Most pre-construction proposals that pass our desk aren’t worth the glossy paper they’re printed on.
At this week’s Live and Invest in Panama Conference, we looked at a pre-construction opportunity in the western countryside of Panama that is a shining exception to this reality.
This project stands out from the pack thanks to a low capital requirement (less than US$50,000), a quick build time and return (13% in 12 months), and a high-demand market (the waiting list is more than 400 buyers).
Right, this is not your typical pre-construction project… and, to be fair, I’d categorize it more as a hard money loan.
That’s because the play here is an investment in local housing…
So instead of living in one of these modest homes, you’ll be collecting a 13% return after 12 months.
Before we get to the details of the investment, however, first we should clarify the product.
What do we mean by “local housing”?
The rapid expansion of Panama’s working class is causing the lower end of the local real estate market here to burst at the seams…
This little country at the moment has a remarkable housing deficit of 150,000 low- and middle-income homes… 20,000 of those homes are required in the city of David alone.
Sensing the opportunity, a developer is targeting this housing shortage in David, the capital city of Panama’s second most developed and populated (about 500,000 people) province, Chiriquí.
Incredible Demand: 400 Buyers Pre-Approved And Ready To Buy
The developer is building single-family homes in a new, master-planned community that qualify for the government’s preferred interest program. That means local buyers have access to preferred interest rates subsidized by the government.
The developer already has 400 buyers pre-approved and ready to buy, meaning the sales side of the equation is taken care of.
Furthermore, the developer already owns the land and has all permits in hand. Now he needs investors to fund the construction.
As an investor, your money will go toward building the homes, with your return coming from the resale of the houses to the end users.
That return is paid out at a fixed rate of 13% at the end of
You’re essentially pre-buying a housing unit that the developer will resell for you at a guaranteed rate of return.
Once investor funds are received, the developer will immediately begin building the house. Construction takes between six and eight months to finish.
What About The Risks?
The developer has over 40 years of experience in construction in David, from the city’s public hospital to its gas stations, so the necessary systems and know-how are in place.
Investment funds are held in escrow and released only as construction of the unit progresses. As an investor, you have the house and lot as collateral. If for some reason the developer doesn’t sell the house, then you can take possession of the house yourself and sell it through a local agent. (Obviously, that’s not the goal, but the security of the property is there for you.)
With everything in place, why does the developer need investors? Why not go to a local bank in Panama for a construction loan?
It would cost more and the developer wouldn’t have as much control over his business if he worked with a local bank for funding. More importantly, banks tend to withhold the full amount of a construction draw, even for simple things outstanding on the punch list. In other words, the developer wants to avoid the bureaucracy of dealing with banks.
With 400 buyers already pre-approved, the likelihood that your unit will not sell is low. Beyond that 400-strong waiting list, remember that the housing shortage in the area comes out to 20,000 homes.
The Clincher: Low Capital Cost And Guaranteed Returns
You can participate starting at just US$49,000.
Assuming that your home is sold within 12 months, your initial investment will profit a guaranteed 13% annualized return.
If it takes more than a year to sell your home, then you’ll be due penalty interest of an additional 10% per year until your home is sold.
It should be noted that, even if your home is sold in within, say, 15 months, you’ll still be due the 13% fixed plus the 10% penalty.
That’s an overall ROI of 23% within 24 months.
It’s a significant bonus, and it goes a long way in showing just how much confidence the local developer has with this project.
I think you’ll agree with him…