural, and social—of this city that is considered by so many to be the ground zero of refined western culture. When you look through those rose-colored glasses at the romantic Paris of literature and movies, the cityscapes in your memories may well exist in the Marais. Take a look too at my video of the Marais, a brief, colorful tour of this beautiful slice of Parisian life.

The Marais oozes culture and history. The neighborhood has an excess of historical sites and museums, including:

  • Place des Vosges, including the home of Victor Hugo
  • The rue des Rosiers and the historic Jewish quarter
  • The Pompidou Center
  • Hôtel de Sully
  • Hôtel de Sens
  • The Cognacq-Jay Museum
  • The Picasso Museum (to reopen after extensive renovations in Spring 2014)
  • The National Archives
  • The Carnavalet Museum
  • The European Photography Museum
  • The Hôtel de Ville (including temporary exhibits)
  • The Memorial of the Shoah
  • The Museum of Jewish Art and History
  • The Museum of the Hunt and Nature
  • The Agoudas Hakehilos Synagogue
  • The Nicolas Flamel and François Miron historic houses

If you expand the list to include other landmarks within a 20-minute walk, you can add Notre Dame, Sainte-Chapelle, La Conciergerie, the Pantheon, the Louvre, and countless more. 

For access to the heart of Paris, there is no better location...

Abby Gordon

Editor’s Note: Abby Gordon’s complete and fully illustrated guide to expat life in the historic heart of Paris, including a detailed budget for the cost of living in the Marais, is being featured in this month’s issue of the Overseas Retirement Letter, in production now and due in subscribers’ e-mailboxes next week.

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I grew up in the countryside, but a year in Manhattan taught me to appreciate the fun and convenience of life in a big city. I enjoyed having great dining and entertainment and all the amenities of city life at my fingertips, without having to own a car. While I couldn't afford a part-time retirement home in Manhattan, I could come up with the funds to buy one in another city that really appealed to me—namely, Montevideo, Uruguay. 

Located directly on one of the city's most attractive parks, living here we were an easy walk to the local tango clubs, orchestra, theater, street fairs, and some of the city's best dining. A spacious apartment with two bedrooms, it was a great place to live and a great place to invite guests...and it even earned rental income when we weren't using it.

Again, this apartment was fulfilling a dream. It was not an “investment” property. But after about four years we sold the downtown apartment, in just one day, for 76% more than we'd paid.

In the 13 years since I retired, I have enjoyed some of the world's best locations for retirement, some full-time, some on a part-time basis. For almost six years, my primary home was in Punta del Este, Uruguay, South America's #1 beach resort. With its fantastic beaches and fine dining and nightlife, it's a mecca for international travelers and offers a super quality of life for the money. 

Since retiring, I have also enjoyed a part-time home in Ecuador's Valley of Longevity. With pure air and water, the world's best weather, and some of the Andes' most staggering views, Vilcabamba is reputed to have more people over 100-years-old than anywhere else on earth.

The house in Uruguay went up 87.5% in value in six years (during the U.S. recession and housing crash)...and in Vilcabamba the home I purchased increased in value 120% in four years.

Today the apartment I purchased as a part-time home in Medellín more than pays for itself, paying me US$2,000 per month in rental income when I'm not in residence. 

In addition (and this is where I think this gets very exciting), each real estate investment I’ve made has helped to bank roll both my next real estate purchase and, in the meantime, the very appealing and adventure-filled retirement I have been enjoying with my wife all along the way.

Collectively (and this is not over-stating the fact), these purchases have enabled the amazing retirement that I've enjoyed. Prior to looking overseas, the lifestyle I enjoy today simply was not within my grasp. By reinventing my life overseas as I have, I've been able to take advantage of some of the best opportunities that the world has to offer, and I am enjoying an enviable new life as a result.

Although, in my case, if I’m honest, it wasn't always easy. I had to learn a new language and explore a number of new countries on my own. I had to unravel the local markets and try to discriminate a good deal from a bad one. I had to find good legal support and to try to separate the crooks from the good guys in far-flung real estate markets. To be honest, it took me years of travel and investigation...because no resource existed to help me.

And, in some ways, I was just plain lucky the way things turned out.

This is why I was so happy to work with Lief Simon and Kathleen Peddicord to create the first-ever Global Property Summit. During this all-new, one-of-a-kind event, Lief, Kathleen, and I, along with several dozen experts and real estate pros from around the world, will introduce you to the world's best property markets while, at the same time, arming you with everything you need to know to take advantage of everything they offer right now.

This is perhaps the best time in our lifetimes to be investing in real estate overseas. Key markets are rebounding, and opportunity is being created in real time.

Full details of the program we have designed are here.

Lee Harrison

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Kathleen Peddicord

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.

Read more here.


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