Keys to Buying Property in Emerging Markets
Many people who invest in real estate in foreign countries are not smart about how they do it. They may search on the Internet for something that looks pretty, go and spend a few days in a location and decide to buy. They may make a half-million dollar decision in 72 hours.
I have seen people make these mistakes when investing in real estate in Panama. Unfortunately, whether people are buying property for a home or an investment, they take a massive risk doing it this way. The way to overcome these obstacles is through due diligence.
Talk to several different brokers and go to all the real estate offices in a town to learn what properties are available. Talk to attorneys and engineers who work in these towns. Going the extra mile to talk with those professionals will help you get a true picture of local real estate values and which properties are bargains. If you don't do this work, make sure you have someone doing it for you.
I first bought property in Costa Rica as a teenager and have worked in real estate in Central America for 15 years. Markets here undergo big changes. Factors such as small town politics, lack of security, unprofessional builders and real estate agents can all complicate the process.
Our approach to real estate in Panama, and in Costa Rica and Nicaragua where we also operate, is to talk to as many people on the ground as possible. Then we take the information we have gathered, aggregate it and compile as many data points as possible to discover present and future values.
When our company acquired a 400-acre island in Panama, we relied on this boots-on-the-ground strategy to fill in the gaps in knowledge between what the locals know and what the international investment community knew about the area. For instance, we knew a new road was going to be built in the area. The locals knew the road was coming, but didn’t connect that with an increased desirability of the property to investors. We understood exactly what a new road would do to appreciate the value of the surrounding property, so we began scouting.
The area contained dozens of islands just off the coast. Our scouts located a 400-acre island that was completely uninhabited and covered in primary & secondary forest, with over five miles of coastline. So we began the process of acquiring the land.
Developing our island project involved what is called right of possession rather than deeded ownership. We spent $60,000 or $70,000 and two to three months of literally every single day going and meeting with new attorneys to learn everything we could before acquiring title.
We contacted the property owner through proxy. We were able to negotiate the deal for 1/6th of the owner's opening price. We bought the property at such a low price, that even if the real estate market tanked, we could still sell for a profit.
In fact, the market did turn south shortly after we bought the island, and we still could have sold for a small profit but we held onto the property, and when the new road was built, the property values skyrocketed. The property is currently selling at a 200 percent return per meter on the initial investment.
We were also able to add value to the property by reducing uncertainty and risk for potential buyers. We completed a topography of the property, secured an environmental opinion, completed water studies, documented chain of ownership and created trails throughout the property to provide access.
There are no shortcuts when it comes to making wise investment decisions in Panama and other emerging markets, but the rewards can be great. Here are a few pieces of advice for those who are new to the process:
- Start your research on the Internet. Each country in Central America now has two or three different real estate portals and probably 10 to 25 different real estate offices. Pick an area you are interested in and get as much information as you can, understanding that prices advertised over the Internet are asking prices. When you or someone representing you does leg work on the ground, you find that asking prices can differ by up to 50 percent.
- Look at as many properties as possible. The only way to know you are getting a good deal is to take the time to look at up to 50 to 60 properties. To me, 50 is the magic number. But look at everything you can to get a tangible sense of land values. The best way to do this is to carefully plan before you travel, narrowing down your search and finding locals who are willing to show you as many properties as possible.
- When scouting a property, understand that land in Panama and other Central American countries can change drastically between the rainy and dry seasons. Also be aware that livestock and neighbors may be using the property. Get to know your neighbors. Plan to spend several days there if possible and talk to as many people as possible to find out what the property is like year-round.
- Don't take any part of the process for granted. Be aware that just because a piece of land Panama has a title does not mean it is safe to buy. Always get a title search and then have your attorney independently verify that title search.
- Don't rush anything. Allowing ample time is the best negotiating tactic not only for real estate transactions but for all your dealings in Panama and other Latin American countries. Allow much more time than you think you will need for border crossings, travel and for really getting to know the area you are visiting.
People who dream of relocating to a tropical paradise often have many emotions attached to those dreams. But your best bet, whether shopping for a home or an investment, is to keep your emotions from clouding your judgment. As beautiful and compelling as property in Panama can be, don't get attached until after you have done all your homework.
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