The Truth About Investing in Panama City
Date: 04/25/2008Saturday, April 26, 2008
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As world real estate markets settle out from years of rapid appreciation, rental yields are one way to continue to diversify your property investment portfolio.
Net yields around the world average between 5% and 8% a year, both for long- and short-term rentals. That is the cash flow you can expect after all direct expenses are accounted for. On top of your rental yield, you should also see appreciation of the property, which adds to your total return. Still, when you are shopping for a rental property, you want to focus on the potential rental returns and view any appreciation as gravy.
One market many are overlooking right now for rental investing is Panama City. Property prices in Panama City have been bid up for the higher-quality new construction that continues to be built for the foreign market. Still, rental yields are extremely high right now. Today, a one-bedroom apartment in a new building overlooking the water can yield more than 10% net based on the current value of the apartment...almost 16% based on the purchase price. The short-term occupancy rate is well over 80%, due to the shortage of hotel space in the city right now. There is also an influx of people moving to the city who need furnished apartments while they look for longer-term solutions.
No one can say, of course, how long these high yields will hold up in Panama. In the next few years, Panama City will see many new apartments and hotels spring up. This could push yields down to average or even below. However, I’d say that the risk of below-average rental yields is years away, and, if tourist and retiree demand continues to increase at the rapid pace it has over the last few years, the short-term rental demand could, in fact, remain high indefinitely.
Another high-yield rental investment destination right now is Boracay in the Philippines, where you can buy a condo-hotel apartment for as little as $100,000 and expect a net yield from rentals in the 10% to 12% range. Again, that will change as more units are built, but, in this case, early investors should be rewarded with good capital appreciation as the market develops and later investors bid up prices and bid down yields.
This island is being developed as a resort destination. With the current supply-demand curve in the investor’s favor, the risk-reward ratio looks very good.
You'll find an average rental return right now in Lima, Peru, and Bratislava, Slovakia.
In Lima, a client recently bought a pre-construction apartment overlooking two parks and the ocean. He paid $1,200 per square meter, and he’s expecting a gross rental yield close to 11%, which should translate into a net yield of 6% to 7%. And considering that today’s prices in the same neighborhood for finished construction are as high as $1,800 per square meter, he’s expecting good capital appreciation along with his rental income.
In Bratislava, you could buy pre-construction for as little as €2,000 per square meter...more for high-end older buildings...less in less desirable neighborhoods. Gross rental yields are in the 10% range, which puts net yields in the 5.5% to 6% range. The draw of Bratislava is that it is very central. It sits between Vienna, Prague, and Budapest...all of which are much more expensive cities.
The key to success with a rental property is the rental manager you use. You want to make sure that he has the marketing capacity to keep your apartment rented...and insist on regular reports and immediate notification regarding things like repairs or tenant complaints. A good rental manager will be able to get you a good return on an average property; whereas, a poor rental manager won’t get you an average return on a great property.
Lief Simon
For International Living
P.S. This June, in Cancun, Mexico, I will be hosting my Second Annual Global Real Estate Profits Summit. Over the two days of this event, I will bring together 13 of the world’s most experienced and successful global property investors, developers, and players, all with a single objective: to show the 100 select investors in attendance where to put their international real estate investment capital right now to reap the greatest rewards possible. We will detail 13 hot markets and 15 current opportunities with the potential for double-digit returns…or better.
Read related articles:
- Never Trust Your Overseas Real Estate “Friend”
- Save Over $100,000 on Property at Panama Auctions
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