How to Get the Best Rental Yields in Panama

Saturday, July 5, 2008

My former Panama condo is now a boutique hotel suite. I’ve just seen the photos.

The Panama City condo market first got my attention four and a half years ago. Back then, many prime ocean-view condos were more than 279 square meters (3,000 square feet). I considered these to be a risky buy as they were too large (and expensive) to sell to the new market of retirees, second-home owners, or visiting business people.

So instead, I bought a 120-square-meter condo right on Ave de Balboa off plan. This one-bed, one-bathroom condo—without a maid's quarters—was the perfect size and layout for retirees, second-home owners, or business people. The broader the market is for end users, the lower the risk for the pre-construction buyer. I paid $1,225 per meter for a 120-square-meter condo. On completion, I listed my condo, and sold for 60% more than I bought for.

Today, there is still an opportunity in Panama to buy condo units like the one I bought and sold. I don’t expect to see the same level of capital appreciation I enjoyed during the build period of my unit anytime soon, but there is one of the world’s most exciting short-term rental yield opportunities at play today in Panama City.

I mentioned recently about the serious shortage of hotel beds in Panama City and told you about one strategy to profit from this: Buy a hotel room. Another strategy is to buy a unit in a recently completed building and make it available for short-term rentals. You can see net rental yields in the region of 11% on today’s purchase price of the unit I sold. Working with a strong property management company is key to achieving these returns.

The guy who bought my unit saw the shortage of hotel rooms and high-end short-term condo rentals and took advantage of this business opportunity. He has been buying high-end condos, giving them a luxury fit-out, and throwing in a full concierge service and fully stocked kitchen. His company, Fusion Lofts, charges up to $345 for a night's stay in one of its luxury condos and is seeing occupancy in the region of 80%.

Ronan McMahon
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