There is much more demand for the short-term rentals at this time, particularly in the 1 and 2 bed apartments, With 3 bed places it is a toss up to go long term or short term. We also offer a cross that includes all utilities except Electric. This way we can market Places as long term or short term for the best returns. On 1 and 2 bed the full service is usually the best option on 3 bed places it has to be determined based on each individual apartment but overall the long term is often the best options unless you want to use the apartment for a couple months each year. Apartments in the full service market do cost more because everything has to be top condition and they have to be nicely finished and furnished, Therefore your up front cost is higher. See the table below for a comparison of all costs and profits of short term full service apartments (ST) and Long term rentals (LT)
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| Short Term Vs Long Term profit analysis on Apartments |
| Inc/exp |
One Bed |
Two Bed |
Three Bed |
| |
ST |
LT |
ST |
LT |
ST |
LT |
| Gross Rent |
1295 |
600 |
1985 |
885 |
2985 |
1800 |
| Electric |
145 |
|
250 |
|
375 |
|
| Building |
115 |
125 |
140 |
140 |
200 |
200 |
| TV(basic 3-Internet (512K) |
65 |
|
70 |
|
70 |
|
| Phone (Blocked local calls only) |
20 |
|
20 |
|
20 |
|
| Management |
240 |
60 |
400 |
90 |
550 |
|
| Tax and Other |
75 |
75 |
140 |
140 |
250 |
250 |
| Total Monthly Expenses |
660 |
260 |
1020 |
370 |
1465 |
630 |
| |
|
|
|
|
|
|
| Vacancy Rate 10% |
130 |
60 |
200 |
90 |
300 |
180 |
| |
|
|
|
|
|
|
| Net Monthly income |
505 |
280 |
765 |
425 |
1220 |
990 |
| Net Annual income |
6060 |
3360 |
9180 |
5100 |
14640 |
11880 |
| |
|
|
|
|
|
|
| Difference long term vs short term |
2700 |
|
4080 |
|
2760 |
|
| % difference |
80% |
|
80% |
|
23% |
|
|
| |
Management is full service with short-term rentals. Management fee for short term is 20% of gross rent. Net numbers I gave above include this expense.
On full service long term rentals Management fee is 10% of gross rent.
On standard long term rentals the management is 50% of the first months rent plus 7% of the gross rent administration fee.
I have attached a management contract for you to look over.
2. Location
For location the down town city area is the best. I have attached a map with the best area circled. This is particularly true in the short term market. You want to consider the size of the market your rental will be attractive to. If you go too high end the volume of market available to rent the apartment goes down and vacancy goes up. Also the risk over time goes up because during any slow downs the upper end market always gets hit the hardest. I feel it is best to invest for the mid upper end. One thing to note is that the Panama market is different then the US market as there are two markets. The local market, which is stratified into up end and lower end with a small (but growing middle class) and the foreigner market which falls in with the upper end of the local market. Our focus is the foreigner market and the mid-range to upper end of this market. I feel the mid range of this market gives you the best and safest return on investment. For the down town I have attached a list of buildings and prices that you can find. This is just a sample so that you can get a feel for the market and what I would recommend for investment. I would in no way limit it to just these buildings but would try to stay in the area on the attached map. Your rental return on investment will be about 5% to 7% from rental income to start, and appreciation of building values plus increases in rent over time will add another 3% to 7% return to your equity value over time. So your overall return will be about 8% to 14%. Of course as Panama is starting a boom that could last a number of years your appreciation can be better particularly if you buy real estate that is undervalued to start with. So it is possible to get a nice 50% appreciation boost over the next couple of years similar to what has happened in the US over the last 5 years. But this ultimately has very little effect on your take home form rental income. Overall real estate investments are better if you think of it as a long term investment and these big booms are more of a hassle as they hinder a steady reliable investment plan. (but are nice when you are on the right side of them) Advantage of Panama is that you can still buy value real estate that has a decent rental return. For locations like Clayton it is a little more difficult, one factor is the size of your investment portfolio. There is more safety in having a few rentals to smooth out the income. You can still buy houses or duplexes in Clayton for$100,000 to $150,000. The long term rental market out there is very soft at this time. As the canal expansion comes on line I believe that demand in that area will increase. If I were to chose one rental property I would tend to stay in the city area. Also if looking in the Clayton area I would tend to get one of the nice places outside of the club that one can get for say $125,000 then spend $40,000 fixing it up and for $165,000 you would have a place that you could rent long term for 1,200 to 1,600. In the short term market you may be able to get it up to $2,600 but your expenses do go up a good bit. Purely short term the down town area does better. In Clayton I think the longer term market is going to be better at this time. Even with the Canal expansion a lot of the people will be looking to rent for 1 to 5 years.
3. What condition and furnishings are needed for the short term market? The apartments need to be in top condition, well located, fully furnished and with all services. A business center with computer and printer and high speed internet. Quality furnishings and appliances. If you go too cheap the stuff will fall apart and you will lose all the advantage of short term rentals in repair bills. The size of the apartments has to be adequate. If you cannot not comfortably fit a Queen Size bed in the bed room with rm for a dresser and to walk around the bed then it is not a bed rm. A number of the apartments here in Panama have bed rooms that or more the size of a closet. This will not work in the international rental market. I recommend a king bed in the master bed room and preferably a king in all of the bed rooms but a minimum of a queen. I have attached our shopping list for a two bed apartment so you can get an idea of what we purchase and where.
4. What size of apartment is best for the short term market?
One bed 70 to 100 m2
Two bed 110 to 130 m2
Three bed 140 to 180m2
Too big and it will cost more to buy and maintain but without much increase in rental return. To small and it will not meet the expectations of the international market.
5. Why invest in Panama?
Panama has proven to be a great place to invest. The canal expansion is going to keep the rental market going very well for the next 10 years. There is also the oil refinery which is actually a bigger project then the canal (6.25 billion) going in. Panama also has some of the biggest copper reserves in the world and the mining companies are starting to explore those. Tourism is just starting in Panama, and the baby boomers are moving down here in large numbers. So the overall future of Panama is very good. I believe Panama is therefore a great place to invest. Where and how are very important factors. We can manage your investment portfolio here in Panama, and manage any real estate you invest in. Return on your investment is very much in our best interest as we would have you as a long term client and earn our returns over the years of working with you so want to put you in investments that will serve your needs over the long term. Panama Casa is just one aspect of our overall investment services. I started investing in Panama and started Panama Casa because there was not a quality management company in Panama. I have been involved in investments and real estate in the US for 20 years prior to investing in Panama. Our focus is return on investment both short term and long term appreciation.
6. Things to note in the Panama rental market and rental rates and returns costs:
There is a lot on inventory in the market and coming on line. Many of the new buildings are over priced as for as longer term rental investments go. With real estate there is speculative investing and value investing. For speculation buying the preconstruction buildings and selling just before completion can work very well in an upper ward moving market. But the more it moves up the less value and the more speculation (i.e. risk) is in it. Construction costs in the city are around $800 per m2 depending a bit on location and land value. So $1,000m2 to $1,200m2 would be a normal price and I anticipate the building boom will last until prices settle in someplace closer to that. Location on the water front can go higher as it is limited in the supply. But with prices going as high as $4,000M2 and a lot of stuff now going for $2,000 to $3,000 I feel the risk is a bit higher. I there for like the older buildings that you can purchase for $700 to $1,000 M2. They often need to be remolded, which can cost around $300 m2. That includes new AC, new double pane sound blocking windows. new tile throughout, kitchens and such. So that gives you a brand new unit inside at $1,000 to $1,200 m2 and it will rent for the same as the new buildings. With the older buildings you can get really prime locations and often they have bigger rooms. In some of the new places such as Mystic Point you cannot even fit a queen bed in most of the bed rooms. The windows are not double pane you still have to put AC, curtains and such in after you buy them so can easily spend $5,000 fixing them up after you buy them. Furniture will run about $6,000 for a one bed (this includes appliances) and about $2,000 per additional bed room. So a 3 bed place is about $10,000. One thing to note is that furnishings are about the same or actually a bit more expensive in Panama verses the US. So over all you can buy close to twice as much in the used building market as the new building market. It does take a bit more work to acquire the well located used buildings as there is no MLS here in Panama. Realtors prefer to sell the new construction as the they are easier to find and have an inventory of them, the developers pay the commission right on time and are generally easier to work with then individual owners in Panama. But the return on your money will be better with the used building market and the lack of an MLS does lead to opportunities in the second home market that you will not find in the new construction.
7. Taxes in Panama
Panama Government has taxes and does enforce them. All income derived from within Panama is taxable as income in Panama, Rental income falls into this category and is therefore taxable on the NET income.
All entities that own and rent an apartment are required to present a Rental Declaration for operations as you are receiving income from doing business in Panama. Each apartment that we manage is required to have Receipt Books with your name or your company name and RUC (Tax Identification Number). This will be filed in the reports, and will be the bases for the income received from rent. Panama Casa will obtain receipt books that meet the government requirements for each of our owners as a part of our initial start up package. If you own the apartment in a company you will need a Panama Tax number and a commercial license for doing business in Panama. (Panama Casa or your lawyer that sets up the company can help you with these things.) The tax rate for corporations is 30% from dollar one of Net income, which is higher then the tax rate for individuals which is tier. For an individual there is no tax on the first $9000 of net income then it slowly goes up to 27% for all income more then $30,000. If you own the property in your own name you will not have any of the expenses of corporate ownership and you only need to get a tax ID number which is pretty easy and Panama Casa can help you with this. (There is a $50 service charge to take you through the procedure of getting a Tax id number in Panama as an individual)
Example: If you were to own two apartments that have a Net income of $11,000 per year. If you own them as an individual then your tax rate would be the first $9K no tax, and the from $9K to $11K 16.5% so you would owe $330 Total tax for the year.
If you own the property in a corporation and have the same $11,000 Net income you would owe the 30% tax rate or $3,300 in tax plus you would have the corporation tax and fees which is about $750 per year in resident agent, director’s fees, licenses, and annual corporate fee. There is also a business net worth tax in Panama that is 2% of the net worth of a corporation doing business in Panama, so $200,000 worth of apartments held as rentals in Panama would have an additional $4,000 worth of asset tax. Total Tax and fee costs would be $8,050. (Note if you have an $180,000 mortgage against the property then the net worth would be only $20,000 and the tax would be much less)
Net (after tax) income as an individual ownership $10,670
Net (after tax) income in a Panama corp. ownership. $2,950
Note: there may be tax issues in you home country. In the US with corporate ownership you will get into foreign controlled corporation rules and taxes. With your own personal ownership the property get reported on a schedule E same as any other rental real estate that you may own in the US. In the US you do get a tax credit for all taxes paid in Panama as well, so any taxes paid in Panama will reduce you US tax burden.
We are not accountant’s, tax attorneys, or tax advisors. i.e. we do not necessarily know what we are talking about in this area. The above are some things to look into and discuss with a professional when doing business and deriving an income from Panama.
We have can recommend a Panamanian certified accountant that can provide the panama tax service based on the regulations of Panama. This accountant can also advise you on any questions you may have on US tax law as well if needed. He speaks English and Spanish. TSI has 35 years of experience serving the Panamanian and US communities here in Panama. I have found he is both knowledgeable in Panama Tax law as well as US tax law and can provide tax services that are accurate and economical for the average person living working or doing business in Panama.
His basic fees are:
One company or individual with one rental apartment $150 for the end of the year tax filing
Each additional apartment will cost and additional $50
Name Daniel Clark
Tax Service Inc. US and Panama Tax Consultants
Email Taxservi@c-com.net.pa
Ph# 228-1504 / 314 1001 Office hrs Mon-Fri 7:00am to 4:00pm
8. Our investment services Real estate
We have several options. One I can give you some advice for free to get you headed in the right direction. It is good for you to come down and have a look around at the different areas and such. Also your investment goals. (i.e. You want to get $40,000 net income and have $600,000 to invest. Is income now more important then future value growth or is future value growth the more important factor) Then we have programs for real estate once you have narrowed it down we can oversee finding properties that best meet you needs and get them all cleaned-up furnished and into the rental pool. We constantly scan the market and get first notification on much of what comes onto the market and it is often gone before it gets to the public (best deals do not make it out of the real estate office and we are in a number of real estate offices) For this package we charge $3,000 for each property we find for your investment portfolio. This fee schedule keeps our interests aligned with yours in that we get paid for the service and not for selling the most expensive property to you. We can introduce you to a couple other investment ideas that may work well in conjunction with your real estate portfolio here in Panama. There is project investments where you can invest in a development that can have a one time pretty high yield such as we have a development in Boquette where a group of investors got together and bought a large parcel of land that is being subdivided developed and sold as lots. This investment was funded with shares $100,000 minimum investment and will yield about $225,000 for each $100,000 invested over a time frame of about 3 to 4 years.
9. Other investment opportunities
There are timber investments with the company http://www.panamateakforestry.com/ which will have a great return over time but it is a long term investment and has a lot of share value growth (in just over 2 years the share value has gone from $800 to $1,485 per share) Long term growth in value is expected to be over 15% but it will not pay out any income for another 7 years or so. We are also looking at putting together some small projects that will buy lots in a project in El Valle area build a house and sell the houses. Cost of the lots is about $60,000 construction of a very nice house for the upper end market is about $170,000 (over 3000 sq ft) and the selling price would be about $330,000 to 360,000 so $230,000 invested and a gross net return of about $100,000 we would partner with the investors in this for 30% of the net return. So your net would be $70,000 also we have it so that the lots only require 10% down and the rest when the house is done and sold. So actual investment would be $180,000 for a $70,000 net return or a 38% return in about one and one half year. We can introduce you to a number of investment options each investment is different and appeals to different people with different goals. On the developments you get all your money back plus the profit but then have to find the next thing to do with it. Once your rentals or teak investments are made you can pretty much forget about it for a very long time. The others can have a higher yield in a shorter time.
Keep looking and defining your goals and you will be able to get a good investment portfolio started here in Panama.
Best Wishes
Panama Casa Staff |
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