How To Shop For A Rental Investment In Panama City
I’ve recently been elected to the board of directors for the owners association of a building in Panama City where I own an investment property. When they approached me about the idea of running for the position, I said, sure. It seemed like it might be fun.
Fun probably isn’t the word. Maintaining a 27-story building is a lot of work. Everyone has his pet peeves and grievances. We listen to them all, meantime spending not an insignificant number of hours each week trying to keep all things in the building functioning, maintained, and constantly improving.
The board president works probably 80 hours a month at this. I hope he’s having fun. And I hope all the owners in the building appreciate his efforts.
Because, looking around the city, I can tell you that not all condo owners are lucky enough to have someone like him.
One building I know, where a friend has invested, has no working elevators. A recent advertisement for an apartment for sale on the 14th floor of this building tried to make the best of the situation. The ad read, “No need for a gym membership when you live here.”
The price was attractive and reflected the lack of elevator access. The problem is that, eventually, the elevator will have to be replaced. This will trigger a special assessment on all owners in the building.
This isn’t uncommon. If the cash flow from the regular monthly building fees isn’t enough to cover both the costs of operating the building and of required maintenance and necessary improvements, well, the money has to come from somewhere.
Or not. And this is the risk. If owners aren’t organized and working together, under leadership like that of the guy currently serving as president of the building where I’m serving on the owners board, then, likely, you’ll never be able to get the consensus you need to execute special capital calls.
You’ll never be able to get the agreement you’ll need to increase the amount of the monthly building fees.
You’ll never be able to obtain the required consensus for investing in repairs or improvements.
The bottom line result is that the public areas and amenities in the building will deteriorate.
I make this point because the condo market is growing ever-more-competitive here in Panama City. If you bought a condo in this town as a rental investment or if you’re shopping with the thought of buying one now, this is an important point that may not occur to you.
Don’t only shop location, building, and price per square meter. Shop building management, as well. Ask about the building association and to see the related documents, including minutes from recent association meetings and financial statements for the building fund.
Years ago, shopping for our first rental apartment investment in Paris, a friend made a recommendation that I probably didn’t appreciate enough at the time.
“Try to find out if any big improvements are planned for the building within the next year or two,” he told me. “Are they going to add an elevator? Clean the building façade? Relay the cobblestones in the courtyard? Fix a leaking roof?”
Why? Because these are extraordinary expenses. That will have to be paid for by a capital call on all owners. To avoid surprises in your first years as an owner, try to find out what kinds of works are being discussed.
In France, the syndic, or building management association, is a legal entity with a lot of teeth. If your syndic tells you that you have to pony up an additional 2,000, 5,000, or even 10,000 euro to cover repairs or improvements to the building, you have no choice but to comply.
Well, you can choose not to comply, but the consequences are severe.
In Panama, on the other hand, building associations are haphazard and mismanaged. Sometimes they exist in name only. If the owners don’t pay their monthly building fees, what are the building managers going to do?
In any given building in Panama City, you have a percentage, sometimes significant, of absentee owners. Foreigners who bought the unit as a speculation or a rental investment. They’re in the States or Canada or Germany or Venezuela. How is the typical ad-hoc and mismanaged management team in Panama going to chase them down for their US$150 a month?
We’re seeing the result of this reality in many buildings right now. Broken elevators, faulty plumbing, ill-maintained swimming pools, uncleaned social areas…
What’s your rental apartment worth when the building where it’s located is falling down around it? What’s your rental return going to be long-term?
At the building where I’m serving on the board, we’ve set a goal: We’re going to make our building the most appealing in the city overall. It’s going to be the building that people talk about. We’re going to maintain all current amenities at a high level and add new ones every year.
This is how we hope to retain our foothold (and our impressive annual yields to date) as this Panama City rentals market grows ever more competitive.
Thanks to the building management team and, especially, president, we’ve got the support of all owners. We’ve got a good amount of capital set aside for improvements over the coming 12 months. And we’ve got nearly 100% pay-up each month for building fees.
If the building management where you’re shopping won’t share these kinds of details with you, shop somewhere else.
Lief Simon
