I Do, I Don’t, Maybe I Want To Rent My Condo?

When a client is considering purchasing a condominium in a Panamanian beach community, the question of renting is always part of the discussion, especially if they are not planning on living in the unit full-time. Buyers believe they are either purchasing only to rent, they never plan on renting or they aren’t sure if they want to rent but are open to the possibility. All three options are valid, but I am quick to caution buyers to do their research, be realistic and know that the renting option should generally stay on the table.

It’s An Investment

For clients who are purchasing to rent, I caution them to look at the condo as nothing more than an asset in their overall portfolio. It’s an investment. There is no need to pay extra for a high floor and a better view, because a floor somewhere in the middle will rent just as quickly and will cost less initially. Make it two bedrooms and at least two bathrooms because families come to the beach. Know what renters look for and let that guide the decision. It basically doesn’t matter what the purchaser might prefer, because they are not the consumer.

If a client is buying to diversify an investment portfolio and establish a passive income flow, they must do the math. Remember all those little things that add up and cut into the profit. It’s not just the management fee (about 15%), but also the Home Owner’s Association (HOA) monthly fees, insurance, maintenance, property tax and a contingency fund for a possible eviction. Who will provide the cable? The utilities? What does the competition offer? Does the management company include cleaning? Most rentals in Coronado include the use of a local cell phone. To be competitive, so you’ll need to consider providing a phone.

Factor In The Paint

If a client is buying in a beach community, I remind them it will be easier to rent on a short term basis and people looking for a year-to-year contract will be harder to find. Short term renters mean a lot of wear and tear on the property. You should add in more for maintenance and frequent painting. Beach renters want to have access to the golf course, the beach club and the tennis center so don’t forget the dues to the club which provide all of those amenities.

Remember to figure in vacancy because short-term rentals by the beaches in Coronado are largely seasonal (Dec – April). How long has the management company been in business and do they have a list of regular renters who will be looking for a four month block of time or more renters in the off-season? The good news is that when it’s high season, the condo will command a hefty rental price and an almost guaranteed renter because there simply isn’t enough inventory. I suggest knowing what the costs are going to be for the year and then covering that amount during the four or five months of prime rental season. Any off-season rental income is gravy.

Diversifying Wealth Is Attractive

Property values in Panama have been going up steadily, but it is important to remember any property market can be volatile. That is why diversifying wealth is attractive. The stock market can also be volatile. Don’t expect to buy a piece of beach property and build equity immediately. Equity is built over several years.

Figure if you will need to carry a mortgage on the property, what the interest rate will be and how much you will need to cover that monthly payment. If the property can be purchased outright, then consider what the income flow will be and how that should be reinvested. Another rental unit?

The attractive part about purchasing in Panama is that there are many positive factors that contribute to the high possibility that your property investment will be a good one. In Coronado, HOA fees are very low (average $200/mo), a club membership is often included in the price and the government currently has a property tax program which provides for up to 20 years’ of exemption. It’s hard to beat all that.

The Baby Boomers Are Here

There are also millions and millions of Baby Boomers in both the United States and Canada who are looking to retire overseas. Panama is almost always ranked among the best places to retire and people want to take a few test runs before buying a property. A nice rental is the best way to dip a toe into the water.

I believe renting should always be considered a possibility, unless the client doesn’t need to worry about financial ramifications. I’ve had lots of clients tell me they never want to rent their home and then circumstances change and they immediately want to be in the rental mix. Health challenges, the changing needs of children or a business setback are just some of the reasons which turn an owner into a landlord.

There are several good management companies who handle beach properties in Panama and that makes it much easier to be an absent owner. Buying a condo for rental, as opposed to an individual residence, is almost always the best option simply because the building is constantly being maintained and occupied. People are around and a broken pipe is quickly realized.

Putting The Puzzle Together

Putting the pieces togetherMany clients want to purchase a unit ten years out from retirement, rent it for the ten years and build equity, cover the cost of the purchase and then assume occupancy when they retire. All the rental rules apply, except they might want to go ahead and get on that high floor, with the number of bedrooms they will ultimately need. It’s all about putting the puzzle together.

Utilizing Years In The Business

One of the things I enjoy most about working with individuals who are looking to purchase property in Panama is that I can listen to their needs and then quickly formulate a plan that checks as many of their “needs” as possible. I like the challenge of making things work and ensuring a solid long-term investment. Most of the individuals who come to look at property have already worked out many of the details, but I don’t want them forget something that will cost them in the long run. That’s what years in the real estate profession gives you. Experience, lots of good contacts and answers to the questions.

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