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Mortgages for foreign real estate do exist

Traditionally, financing the purchase of real estate in a foreign country through a traditional mortgage has been anything from cumbersome to impossible. However, things are changing as countries like Panama seek foreign investment as a way to revive their economies. Residents of Panama, including foreigners, are eligible for mortgages, but the terms are often somewhat different from what is expected in the United States and Canada. Obtaining residency in Panama can be achieved in 30 days through a new government fast-track program.

Loan-to-value ratios will be lower, ranging from 50 to 75 percent. A 30% down payment is typically the standard requirement. Rates tend to be variable rather than fixed, and obtaining a 30-year loan is particularly difficult. Generally, the same amount of frustrating paperwork is required, but what financial institutions consider solid income will differ. If you have a salary or a steady income stream, that is considered more valuable than being self-employed, regardless of your track record.

Life insurance is required

In Panama, many banks require borrowers to have life insurance with the bank named as the beneficiary. While this may not seem difficult, it’s worth noting that most new life insurance policies do not cover individuals over the age of 75. As a result, a 65-year-old could only take out a 10-year mortgage if life insurance is required.

Because Empresas Bern is one of the most respected construction companies in Panama, we can refer qualified applicants to local bankers who work with individuals seeking traditional mortgages in Panama. We are happy to do so once we begin working together. Additionally, there are other banks, such as Caye International Bank, located in Belize, that work with individuals interested in International Private Banking and offer mortgages in Panama.

Mortgage-backed line of credit

For non-residents, obtaining a mortgage through a Panamanian bank is considerably more difficult, which is why you should consider using any real estate equity you may have in your home country to secure financing from a bank with which you have an established relationship. Second mortgages and home equity lines of credit are good sources of financing, and rates are generally very attractive. On March 8, 2021, Bank of America was offering rates as low as 2.49%, but with an average rate of just under 5%. Citi Bank was offering rates between 4.09% and 6.99% with a 20-year repayment term.

The fact that Panama City is the regional home to so many international banks makes it somewhat easier for residents to secure a traditional mortgage. Scotiabank recently approved a couple from Washington, D.C., with excellent credit, for a 20-year mortgage with a 70% loan-to-value ratio and a 30% down payment. The variable interest rate was 5.99%.

When considering various options for financing real estate in Panama, it is vital to run the numbers. The couple from Washington, D.C., wanted to purchase a one-bedroom condo in the exclusive Casa Bonita residential tower for $368,000 and use it as a source of income while building equity. With a down payment of $110,400, the remaining balance was $257,600, and the monthly mortgage payment was approximately $1,844, not including taxes.

AirBnB

The plan was to list the condo on Airbnb and cover the full cost of the monthly mortgage with the rental income from nightly stays. While condos at Casa Bonita are currently tax-exempt under Panamanian law, there are other financial concerns, including Homeowners Association (HOA) fees of $250 per month and a mandatory monthly fee of $200 for the private Pearl Club. Thus, the monthly cost is $2,294.

When preparing the condo for tenants, an additional $20,000 was spent on fully furnishing one bedroom, a dining room, and a living room, two bathrooms, an in-unit laundry center, high-end kitchen appliances, and comfortable balcony furniture for guests who want to watch ships line up to transit the Panama Canal.

The average Airbnb property in North America is rented 48% of the time for 4.3 nights per week. Because Casa Bonita shares amenities with the adjacent five-star Westin Playa Bonita hotel—which includes several pools, a private beach on the Pacific Ocean, bars and nightlife, and numerous restaurants including a steakhouse, a sushi bar, an Italian bistro, and even an ice cream shop— , the average one-bedroom condo rents for an average of 22 nights per month at an average price of $122 per night. A $60 cleaning fee and a $100 management fee are additional and paid by

Paying off the mortgage

So, if the condo maintains its average number of rental days, the income is $2,684 per month, resulting in a profit of just $390 per month. Of course, equity continues to accumulate tax-free, and monthly income could reach $1,366 per month if the unit is rented for an average of 30 days. There seems to be no doubt that Airbnb properties aren’t going away, as they now account for more than 20% of the lodging market with a projected 45.6 million users by 2022.

The good news for the Washington, D.C., couple, who view the Casa Bonita condo as a long-term investment, is that rental rates will rise, especially given the pent-up demand for vacations following the devastating pandemic. While the $250 HOA fee may seem high, it allows the DC couple to offer guests 24-hour check-in and check-out capabilities, security, and valet services. The Pearl Club adds the availability of a Clarins Spa with massages, saunas, and other amenities such as facials, pedicures and manicures, a hair salon, and private cabanas with pool attendants serving cold drinks. Property management is on-site and covered by the $100 fee.

Financing is available in many forms; it’s just important to be a smart consumer, trust your developer, and choose the property that will provide you with the best return on investment (ROI).

Contact us today by phone at 507.214.2376 or by email at website@empresasbern.com. Our website is: https://www.empresasbern.com

 
 
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