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Foreign Real Estate Investing.

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randallg99

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Aug 9, 2007
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this is not in any shape or form a solicitation for investments or home sales but just a response to a couple of people who wanted to know more about my investments in Panama... I am sure others here have either looked and/or bought foreign real estate and I for one would like to hear their experiences.

I originally met with someone who was a mutual friend through 2 different friends from 2 different periods of my life... this was comforting in itself, knowing that I had knowledge of his history. He contacted me knowing my real estate investment status... This was also a period in my life I wanted to create a divergence in my investments since they were mostly equities, retail businesses and local real estate. After some conversation, I was convinced to visit Panama with him and spent 5 nights. We had a lot of fun at night and during the day it was intense with facts, figures, interviews and note taking.... a deposit was formed to buy 2.5 kilometers of beach front property for $6mil USD. (Just for reference: several hundred feet on the NJ shore can suck up 6mil pretty fast) The end result was I one of the first investors who participated with his group and I invested in this project long before there was even a prospectus. I invested in this person's character and in his drive to make the project succeed.

Before choosing Panama, I have been all over Europe, many Carribean islands, and Central America. In each country and vicinity, I had always inquired about real estate ownership. The problems were consistent throughout many of the countries- foreigners are not allowed to own land, or the taxes were prohibitive, or perhaps the process was terribly tedious, or just different laws and systems made it very uncomfortable to do business because the security of law systems. People are probably not aware of this, but in France, you can be held guilty until proven innocent and you can be held even for suspicion... Even in Panama, the deed-title system was non-existent just up until this year and this at first concerned me. It is for this reason that I absolutely, positively do not like Mexico for real estate ownership because you don't get to own the land unless you are in fact Mexican...

Since I do not trust governments in general- laws in USA are even passed on a dime's notice- and other gov'ts tend to call the shots as needed at anyone's expense, it was imperative that I went with as stable a country as possible. Panama's history is that of stability minus the Noriega years, but in general, the laws are upheld, the courts practice due process and the police are not corrupt. This starkly contrasts many of Panama's neighbors' police and law systems.

So a quick rundown of the existing project- several hundred hectares along the beach with approvals finally certified by the government this past month for several hundred homes and town homes. Next in the project is a development for a marina which will be built to accomodate yachts up to 150 ft. And this project just very recently sold a third of its equity for 15 mil USD of which the funds will be used to develop this marina without any need to raise or borrow funds. So to say we are making money with this project is a vast understatement.

Original projections were to sell moderately priced homes at about $150-200 per meter. Now they are conservatively projected for high end, 2000 sq ft homes, at $500 per meter. The Master Plan looks like something right out of a high end Florida yacht club.

Important factors that made Panama appealing to me:

1. taxes - American citizens are not taxed for any income. Many of the real estate taxes are abated. This will probably change within a generation, but fact remains it is easy to make a living.

2. economy - it is a vastly growing economy mostly due to young population and the canal expansion. Estimates to become the largest tax free zone in the world are rumored... (it's already 2nd largest behind Hong Kong)

3. infrastructure - Americans occupied a large part of panama city for many years after building the canal and had only recently left... plumbing, water systems, electricity, phones, cable, all very similar to American infrastructure. This was a major problem in many of the other societies I considered around the world. New developments still did not have running water after 1 year of completion in a couple of areas I visited elsewhere in the world.

4. roads - highways, bridges and even toll booths are taken for granted... some of the latest technology around the world in bridge construction can be found with the beautiful spans in Panama... Interestingly enough, the road system was in itself was the most discouraging part of Costa Rica. I couldn't drive for 10 minutes anywhere in the country without risking breaking off an axle in a crater or hitting a cow...

5. hospitals - most advanced in Central America. Life expectancy is very consistent with US.

6. schools - literacy rate is higher than in US and just about all of Latin America. Many Latin American leaders were educated in Panama and the university system is highly regarded

7. politics - stable government is scrutinzed by world powers due to importance of canal. Due to economic strength, Chavez was basically laughed out of Panama.

8. weather - Panama is located outside the hurricane belt and the weather is consistent year to year.... the rainy season ends in November every year.

9. banking - Unknown to many people, and even shocking to me when I saw a different bank high rise on every corner in Panama City, Panama has one of the largest banking systems in the world and has for a century. The banking secrecy laws has attracted a lot of wealthy people and companies to work and invest in Panama.

10. accessibility - nonstop flights from Newark, NJ daily get me there in 5 hours and a 1 stop flight from Phila gets me there by 1pm (but 7.5 hrs)

Hope this answers questions... after proofing it, I think I made myself the tourist/economic minister for Panama.... and to be perfectly honest, if it were not for the principal of this project, I would have never have considered Panama.

Currently, we are in pursuit of more property in a very remote area that will take a few years to cultivate.

let me know if you have questions-

Randall
 

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Edge

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Great post! Thanks for the info, looks like it has been a good investment for you.

I'm assuming that this investment was made 1-2 years ago, are you still viewing Panama as a top location for investing?

Is the remote area property that you are referring to also in Panama? If so that answers my question above.
 

randallg99

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Aug 9, 2007
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Great post! Thanks for the info, looks like it has been a good investment for you.

it has been a solid investment. A very, very risky proposition at first. I used a part of my funds that I figured I would never need, even if I lost income for 6 months. There is still risk to the investment, which is the same risk any investor faces when developing property.


I'm assuming that this investment was made 1-2 years ago, are you still viewing Panama as a top location for investing?

Yes, I made this investment over 2 years ago and my view is that Panama is still a top location for investing, but now there are different reasons:
When I first invested in Panama, my conviction was that many American retirees were going to face difficulties finding a satisfied way of life, with oceanfront properties and ammenities that are very cost prohibitive to the average Joe6pack in the USA. So, interestingly enough, there are many Americans who have retired to Panama already. At this juncture however, the pricing has esclated to the point that it is not as much a value for the American to retire to Panama since the properties now cost significantly more and frankly prices are competitve with American resort/beach towns.... it is still much cheaper, but not at the "dirt" cheap levels once enjoyed primarily due to exploding economy in Panama and the detoriating dollar's value. Now, the US markets are suffering and retirees are potentially able to afford US properties once considered out of price range.
However, this has not slowed the real estate market in Panama due to the fact that Panama has attracted residents from all over the world, Europe, S America, among others become a very international country, mainly because of its banking status (Cayman islands recently lifted banking secrecy laws, leaving only 2 other vicinities in the world besides Panama.), it's booming economy and its standard of living (reasons all detailed in prior post) The canal expansion is bringing in many engineers from all over the world and this expansion is really a boom to the economy. At first, the development project was going to cater to American retirees, but it has shifted to marketing to the newly found residents as a result of the canal expansion.

I do think they may experience a period of overbuilding, since there are dozens of high rises being built in Panama City. I haven't a strong pulse on the outcome, but our project is based along the waterway about 40 minutes out of the city


Is the remote area property that you are referring to also in Panama? If so that answers my question above.

Yes. This area is several thousand acres, totally untainted, beautiful with squatters who fish and farm their own food...
 

Edge

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Anyone have any input on Brazil or Dubai real estate? I'm looking for a place that will benefit from $120 oil.

Actually i'd like some discussion on any emerging markets that are dependent on commodity prices (oil, agricultural, etc).
 

randallg99

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Obviously Brazil is experiencing an amazing surge but there are several factors that stopped me from going past Central America for investing:

1. proximity. I did not want to go further than a 4-5 hour flight (Panama is about 5.5)
2. language - it's pretty easy to get by with minimal Spanish and Panama has a fair amount of English speaking people
3. Panama is undergoing a massive economic growth

I do not know much about Brazil except that I used to invest in PBR and that Rio is a hotspot for the Carnivale....

One thing I do believe is that Brazil has really enjoyed oil prices above 60/bbl, but the major downside risk is that if oil and ng prices retreat within the next several years, Brazil will not enjoy the massive boom it has been enjoying in the past several years.

About Dubai- I read a few weeks ago that the real estate prices in Dubai are actually cheaper than other world cities relative to their respective currency. Standard of living is inexpensive and luxuries are available. Dubai has very little extremism compared to their neighbors, but I personally do not like the strong power of the local neighboring governments there.

Whatever you dig up, please share with us.

Regards,
R
 

Edge

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One thing I do believe is that Brazil has really enjoyed oil prices above 60/bbl, but the major downside risk is that if oil and ng prices retreat within the next several years, Brazil will not enjoy the massive boom it has been enjoying in the past several years.

I can hedge that downside risk of oil and gas that you point out above. That is the main reason for my interest.

To me, when you strip it down to the basics of supply vs. demand, if you can pin point the source of the demand and you can hedge that demand risk through liquid markets, you have a good investment. That is the "edge" that I am looking for while evaluating these types of foreign investments.

The research i've done agrees with everything you stated about Dubai also. I've become turned off of Dubai becuase of the risk of too much supply (I don't know how to hedge that) and the fact that their currency is pegged to the $USD.

Ideally, i'm looking for a preconstruction investment in a market dependent on a commodity. I can then structure hedge positions in that commodity to make the money back that I used as a deposit. Wash, rinse, and repeat.
 

mtnman

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How is the crime rate in Panama? Are americans generally well accepted there?
The crime rates have gotten a lot better in Panama. My father has lived there for about 12 years now, and has really improved since my first couple visits. He has been trying to get me interested in investing over there, but the pricing is competetive with most US markets now. Also, he isn't investing in real estate there, even though he's been in the restaurant business all his life, I really question when someone advises something that they themselves do not do. There is new development in Coronado that has grabbed my attention.... it's modeled after a similiar condo development in Dubai. From the drawings I have seen, it's set apart from other high rise condos, due to the fact that 8 buildings in a W formation, would be surrounded by a man made ocean. Free of sharks and jellyfish. Don't quote me on these specs, but I think the final design will be a little different than it's big brother in Dubai.... i.e. I think the lake sized pool might not be a wrap-around anymore, perhaps just on two sides.
 

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Great post and info, speed+
 

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randallg99

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The crime rates have gotten a lot better in Panama. My father has lived there for about 12 years now, and has really improved since my first couple visits. He has been trying to get me interested in investing over there, but the pricing is competetive with most US markets now. Also, he isn't investing in real estate there, even though he's been in the restaurant business all his life, I really question when someone advises something that they themselves do not do. There is new development in Coronado that has grabbed my attention.... it's modeled after a similiar condo development in Dubai. From the drawings I have seen, it's set apart from other high rise condos, due to the fact that 8 buildings in a W formation, would be surrounded by a man made ocean. Free of sharks and jellyfish. Don't quote me on these specs, but I think the final design will be a little different than it's big brother in Dubai.... i.e. I think the lake sized pool might not be a wrap-around anymore, perhaps just on two sides.


several important points-
1. Since USA provided much of infrastructure in Panama that helped the economy, Americans are pretty much welcomed with open arms...
2. crime rate has declined significantly since Noriega went to the big house.
3. Many of the building projects in Panama City include: Trump's sailboat hotel/residences which is also modeled after the one built in Dubai, the Ice-Tower which is proclaimed to be the highest residence building built and some other architectural feats that skip my mind right now...

I like what I saw with Coronado's plans... they are unique in structure and are catering to a nicer lifestyle.

The main concern I have is that Panama is approaching parabolic real estate pricing which sets itself up for a down turn similar to one experienced in USA. Main difference between Panama and USA is that jobs are are being created in Panama at exponential rate.
 

randallg99

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I can hedge that downside risk of oil and gas that you point out above. That is the main reason for my interest. To me, when you strip it down to the basics of supply vs. demand, if you can pin point the source of the demand and you can hedge that demand risk through liquid markets, you have a good investment. That is the "edge" that I am looking for while evaluating these types of foreign investments.


trading oil contracts?


The research i've done agrees with everything you stated about Dubai also. I've become turned off of Dubai becuase of the risk of too much supply (I don't know how to hedge that) and the fact that their currency is pegged to the .

there are rumors that Dubai is lifting their currency due to declining dollar... this is something to keep eye on...

can't you hedge the same way as if it were minimal supply?

Ideally, i'm looking for a preconstruction investment in a market dependent on a commodity. I can then structure hedge positions in that commodity to make the money back that I used as a deposit. Wash, rinse, and repeat.

there are a lot of projects in Alberta with oil sands... also, mexico has gold/metal mining projects all over the country (I don't like Mexico for "ownership")
 

Edge

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Thanks for the response.

trading oil contracts?

Options on oil futures contracts. Futures are a straight delta play, I want a -gamma play.


there are rumors that Dubai is lifting their currency due to declining dollar... this is something to keep eye on...

can't you hedge the same way as if it were minimal supply?

No, I don't know how to hedge an oversupply of building. If there is minimal supply, I could buy the real estate and hedge the demand factor (oil prices in this case).
 

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