Buy-to-let Investment In Panama

Eager to take advantage of a favourable tax regime under Law 41, large multinational companies are increasingly becoming established in Panama. With names like Hewlett Packard, Dell and DHL already there, others are following their example: Caterpillar have also announced new offices in Panama City and others such as Proctor and Gamble are following suit. Law 41 allows licensed corporations to hire trusted foreign employees to fill management positions, bringing an influx of international professionals moving to Panama to live and work. This increased business activity is giving rise to a high demand for commercial and residential rental units in Panama.

Tourism figures are exploding and represent the fastest growing economic sector in Panama. The government continues to pour money into new resort projects in order to accommodate the increase in international tourists. Even Tocumen Airport is being duly expanded to cope with growth in passenger numbers. Additionally, a large number of international hotel chains such as Marriott, Radisson, Holiday Inn and Sheraton have moved into Panama.

The government is also expanding its port infrastructure in a bid to entice more cruise ship activity, particularly from wealthy European and American tourists, who at present are driving tourism growth. It estimates that one new job will be created for every 12 foreign visitors. In the meanwhile, immigration figures are accelerating rapidly (400% annual increase in 2005 after only 99% the previous year) and this trend seems set to continue – all great news for buy-to-let investors in Panama.

Purchasing a property to let in Panama of course involves careful consideration as to whether or not the property is ideally located for your target market, be it tourists or the business community. Careful analysis will need to be done on matters such as amenities and accessibility to airports as well as what type of renters your property will attract. Early investment and the correct formula to suit your market should bring excellent returns on buy-to-let property in Panama.

Buy to Let (Example Only)

Case Study

John decides to purchase an investment property and after joining the IPIN and discussing his requirements with our investment experts, he decides that the "Buy-to-Let" investment strategy is for him.

John has savings of around €80,000.

Our investment advisors suggest property development X which has been vetted by the IPIN (International Property Investment Network) as a solid investment opportunity and meets with John's deliverable criteria.

Investment property X is a new development with beautiful sea views and priced at €250,000.

Initially John pays his reservation fee of €3000 to hold the property.

Next John pays a 30% deposit of €75,000 (minus his €3000 reservation fee already paid)

Our investment specialists negotiate a mortgage for John for the remaining €175,000 at a rate of 2.75% (example only) this translates to a monthly mortgage repayment of €481.00 (interest only) which is equal to €5772.00 over 12 months.

John starts to rent his new property immediately and during the 3 months "High Season" he receives €2000 per month in rental income. These rental payments exceed his annual mortgage repayments and still leaves John with 9 months of rental potential to make a further profit.

If we assume that average rental rates for Johns new property are as follows (conservative figures):

• High Season - €2000 Per Month
• Low Season - €1300 per Month

Now we assume that John decides to go on a short term rental strategy maximizing his income over the High Period. He easily rents his property for 3 Months during the high period earning €2000 per month. After this period he has a delay in getting his next tenants but over the course of the year he rents his property for a further 6 Months only.

• 3 Months x €2000
• 6 Months x €1300

Total Rental income = €13,800 after subtracting the €5,772 Mortgage repayments John has made a profit of €8,028.

* During this example we have not included any rental management or community fees that may apply but also we have only assumed rental income for 9 months of the year and with many holiday makers now booking private accommodation via the Internet this is very achievable.

Short-Term Letting v Long-Term Letting

The final decision to be made by the buy-to-let investor is which letting strategy to use. It is obvious that the highest income is made by the property owner by short term letting during the high season; however, increased overheads due to constantly finding short term rental clients must be remembered, as well as maintenance costs between clients.

Long-term rentals typically pay less per month but usually require far less input from the property owner. Some property owners choose to rent long-term during the low season, then short-term to higher paying tourists during the high season. The decisions to be made regarding your letting strategy are usually answered in part by the type of property you purchase

The buy-to-let strategy is an important formula to get correct as even in a very busy market there is still competition. In order to maximise occupancy rates, it is vital to select the right location, property, unit and monthly rental charge - these factors will directly effect occupancy and, in turn, your rental income.

Buy-to-let investment brings the benefit that during the time your property is being rented out and earning you an income, it is still appreciating in value, while someone else is paying your mortgage. Meanwhile it is providing an off-peak holiday home for your personal enjoyment. Buy-to-let investment is catching on fast in Panama as a sound investment decision.

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