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In a recent post, I mentioned having two homes in retirement: one for the winter and another for the summer. I know quite a few people that have a second home in Panama. But – in all cases – they have taken an earlier retirement and both homes were purchased cash.
In almost every case, their principal residence was their home town, with a second home in Panama. Moreover, they were getting away from shovelling snow in winter, with a golf course or beach close by and tropical winds.
In this post, I look at the benefits, opportunities, realities, costs and difficulties of owning a second home in Panama.
At the end of the day, choosing a second home is not for everyone. Nonetheless, it can be a fantastic way to spend your winters.
Benefits of having a second home in Panama
The clients that I have seen do well with two properties through their retirement have enjoyed the following benefits:
- communities – they have built friendships and community in both places, making it “feel like home”;
- equity growth – their second property was a good financial decision. This allowed them to enjoy the growth and appreciation of the property;
- gotten away from shovelling snow – this was an important factor for all of them. A very cold climate that they were escaping from; and
- family members have enjoyed the property, not just them.
In some cases, I have heard of them renting the property out during the months that they are not using it, but this has generally not been the case. They have been happy with their choice because they made a good personal decision, as well as a sound financial decision.
Opportunities with having a second home
As I mentioned, one of the opportunities that you have financially with your second home is to make it generate income for you while you are not using it. This might be through AirBnB (depending on the Housing Association or other applicable rules) or simply a straight rental agreement. Make sure that you check out this blog post about short-term rentals in Panama.
Most of the clients that I have seen purchase a second home have invested in a smaller version of their principal residence. This is something easy to maintain and look after, as well as being easy to close. Generally, they have chosen low maintenance “turn-key” operations, that allow them to be away for 5-6 months without concern for the well-being of the property. In many cases, this has been an apartment on a beach or a golf course.
Don’t overlook the realities of what it takes to have a second home
Some of the realities, of course, that these clients considered include:
- their banking needs: having a bank account locally through which to pay (online) maintenance and other expenses;
- mail-forwarding – when they are away;
- insurance coverage;
- online bills – are you able to pay the water, electricity, phone and internet online. In some cases, you will need to «prepay» the year (at least IDAAN used to require that, although they have gotten online now).
- do you need your lights on a timer, to show that someone is home?
- who do you have “on deck” to check on the house? If the burglar alarm goes off, who will the security company call when you are away?
- turning off the water and gas while they are away for six months;
- unplugging major appliances – or in most places in Panama – leaving the fridge going for all those months you are away so that it doesn’t go mouldy;
- getting maintenance done, especially since you will be away during the wet season when all of the gardens will get overgrown;
- a cleaning service, so that when you arrive back, it’s habitable on the first night home; and
- roof and permeabilisation maintenance.
Of course, there is so much more to homeownership that this simple list I have mentioned. If you plan on owning a second home in Panama, this is just the beginning of the realities you need to consider.
Costs and Difficulties that can arise:
One of the principal difficulties that will arise, especially since you are purchasing internationally, is that you may not be able to get a mortgage for this second property. You don’t have a credit score in Panama or a banking history with the banks. In some cases, your bank at home may be willing to offer you some type of financing. This doesn’t make it impossible to get a mortgage, but it makes it incredibly challenging. Most clients that have purchased a second home in Panama, have done so with cash or with financing organised in their home country.
Additionally, having two homes, you need to consider the size of the emergency fund that you keep. You will be doubling up on everything:
- vehicles
- lawn-mowers and garden equipment
- appliances – including dishwashers, stoves, fridge, laundry room, and air-conditioners
- furniture & fixtures
Income-generating properties
If you decide that your home in Panama should earn income while you are not using it, keep in mind that it will not be occupied all of the time. If the property is earning income for you, what bank account will you receive that income into?
Have you considered: What are the tax liabilities – particularly income tax or even sales tax – that apply in Panama, as this is the country where you are earning this income? You will need to prepare and file an annual tax return should you pass the income threshold. Who will you get in Panama to prepare that tax return for you? How are you accounting for the maintenance costs on the property and all your expenses in upkeep?
Additionally, will you be subject to double-taxation if you have your primary residence in another country?
If you have the property on Airbnb or something of that nature, who will take care of meeting those who are renting it, giving them the keys and the tour, and then checking the property when they leave? Even if you choose to rent it out as a long-term rental, you will still need a property administrator to check it. Additionally, if something gets broken, as the landlord, you will need to coordinate and organise for things to get fixed.
Even long-distance properties need local love! That’s why, for client properties in parts of Panama City, our office offers to check on them and help coordinate the maintenance work. Nonetheless, we are not able to offer this for properties out of town.
There will be times when you will need to continue covering the costs, even while it is empty. These costs include:
- property taxes
- homeowners insurance
- maintenance fees
- property maintenance
Will it get tedious? The weight of a second home in Panama:
Even if you are the sort of person that takes care of things like cleaning out the gutters yourself – will you want to be doing all this work each time you come back to your second home in Panama?
Will there be a time when you feel that you are tied to the property, rather than feeling the freedom that having a second property can bring?
Additionally, remember that you will be travelling between the properties. How many hours flight, how many layovers, and how easy is it to get from one to the other?
Estate planning considerations
Finally, you need to take into account estate planning considerations:
- surviving spouse
- living wills
- a durable power of attorney
- last will and testament – in one or both jurisdictions?
Furthermore, your family should be apprised of enough details and documentation regarding the home overseas that they can step in and take care of things if needed. They should know who to contact (such as lawyers, realtors, banks) and have a general idea of where to find the information that they will need, should it be necessary to liquidate the property. As already mentioned above, they might need other details about insurance, maintenance, etc., just to keep things going while they finalise any other details or concerns.
Location and value of your second home in Panama:
No matter what your reasons and incentives for purchasing a second home – remember your resale value.
Location!
Location!
And, of course, location!
What will this retirement home and community look like in 10 to 20 years time when you are looking to sell and move on? Are you choosing well? In addition to choosing a great location that is ideal for you and has everything you want, are you also making a good financial decision?
In the end, only you can decide whether or not having two homes in retirement is worth it. It’s up to you to compare the opportunities, but always keep in mind these three factors:
- What do I want and desire?
- What do I need?
- Do I think that this is a great idea when I sit down and look at it rationally?
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