Shopping For A Beach Rental Investment—Nicaragua Versus Panama
One of our Personal Consulting clients got in touch this week. Lief and I have been working with this client for some months, helping him to consider options for where he might plan for his eventual retirement overseas. This week, though, he wanted to speak about a new agenda. He has a lump sum of capital that he wants to move out of the States.
But where to put it?
Here are his criteria:
- Someplace safe…he’s looking for a long-term safe haven…
- In a real asset…specifically, he wants to invest the money in real estate…
- At the beach…he wants his real estate to come with an ocean view, believing that, generally, coastal property holds its value better than the alternatives…
- To generate a yield…he’s hoping to identify a market and an investment that will allow the capital to throw off a reasonable annual yield…
He’s clear in his objective. This is an investment. Completely separate from his retirement agenda. That’s a critical first step.
Step number 2 is identifying markets of interest. He had three in mind when he got in touch: Ecuador, Nicaragua, and Panama.
Lief and I recommended against Ecuador. On a list of long-term safe havens, we’d put many other countries above Ecuador. Same when it comes to yield. Ecuador’s coastal rental markets are unproven at best. We don’t believe that, investing in a rental house or condo on the coast of Ecuador, you’d have any reasonable expectation of enjoying a reliable return, not short-term and not long-term either.
This got us to: Nicaragua versus Panama. Lief and I are both big fans of both countries, for different reasons.
Nicaragua, pluses and minuses:
The coast of this country is drier than most of the coast of Panama. That is, you enjoy lower humidity most of the year. Nicaragua boasts more and better preserved remnants of the colonial era in this part of the world. Granada and Lyon and classic colonial cities, and Granada is one of my favorite cities in the world. Nicaragua is cheaper across the board than Panama. You could live most anywhere in Nicaragua on, say, US$1,200 a month or less. In Panama, that’s possible still but only in more remote regions. Certainly not in Panama City or Boquete.
Perhaps the big plus for Nicaragua in the context that our Personal Consulting client was discussing is that the cost of this country’s coastal real estate can be dirt-cheap right now. Nicaragua’s has been as hard hit by the downturn of the past few years as any real estate market I know. Some contacts in the country indicate early signs of a recovery. Maybe the country is turning a corner, and 2012 will see some growth in values.
But our consulting client isn’t as interested in appreciation as he is in immediate and reliable yield. Tourism figures for Nicaragua are reported up in 2011 (over 2010), but this remains a struggling market. And a not insignificant percentage of its tourist trade is still at the backpacker level. In other words, if you’re shopping for a rental investment with the potential to earn you a reasonable, reliable yield immediately and over the long haul, this wouldn’t be my first pick.
Panama, pluses and minuses:
While Nicaragua has decent infrastructure in Managua and (depending on your perspective) in Granada, Panama has better infrastructure across the country, and Panama City is the most developed country in the region (no other city compares). Panama has better and more banking options. (Before you write in to tell me this is no longer true, since Panama signed the Tax Information Exchange Agreement with the United States in 2010, note that I didn’t say Panama is a haven for banking secrecy. It’s not. But that’s not the same thing as being a developed international banking center. This Panama is.)
Panama is also a better place to set up an offshore corporation and the best place in the world today to operate an Internet business.
More to the point in the context of our discussion with our consulting client this week, Panama has a far more active real estate market than Nicaragua, a market that is not nearly as dependent on U.S. events or U.S. buyers. Panama’s market is made by Americans, yes, but it’s also made by Venezuelans, Colombians, El Salvadorans, Guatemalans, Germans, British, French…you get the idea…and, increasingly, by the Panamanians themselves, as this country’s middle class continues to expand at a dramatic rate.
Prices for beachfront houses and condos are higher in Panama than in Nicaragua, but you’re getting more for your money in terms of market stability and outlook. And it is possible still to buy a well-located, full-amenity beach condo within easy commuting distance of Panama City for less than US$200,000. Not super cheap but not out of the reach of the small individual investor.
And, getting to the heart of this discussion, your chances for enjoying a reliable yield of 5% to 10% net per year, immediately and long term, would be significantly better with that Panama beach condo than with anything I could imagine you buying anywhere in Nicaragua.
Also, you can borrow locally as a foreigner for the purchase of real estate in Panama. You cannot in Nicaragua.
And your options for being able to resell your beach investment property when you decide you want to would, again, be markedly greater in Panama than in Nicaragua.