April 23, 2009
Panama City, Panama
Dear Overseas Opportunity Letter Reader,
“I haven’t paid much attention to rental investments throughout my real estate investing career,” explained a reader who contacted Lief recently for advice.
“But I’m interested in understanding current opportunities worldwide right now, because, in the current climate, a reliable 5% net annual yield sounds pretty good.”
Here’s Lief’s counsel:
“There are no ‘golden markets’ anymore…no place where you could buy almost anything and do well. Those days are over.
“Look for markets with tourist track records. Paris. The Algarve. Places that will attract visitors even while times are tough.
“Second, understand who your end-buyer would be. This helps you to put the acquisition into perspective. The French leaseback, for example, is a great hassle-free rental investment in the world’s top tourist destination (France). But it’s an investment. You aren’t going to live in a leaseback unit (no more than maybe several weeks a year)…and neither is anyone else. So your buyer, when you’re ready to exit, will have to be another investor.
“On the one hand, this limits your potential universe for selling on. On the other hand, investors are always going to be looking for ways to own French rental units.
“Meantime, an apartment in Paris (or Buenos Aires or Panama City, etc.) could, theoretically, eventually be resold to another investor…or to an end-user…someone interested in residing in the city.
“Third, consider inventory supply and demand. The Costa del Sol, for example, is ridiculously over-supplied.
“The key consideration, though, when looking to buy to let overseas is the rental manager.
“You can act as your own rental manager, but I don’t advise it. If you’re not residing physically in the same place as the rental unit, I say definitely don’t do it. I’ve had 15 years of investor landlord experience in more than a dozen countries. This isn’t something you want to take on yourself, unless you’re prepared to make it your full-time occupation.
“Engage someone who knows the market, who has marketing infrastructure in place, who has developed a client list you can leverage, and who can show you proven management systems (for reservations, for inventory control, for reporting, etc.).
“Our first apartment investment in Paris rented extraordinarily well the first year. However, the rental manager spoke no English and was perpetually late with reporting. So we switched to another manager, an American. Yes, he spoke English (though, by this time, it didn’t matter so much, because we’d learned to speak French), but he, too, was perpetually late with reporting…and, more to the point, he got us less than half the occupancy we’d enjoyed the year before (though the market was stronger and tourism figures were up).
“When you make a rental investment, you’re choosing, first, a market; next, a rental manager; and, finally, a property. Before you make a particular buy decision, seek advice from the rental management agency you’re planning to work with. What’s more rentable? Two bedrooms…or one?
“What matters most to would-be renters? Location, of course…but other, less obvious things can be critical. In Paris, you’ll struggle to make a decent return off a fifth-floor rental in an apartment building with no elevator.
“I don’t recommend long-term unless you’re well familiar with the market and have a rental manager who really knows what he or she is doing. In many markets, it can be difficult to evict a long-standing renter.
“When we made the decision to rent our Paris apartment long-term, we interviewed potential rental managers. The one we chose impressed us because she made a point of telling us, with a voice of long experience, to whom she would not rent.
“‘We won’t rent to such-and-such people, because they throw wild parties.’
“‘ We won’t rent to so-and-so people, because they don’t respect other peoples’ property.’
“In some contexts, her positions might be termed discrimination. We saw them as risk management.”
P.S. Lief adds: “Rentals won’t make you rich, but they can provide solid, reliable returns in the range of 5%+/-. Leverage can take this into double digits. I’m netting (after all associated costs and expenses) more than 20% a year right now, cash on cash, from a leveraged rental I own in Panama City.
“Again, this is not typical…but possible, if you buy at the right price and with leverage.”
“So are you ready for the election?” asked the driver who collected us from the airport in Panama City last night.
“Ah, right, that’s just around the corner now, isn’t it?” replied Lief.
“Yes, and it’s pretty certain that Ricardo Martinelli’s going to take it. And now that the PP [Partido Panamenista] party has allied itself with him, he’ll have a majority in the legislature.
“This will be very good for the country,” our driver continued. “Mr. Martinelli is a businessman. He’ll help us to continue to grow.”
Panama’s presidential election will take place May 3.
Eleven days later, we’ll convene our Premier Live & Invest In Panama event (May 14-16). Join us, and our Panama experts will help you understand what this country’s new president could mean for you as a retiree, an investor, or an entrepreneur in this country.
Reach Conference Director Stephanie Valencia here with your questions: SValencia@LiveandInvestOverseas.com.
My favorite colonial city in the New World, Granada, Nicaragua, is featured as the month’s “Hot Prospect” in the May issue of Conde Nast Traveler.
“Founded by conquistadors in 1524, Granada is one of the oldest cities in Nicaragua–and in all of the New World. For centuries, its strategic lakeside setting tempted pirates and even foreign occupiers. Today, a new generation of adventurers is putting a fashionable spin on this historic Central American destination.
“Nicaragua’s historic enclave,” the Conde Nast report continues, “is having a moment. Granada is on the cusp…”
On the one hand, I couldn’t be more delighted for this charming, romantic jewel of a city.
I can think of few places that deserve the attention more.
On the other hand, Granada is the kind of place you want to keep to yourself as long as possible.
Alas, I’ve known since the first time I laid eyes on her 15 years ago that this special city would eventually make global headlines.
Meantime, I’ve tried to make sure that you, dear reader, glimpsed Granada’s many charms before word spread too far:
- Falling In Love With Granada All Over Again
- The Paris Of Central America (OK…maybe the Paris metaphor is a little extravagant…blame it on the Flor de Cana rum)…
- Living The Dream In Colonial Granada
“I just bought your manual on Panama. So many choices…
“What do you suggest?”
— Judd B., United States
Big question, dear reader…and I’ve run out of time for today. I’ll mull this over overnight and do my best to provide some guidance in the morning.