Here’s a head-scratcher for you: How do you move a 5,000 pound concrete block sitting on the beach 165 feet into the bay when you don’t have a crane or a barge?

Well, if you’re a Panamanian, all you need are two 10-foot boats with outboard motors, a rope and one metal bar.

And, oh yeah, the moon.

The Plan

Josh captured this feat in four different videos. I’ll link to each video at the end of the article.This was in fact the challenge we were facing when we were planning to use the block as a foundation for a dock on an island off the coast of Panama.

The Panamanians who were helping us came up with the plan: Tie the block to the metal beam, position two boats on opposite sides of the block, tie the beam to the boats and wait for the tide come in. They were confident the plan would work. We, on the other hand, weren’t.

Yet, the tide did come in, and the boats and the block slowly began to rise. Once they were floating, the Panamanians motored out to their drop off point. However, while waiting for instructions, disaster struck.

The Disaster

With a loud ping, the beam started to kink. One of the Panamanians began to untie the rope to drop the block, but didn’t move quickly enough. The block pulled the rope out of his hands and cinched against the other boat, bending the pole, pitching the Panamanians into the water and capsizing both boats.

Within seconds the boats were gone, outboard motors and all. Fifteen thousand dollars in equipment sat beneath ten feet of water. Josh said, “That’s a crazy conclusion to my movie. I didn’t expect that one.”

Or was it?

The Recovery

Within 90 minutes the Panamanians had both boats out of the water, the motors cleaned and a thick tree cut down to replace the metal beam. The way the Panamanians saw it, the plan didn’t fail—it was the beam that failed.

The only problem was the block was still under water. Again, no worries. The Panamanians dove down to the block, tied it off and tied the rope to the tree trunk that replaced the metal beam. Each time the tide lowered, they would take out the slack and cinch the rope.

The Conclusion

Eventually the tide started coming in again, and, just like before, lifted the boat. The Panamanians eventually got the block in the right position where they successfully dropped it.

So, who needs a 15-ton crane and a barge when you have two rickety outboard motor boats, the moon and Panamanians with brains and audacity?

The Videos

The third video shows both boats sinking.

By the way, discover a new way of investing.

Written by ETI’s Josh Linnes for Panama Realtor, Panama’s largest online real estate brokerage.

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.

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 Central America — we work in Panama, Costa Rica and Nicaragua — 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 emerging markets, but the rewards can be great. Here are a few pieces of advice for those who are new to the process:

1. 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.
2. 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.
3. 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.
4. 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.
5. 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 Central America can be, don’t get attached until after you have done all your homework.

Looking Panamanian saves money while ensuring equal treatment from the bureaucracy and judiciary, but it makes doing business complicated.

Anyone who has traveled much in developing countries has come across a situation where tourists get charged more than locals.

The tourist price, or the gringo price as it is known in Panama, can be genuinely noble, like paying extra to visit a national monument and subsidizing access for locals while helping to fund necessary upkeep. Or it can be downright thievery, like paying several times the usual price for carpets and cab rides.Businesses, unlike tourists, are in competition and can’t pay several times the price their competitors pay and be competitive.

Benefits of Looking Panamanian

There are more benefits to looking Panamanian than just avoiding the gringo price, but paying a fraction of what you might otherwise pay is a pretty big benefit. Getting permits is easier. Hiring is easier. Buying is easier. And resolving legal disputes is easier.

Getting Permits

Getting permits is a headache for everyone, but it can be worse if you don’t look Panamanian. Most ex-pats in Panama have stories of frustrating little bureaucratic double-standards like applications taking longer than they do for Panamanians.

Looking Panamanian will help reduce this sort of problem.

Buying and Hiring

Prices and wages get inflated for international companies compared to local ones. Locals tend to think every gringo is wealthy and demand more as a result. Expect to pay significantly more for a whole host of goods and services:

• job applicants expect better pay
• contractors charge more for their services
• suppliers inflate their prices

Looking Panamanian will save you from having to pay the gringo price.

Legal Disputes

The common perception amongst some Panamanian demographics that all gringos are wealthy also makes gringos more likely targets of lawsuits.

It’s not that Panamanians target foreigners, but rather the wealthy are worth targeting and many Panamanians think all foreigners are wealthy. Therefore foreigners are more likely to be the targets of lawsuit.

Then, when going before a judge, which story resonates more? Rich foreigner victimizes poor local? Or shifty dealer victimizes small company? If you don’t look Panamanian, you start a lot closer to the former rather than the latter.

Foreigners still aren’t likely to have legal problems, but looking Panamanian further reduces the odds.

How to look Panamanian

In Panama, it’s possible to do business in complete anonymity by using bearer shares.

Bearer Shares

A bearer share grants ownership to whoever is physically in possession of the share. Typically shares are registered and investors almost never see the physical shares that they own. Bearer shares are not registered in any way. The owners of bearer shares are not recorded, so ownership can change hands privately.

Bearer shares have fallen into disuse in most parts of the world because they were commonly used to avoid taxes. Most countries have strict rules governing bearer shares and other bearer instruments with severe penalties.

Anyone purchasing Panamanian bearer shares should look into the laws governing taxes and ownership in their home country before purchasing or issuing bearer shares because the consequences for not being in compliance with home-country laws are often severe.

Running Business Through a Law Firm

The in-Panama costs to run a company this way are $1000 per year or more (compliance with your home-country laws will likely add to the costs). You need to hire an attorney who, along with the attorney’s staff, fill the director and officers roles.

You also need to carefully consider which law firm to hire. The firm will be signing all of the documents on behalf of the corporation, so there needs to be a strong degree of trust.

The firm also needs to have adequate staffing levels. Anything that has to go through the firm will move more slowly than in a regular business. Adequate staffing will make the difference between this being just a nuisance and a complete disaster.

Finally, no matter how good the law firm, you need to be able to pull the plug on the directors and officers overnight. You need solid documentation, verified by a different law firm, confirming your ability to dismiss the directors and officers.

Business Dealings With a Panamanian Face

The final requirement is to conduct day-to-day business through Panamanian proxies.

Very simple businesses, like a land-holding company, only need the occasional proxy, but more complicated businesses need to hire Panamanians to conduct all public-facing business.

Hiring more Panamanians introduces all sorts of cross-cultural problems that complicate business.

Look Panamanian and Reap the Benefits

Using bearer shares to conceal ownership of a company is an important first step toward looking Panamanian. By looking Panamanian you stand to save money and reduce legal and bureaucratic headaches by more than enough to justify the costs.

We use Market Stages in order to provide a framework for evaluating a market, property, and business plan.

Stage 1

The land is valued based on its value to the local community. Economic potential based on international valuation has yet to occur. So a location with a fantastic view or right next to a beach isn’t any more expensive than a nearby plot with similar value to the local economy.

There are Stage 1 areas all over Central America. Stage 1 areas may have great potential. Some may even be developed one day, but many will never realize the value that a global market would bring.

Buyers at Stage 1

In addition to locals trading property based on its value to the local economy, a Stage 1 buyer is like a pioneer with an eye for potential. They often have to enter on a horse or a boat to find the area, and they realize the difference between an excellent piece of land and a merely adequate piece of land. Sometimes they have a long-term goal for a return, but mostly they just love the area and the land is less investment and more passion.

Signs of Advancing to Stage 2

As international buyers with a new end-use for the land move in to the market, it’s beginning to move to Stage 2.

Stage 2

Early buyers recognize more global commercial potential and speculate on higher future value. There is no evidence of an international market for these properties at this time. Buyers are lured to the area by the opportunity to enjoy their own gorgeous piece of land at a ridiculously low price.

Often these properties have no road access or utilities, but buyers at Stage 2 can also heavily influence how the area develops by establishing the tenor of development as other investors seek to build complementary businesses.

Buyers at Stage 2

Speculators who also enjoy adopting an area, influencing how it grows, and then seeing it mature according to their vision.

Signs of Advancing to Stage 3

Word begins to spread locally about the price paid driving the price up as speculative buyers begin to purchase. As the price, and value, goes up, more money is drawn to the area feeding the cycle.

Many of the early buyers who purchased larger pieces of land for much less start to sell off small parcels from their property at a much higher price.

Stage 3 buyers who expect infrastructure, services and community to be there or to be arriving soon start purchasing land.

Stage 3

Smaller lots go on sale with a few houses popping up. The region doesn’t look much different from a Stage 2 area as very little building is happening. Most of the transactions are still speculative. Building of very basic amenities begins.

Buyers at Stage 3

Buyers start picking up smaller parcels and lots from the early large-scale speculators. A hand-full of small-scale buyers build houses, but most are speculating and plan to sit on the land a bit before building or selling. Selling of nearby large-scale pieces continues.

Signs of Advancing to Stage 4

Someone begins offering a cohesive residential product, like a subdivision, and people start to move in. The various businesses offering services to that residential base soon follow.

Stage 4

For the first time, you begin to see a critical mass of residents creating community infrastructure including restaurants, grocery stores and tourism businesses. A significant number of tourists decide they like the area so much that they want to settle and a lot more residential housing appears. Larger businesses like supermarkets and hotels start to appear as Stage 4 progresses.

The area begins to be recognized for what it is rather than its potential as businesses and community become established.

Buyers at Stage 4

Individuals, entrepreneurs and businesses looking to live, work and do business in the area start buying the properties. Simply flipping undeveloped land is a much more difficult business model in this stage.

Signs of Advancing to Stage 5

The big chains start building and plans for a full complement of amenities and advanced infrastructure emerge.

Stage 5

A full-scale large town with all of the typical commercial infrastructure, including a range of grocery, restaurant and entertainment options, medical services and maybe even an airport. Tourism is no longer an essential driver of growth as other forms of industries and incomes are established.

Buyers at Stage 5

There are all sorts of buyers mostly with the common characteristic that they plan on using the land.

Using the Stages

Each stage presents unique opportunities and challenges. By understanding these stages the investor has a better framework to evaluate a market and make better decisions.

I have been a full time real estate investor for 15 years. The first property I purchased was a farm in Costa Rica at the age of 18. Since then I have spent years traveling, living in different countries, founding different investment companies, and studying how the real estate markets work, grow, stagnate, and function under different circumstances.

It is an interest I have always had. I can’t even go on vacation without visiting real estate offices, looking at properties, talking to hotel owners, local attorneys, travelers, or restaurant owners, to get an idea who the customers are and what product is the most compelling. My passion for lack of a better term is “Real Estate Anthropology”. I am especially interested in the historical development of an area, and what events or circumstances led to the greatest rise in property values. This information can then be applied when deciding where to place investment for the quickest and highest return.

There are many similarities between Central America and other markets as it relates to real estate, but there are many differences and knowing how each could affect investment is critical for success in todays economic environment.

Central America has many areas experiencing early stage development which comes with its own unique customers and projects and techniques for investment.

When I bought my first property I didn’t know how to evaluate investment potential or how local laws, regulations, changing administrations, political agenda, or amateur development to name a few could affect my investment.

It turns out a little luck can deliver profits just like experience, but I didn’t want to rely on luck as a strategy, so I started studying areas, towns, beach front, travelers, buyers, successful projects, unsuccessful projects, and wondering how these smaller towns mature.

View Central America Road Trip in a larger map

Through this practice, I have been able to develop rules for success and an intuitive feel for changes that can lead to making investments returns. This feel has come from years of long term case studies of topics like: What affect will a new road have on values? What is the best timing invest when a new road is coming?, Why sometimes a new road is bad for values?, How the first major development in an area can change the customer base and create demand for a new type of product, Why amateur development can stagnate growth long term, How a good surf break can be the catalyst to development, to strategies for controlling large regions just ahead of infrastructure change, or when lower density developments are a better investment than cheaper higher density options.

Real estate markets move in cycles or stages and in Central America these cycles/stages are particularly pronounced, each new cycle/ stage brings new services and options, and new services and options bring new customers, and new customers bring money and if this can be sustained it will mark the beginning of a new cycle/ stage.

There is a long term pattern for values they tend to lurch forward then stagnate, then hopefully lurch again, stagnancy lasts longer in some places than others, knowing the signs of change can be an advantage. I look at each town I come across as a stockbroker looks at a stock, what is the upside? Are there any changes about to occur that would favor my investment in the region? What is the history of the area? Are there any developing trends that would dove tail here? Are the people coming here going to stay or just passing through? Whey
would they buy?

Recently I decided to pack up my family and drive through Central America to gauge what has changed and how much during the latest real estate run-up. I particularly wanted to focus on area comparisons and learn why some areas increased in value more than others?, Was Sayulita Mexico a better place to invest the last 5 years than Coronado Beach Panama? Will the proposed airport in southern Costa Rica do for the region what the Liberia airport did for Guanacaste? Does a heavy military presence hurt the perception of country enough to wreck investment potential? How much are the negative headlines from the drug war in Mexico impacting real estate transactions? How does strong local culture and traditions relate to long term value?

My traveling caravan included me, my wife, my 4 year old son, and my 1 year old daughter.

We packed up our belongings and hit the road over a month ago. Leaving from California, we were able to explore Mexico, Guatemala, Honduras, Nicaragua, & Costa Rica.

There was fair amount of pessimism about the voyage, “It will be hell for you and the kids in the car that long” “Why drive when you could fly cheaper?” “Its not safe” “The trip will end with a divorce” was the refrain from everyone who heard our plans.

I knew from my travel experience in Central America what to expect, but there were times when I wondered if I was crazy.

Now that the trip has been completed I would tell anyone, it was well worth the effort. From the sights to the insights driving through the entire region in short duration was an experience that was very valuable.

The two worst parts of the trip were getting sick and the unpredictability of the border crossings. The whole family caught something and we were all bed ridden for 4 days. At the border crossings, you never knew if it was going to take 1 hour or 5 so planning wasn’t very easy. It did seem to get harder as we moved south. Coincidentally the food also got worse as we moved south. Maybe there is some correlation.

The best part was being reminded of the diversity of Central America and Mexico and for my wife and I to share that with our kids. If you read the headlines, it could be interpreted that the real estate business has disappeared, this is an overstatement, but leaves the
question who is still buying property and why? What kind of transaction volume are towns seeing? What qualities do the towns have that have been able to endure the sharp down turn?

Before I left I decided on two goals. The first was to get an on the ground feel for how the real estate market has changed in the last
6-12 months. What’s selling who is buying and why and which areas were most resilient to drastic changes in market conditions? The second goal was to scout out new opportunities for our investors and buyers.

By the end of the trip I felt i had a pretty good grasp on these goals. My impression wasn’t that there was brisk selling, but there were some places with healthy sales numbers. The places with healthy sales had one thing in common, limited supply, which meant that prices
hadn’t changed much. The buyers in these places had changed in the sense that they are much more cautious, and sales had dropped of their
peak, but product was moving.

We will be posting several different types of reports and articles in the coming weeks based on the trip and the new opportunities that have presented themselves along way.

The first is called Area Snapshots and will be coming in a few days.

When scouting new opportunities we begin by developing a feel for a place and its market. If we like what we see we move on to developing much more detailed due diligence about an areas customers and product. We use snapshots to help determine where we would consider digging in further or to update a location.

I hope you enjoy them.

Area Snapshot

Nayarit Riviera, Nayarit, Mexico

Highlights Gorgeous lush coastline winding point after point from San Blas to Vallarta Nuevo. Area benefits from established towns with different personalities, which is being promoted heavily, four seasons at Punta Mita attracts high end clientele.

Cons: Can be buggy, Beachfront discovered a long time ago

Airport Puerto Vallarta

Weather: Mild tropical climate with an average temperature of a comfortable 77° F (25 ºC)

Investment Potential: High. The mayan Riviera is a large area of a 100 mile stretch of coast, Winning investments will be separated when choosing where to invest. Which will grow faster? The established areas or yet to be branded nooks? The less established areas need quality projects to develop an attractive personality, and the more established areas that already benefit from a personality have to hope that will stay a winning formula for post-bubble buyer.

Area Snapshot

Huatulco, Oaxaca Mexico

Pop. 15,000

Also known as Bahias de Huatulco is centered around the town of La Crucecita

Strengths: Well planned and designed community that is safe and offers all the key attributes for growth, strong local community, golf course, marina, some resorts, and an airport.

Weakness: Isolated, price per square meter is pretty high compared to the countries south, La Crucecita has tourism and thats about it.

Notes of interest: Huatulco has a local airport that services the area so you can fly directly there. The town of Las Crucecita is the heart of the area, it offers several eating and lodging options in a quaint but sterile mexican atmosphere. There is a marina, resort options, and a golf course.

The area is master planned to support 100,000 residents, currently the size is about 15,000. The key to this plan is that the mexican government has made sure that the master plan includes extremely high quality infrastructure like water, roads, sewer treatment ,and electric. What this means is that the long term health and growth won’t suffer due to poor planning like so many other areas in central america. One of Huatulco’s many offerings are beautiful bays and 36 beaches.

Sunshine can be expected about 330 days a year with the average temperature of 28C

Area Snapshot

San Cristobal de las Casas Chiapas, Mexico

Pop. 142,364

Small Mountain city located in the Highlands of Chiapas with strong indigenous presence

Highlights: Beautiful Colonial city with an unexpectedly urbane cafe and art culture. A very strong indigenous presence and influence.

Cons: Isolated, political risk, the political situation could flare up causing long term investment concerns.

Climate and Appearance: Lots of pine trees covering the surrounding mountains, a fire place is great thing to have in the winter here because it gets pretty cold for Mexico.

Investment potential: Fair San Cristobal provides many opportunities for varied business plans, long term appreciation has been based on the city as a whole becoming more diverse in its offerings, subsequently attracting a more diverse group. Visitors to this area have changed dramatically in the last 8 years, it has become well serviced tourist destination.

Area Snapshot

Panajachal, Guatemala

Pop. 11,142

Highlights: Gorgeous lake surrounded by volcanoes, great climate, and vibrant indigenous culture. Good eating options in a walkable setting, the expat community is a lovable quirky one spawned from the popularity of the lake as hippy stop many moons ago.

Cons: Polluted lake. Pretty slow lifestyle

Weather Vegetation: The altitude of Pana is about 1 mile which creates a year round spring climate. The lake is surrounded by Volcanoes that are covered with farms and trees.

Investment potential Low Even though the area is beautiful and the small town is well serviced it is well known the lake is polluted this combined with a quirky niche market impede investment potential.

Area Snapshot

Antigua, Guatemala

Pop. 34,685

Colonial city with cool mountain climate, great restaurants, local areas to explore, broad appeal.

Highlights: Charming cafe’s, refined tourist amenities, climate.

Cons: Out of all the people who visit the area, not many are compelled to stay and live. Not much has changed in Antigua the last 10 years.

Investment potential: Low, This colonial city is second to none, but has tough competition from Granada, San Miguel Allende, San Cristobal, and now Cartegena, Columbia. From the investment point of view Antigua has the resources to compete, but does not attract the investment interest of other colonial cities.

Area Snapshot

Copan Ruinas, Honduras

Pop. 24,309

Colonial village set adjacent to the grounds of the Copan ruins

Highlights: Great little town, quaint, comfortable, and surprisingly enjoyable place to be, many travelers come just for the ruins and end up staying a few more days. Copan is the 2nd most visited spot in Honduras

Cons: Not enough diversity to accommodate a wide range of tastes, its perfect for backpackers, but others will have make some kind of sacrifice.

Investment Potential: HIgh Even though there isn’t enough diversity there is a great foundation to build on, and I am sure these niches will be filled in the near future.

Copan is surrounded by pasture mixed with trees.

Area Snapshot

Lake Yojoa, Honduras

17,040

Pristine lake town in the mountains , If you have been to Panama its like Boquete except two distinctions, Yojoa has a lake, and doesn’t have the retiree expats

HIghlights, Eco potential, varied wild life, lake and mountain views.

Cons: One horse town, the tourist infrastructure has evolved based on the tastes of the Honduran tourist who comes here, this means lots of shacks selling fish dinners on the lake. Lack of promotion. political questions

Investment potential: Good, even with the obvious concerns there are always people looking for value and some will find it here.

Yojoa is located 892 ft about sea level.

Area Snapshot

Granada, Nicaragua

Pop. 110,326

Colonial city on Lake Nicaragua

Highlights Beautiful setting for a colonial city to be built. Detailed renovations of restaurants and hotels with options for every budget, a die hard fan base.

Cons: Unpredictable political administration, You get the feeling your late to the investment party,

Weather/vegetation Temps range between 81 and 95 degrees fahrenheit. the region is drier than Costa Rica to the south and the landscape reflects that with a browner look.

Investment potential: Low This is the most popular place in Nicaragua, so it has been “Discovered” There are still projects that can be profitable, but I think the city is at or close to its peak for tourist activity, therefore not much potential for growth.

Rights of possession are a foreign concept that leave many international investors ill at ease. For many, it is just not worth the effort to learn and do what is required to acquire and maintain a healthy ROP claim. It’s quite possible to possess and sell ROP land just like titled land, but someone who is uncomfortable with ROP should make the effort to title the land for the added security and comfort.

Currently the titling situation depends on the location of the property.For agricultural land, obtaining title is relatively straightforward. For oceanfront land, because of the new law, patience is probably the prudent approach.

Agricultural Land

Titling agricultural land is straight-forward. Agricultural land is all land except islands, national parks, indigenous territories, shores of rivers and a strip of land along the ocean shore between the high tide line and 200 meters inland.

Title is obtained from the office of Agrarian Reform. A surveyor from Agrarian Reform needs to inspect the land and issues title if there are no other occupants or possessors. There are a number of different options when titling the land, but typically an application requires the following:

• Power of attorney.
• A copy of your passport and resident ID, if applying personally
• A copy of the survey of the parcel.
• A detailed description of the parcel.
• Authenticated affidavits from the neighbors stating that they have no complaint with the borders.
• Corporations also need to submit a Public Registry Certificate.

The process usually takes about 7-9 months and costs about $3500 in legal fees plus a per hectare charge for the land that varies depending on the type of application. It’s best to start by contacting a lawyer experienced in titling agricultural land.

Catastro, under the Ministry of the Economy and Finance, also titles agricultural land. However, it seems like Catastro is being superseded by other bodies and it may be a good idea to try other options.

Oceanfront Property

Titling oceanfront property is more of a challenge. There is a mechanism to title oceanfront property under Law 2, 2006, otherwise known as the Island Law, that allows people to title ROP holdings from before 2006. [/column] [column width="33%" padding="5%"]

Unfortunately, the Island Law has been applied unevenly and, in practice, it is virtually impossible for to get title through the Island Law. Applicants have made significant investments into the process without return.

Automatic Titling

PRONAT titles whole districts at a time under 2 separate programs. In both cases, the process is automatic and there are no associated costs.
The original program started in 2001 and is active in many of Panama’s prime locations.

The more recent program, established under Law 23, 2009, is so new that there hasn’t been enough time to witness its practical implementation. The plan is to transfer titles registered with Catastro to PRONAT and making PRONAT the main regulator of the titling process.

It’s prudent to have an attorney contact PRONAT when they start titling an area just to make sure everything goes as smoothly and quickly as possible.

Alternatives to Titling

With the deficiencies to the process of titling oceanfront property there are alternatives worth exploring until the titling process improves.

It’s possible to build and obtain title to a structure on the land under Panamanian law.

This will secure part of your investment and will further strengthen an ROP claim. It’s best to contact a Panamanian lawyer familiar with titling structures to get the process started.

Another option, although a bad one, is to attempt to obtain a concession under the Island Law.

Concessions are only available to developers within tourism zones, as designated by the Ministry of Tourism, and are granted only for a limited period of time. Getting a concession requires a significant investment in planning, time and money. However, just like the titling process under the Island Law, there is virtually no chance of success.

To Title or Not To Title

Obviously the decision to title agricultural land is a lot easier than the decision to title coastal land. Agricultural land only requires the desire and a little bit of time and money. If PRONAT is already titling the area, waiting for them to do it is also worth considering.

Coastal land requires desire and lots of money and even then the chances of immediate success are low. The consensus has already emerged amongst Panamanian professional classes that ROP land needs to be fully titled and successive governments have attempted to improve the titling process. It might be a better idea to hold on to ROP in coastal areas and wait for the titling process to improve or to wait until the property gets titled by PRONAT.

President Ricardo Martinelli rode into power by combining populist politics with a solid business background. It sounds like a strange combination, but a President who’s already earned a fortune isn’t as likely to succumb to the pull of corruption that’s plagued many Panamanian politicians. And, as someone who understands the needs of business, there is a lot of hope that he can help both rich and poor by accelerating the expansion of the economy.

In his inaugural address, Martinelli specifically mentioned ROP as one of the government priorities.

We will begin a massive land titling program, so that I can tell everyone who’s listening who has possessory rights, prepare these rights because you’re going to have your piece of land titled.

Martinelli’s comments aren’t all that new.Previous governments have made similar pronouncements and little has come of it. It’s not believing that Martinelli will succeed where others have failed that makes now the time to be buying ROP land, but rather seeing Martinelli as part of a trend that is rapidly leading towards fully titling Panama.

Current Legislation

Previous governments have also identified ROP as a hindrance to foreign investment and have taken steps to reform the system with varying degrees of success.

The Agrarian Code, implemented by the department of Agricultural Reform has a very consistent and effective titling program. All through the countryside there are signs declaring “La tierra es tu futuro. ¡Titúlela!”, or “The land is your future. Title it!” in English. The only big problem with the Agrarian Code is that a lawyer is needed to get the paperwork done. This necessity excludes many poorer Panamanians.

Unfortunately, the Agrarian Code only applies to agricultural land which is defined as land more than 200 meters from the high-tide mark.

Oceanfront property isn’t easily titled. Holders of ROP from before 2006 can apply for title under Law 2, 2006, the “Island Law,” but the laws governing oceanfront title are confusing and applied unevenly. Foreign investors who have attempted to title oceanfront property under the “Island Law” mostly only got legal bills to show for their efforts.

The most recent legislation is also the most practical attempt at titling coastal land.

Law 23, 2009 calls for title to be practically given away making it reasonable for locals who can’t afford to spend much to title their land.

There is a capital gains tax of 25% on the first sale which essentially shifts the cost of titling the land to the sale where even the poor can afford it and gives the government their share for government-owned land.

And it satisfies investors worried about the security of their property by giving a clear way of titling the land.

The Future of ROP

While rights of possession may eventually fall entirely into disuse, there is every reason to believe that ROP holders will be able to turn their ROP claims into full title at little or no cost. The ROP system is too entrenched to disenfranchise ROP holders many of whom are too poor to pay more than token fees to transform their ROP into fully titled holdings.

There is virtual unanimity amongst the Panamanian professional class that ROP hinders the progressive image that Panama attempts to portray.

The current government has made titling land a priority. Those with experience doing business in Panama know that previous governments have made titling land a priority only to have progress hindered and stopped by competing interest groups.

So what’s changed?

In a word, nothing. The current government has the most practical plan yet to be put in place. But it’s not any single plan or piece of legislation that’s important, but rather the evolution of plans and legislation.

Momentum to title ROP continues to build. Legislative attempts to title ROP continue to mature. Even if the current attempts fail, it is a matter of when, not if, titling of ROP holdings happen.

NEXT: Titling ROP

Kurt Vonnegut once wrote that “everyone wants to build, but nobody wants to do maintenance.” Luckily for investors buying ROP, building is a large part of maintaining an ROP claim.

If an ROP claim is contested,possession is awarded to whoever can best demonstrate possession. There is no single criterion that guarantees continued possession. But there is a large array of criteria, like documentation, use, extrajudicial declarations from family and community, exploiting the land, and certifications from certain authorities, that make it virtually impossible to lose possession when combined.

Fence the Property

It’s easy. It’s cheap. It prevents neighbors from accidentally using the land. Fencing the land is a small one-off expense that goes a long way towards preventing problems.

The good fences make good neighbors proverb has never been so true. No farmer wants to till land only to discover that they’re not allowed to use it. And no investor wants to evict a neighbor as their first foray into the community. So build a fence and no one will be disappointed.

The best time to plan a fence is during the pre-purchase phase. Get together with the seller and the neighbors and walk the property line so problems aren’t inherited from the previous owner. Then get the fence up as soon as possible. You would rather learn of a disputed line before the acquisition than the day after.

Use the Land

Someone who’s not planning on building or not planning on building right away should plan to make some minimal improvements to the land. Something as simple as planting fruit trees is a good start.

Across North America, it’s not unusual to see an empty lot sitting in an otherwise rich and vibrant downtown core. Usually these lots are owned by some investor who has nothing to do with the city except for this passive investment. If these lots were ROP, the absent owners could at worst lose or, more likely, have to go to court to protect the land.

Using the land helps demonstrate possession and makes it less likely that a neighbor will think it’s okay to use the land.

Hire a caretaker

Hiring a caretaker who keeps everything neat and in good repair also helps maintain a ROP claim. The caretaker basically keeps the land in use and the jungle from taking over.

For large properties, this only costs about $300 per month and smaller properties can often share caretakers with their neighbors.

It is important to make sure that the caretaker has signed a proper labor contract so that the caretaker himself isn’t making claims on the land.

The caretaker will also greatly reduce the risks of trespassing or theft. Violent crime in Panama is rare, but it is not unusual to return from a short holiday and discover the house broken into. A caretaker, even shared with the neighbors, will go a long way toward keeping people off the property.

Building on the Land

Building on the land is another way to demonstrate possession and strengthen an ROP claim. Keeping a herd of cattle isn’t necessary to enjoy your land while knowing it’s secure. Building helps too.

Virtually any type of infrastructure will strengthen an ROP claim: buildings, roads, wells and pretty much anything else will help. It is also possible to title many improvements to the land which will further help demonstrate possession.

ROP Over the Long Term

Preserving an ROP claim is important because it’s a lot cheaper to plan ahead and take steps to guarantee the claim than it is to have to prove a claim in court. With a little bit of planning, there is no reason why someone can’t own ROP property for as long as titled property.

NEXT: ROP Now & the Future

Purchasing ROP can be frustrating. The idea of possessing land instead of owning it is so foreign to most North Americans that many just give up and look elsewhere. But, once they understand the risks of ROP, there are just a few basic advantages and disadvantages that differentiate ROP from titled property.

Financing and ROP Land

The biggest disadvantage ROP land has versus titled property is that, since it isn’t titled, it can’t be used to secure financing.

It’s very important to be aware of this before you purchase because you need to use the property to maintain the ROP claim and one of the most common ways to use ROP property is to build on it. Obviously the property can’t be used to finance the infrastructure, so funds need to be in place to buy and build beforehand if you plan on building.

Outside the Maritime Zone (typically 200 meters from high tide), it is possible to title ROP land. This usually takes around 7-9 months. Once titled, the land can then be used for financing normally, so a good rule of thumb is a year’s worth of maintenance expenses need to be budgeted in eligible areas before financing options become available.

Tax Exemption

It may not be possible to use an ROP claim for financing because ROP is not technically owned, but, since it isn’t owned, it’s also not subject to property tax.

Property tax of about 2% is paid on titled land. The savings can be significant particularly on larger properties where other expenses scale better.

Building Codes and By-Laws

Some people choose to keep their property as ROP even when they could easily title the land because ROP is not governed by local building codes.

Local building codes cover everything from the minimum lot size to the width of any road on the property to the type of drainage. [/column] [column width="33%" padding="5%"]

If you plan on titling the property, it is best to build to code. If you don’t build to code, local authorities may slow down the titling process or force you to get everything to code anyway. Small transgressions are often allowed to pass, but exactly what depends entirely on the local authorities.

Even where title isn’t desired, it’s best to build as close to code as possible. Milton Friedman once said, “hell hath no fury like a bureaucrat scorned.” Flaunting local regulations reduces your options and invites petty retribution from officials you might need to deal with in the future.

Obvious contempt for building codes is asking for trouble. Small transgressions or following the spirit, if not the letter, of the code may be alright, but it depends entirely on local officials. Following building codes is definitely the safest and keeps the titling option open.

Availability

The biggest advantage of ROP over titled land is availability. Simply put, most of the best land, including 90% of all beachfront property, is ROP.

There’s no reason for an investor to compromise a business plan because they’re scared of ROP. If the right piece of land happens to be ROP, then take the time to learn about ROP and take the necessary steps to purchase the property safely. Then let the business proceed according to plan.

And there’s no reason for someone to automatically rule out a location for their dream home simply because it’s on ROP land. They need to consider whether they are willing to learn about ROP and then whether they are willing to take the necessary steps to maintain an ROP claim before making the decision.

Why Buy ROP?

If the land is needed for financing, then ROP is obviously not an option. Tax advantages are nice, but only get significant on larger properties. Fewer building regulations are also nice, but ignoring regulations reduces options and invites conflict.

The main reason to buy ROP land is that it is the piece of land that best fits the business plan.

NEXT: Preserving ROP Claims

Warren Buffett famously described the junk bond market as weeds priced as flowers. He warned anyone who would listen to stay away. In spite of the risks, Buffett found junk bonds that he actually liked. He never wavered from his opposition to junk bonds. But in a perilous market, he was able to find opportunity that justified the risks.

Purchasing rights of possession (ROP or derechos de posesorios) is as risky as any random junk bond. Unprepared and uneducated investors can get seriously burned. But an informed investigator can consistentlypurchase properties in prime locations safely and profitably.

Who Owns the Land

Uncertainty over who really possesses the land is the primary source of risk when investing in rights of possession. Rights of possession can be registered with a number of different authorities, but there is no centralized database listing all ROPs and most ROP land isn’t registered at all.

As a result of this confusing situation, the person selling the ROP might not even have the right to sell the claim.

ROP is designed to protect the rights of communities that have been using the land for generations without going through the expensive and contentious process of formally titling land.

Imagine a family that’s lived and worked the land for generations. As their needs grew, they expanded their farming to include unused adjacent land. They didn’t buy the new land because nobody had the authority to sell it. The choice between feeding your family and starving in bureaucracy is an easy one to make.

The community grew with the needs of the people and the people knew that the laws governing ROP protected their community and the equity that they built in to it.

Now you have several generations, including cousins, aunts and uncles, all working the land. They all live close by. They help each other and share when necessary. Who then owns the pasture where everyone’s cattle grazes? And who gets to sell it?

This simple, practical arrangement is at the root of how investors get into unwanted trouble. Historically, challenges to ROP claims come from either a family member of the seller or from a neighbor of the seller. Maybe one brother is in financial difficulties and needs money now, but his siblings still need the land. Maybe the family is moving to the city, but the neighbor still needs the pasture they share.

Sometimes the problems are a result of innocent mistakes or sometimes they are the result of deliberate attempts at fraud. Either way, proper investigation will unearth most problems before any purchase and protect the investment from the problems it can’t find beforehand.

Mitigating the Risks

The way to resolve this problem is to go into the community and get signed affidavits from neighbors and family stating that the land in question is solely possessed by the seller. Doing this will uncover legitimate competing claims and attempts at fraud on the part of the seller and it will protect the investment in court.

With a good pre-purchase contract that includes a due diligence period where the purchaser’s capital is not at risk, the seller should be an important ally in getting signed affidavits.

If the seller isn’t trying to commit fraud, then most sellers are happy to connect purchasers with the community to facilitate the sale.

If the seller is resistant, then that’s the first sign that something may be amiss. Even without help from the seller, attempts at fraud in these tight communities are quickly revealed through this sort of investigation.

The affidavits also provide protection after the purchase. If some long lost uncle returns and thinks he can make a quick buck, he will have a difficult time making that claim because his whole family has sworn that the original seller had sole rights to the land.

Then, after consulting with the community, it’s time to check for registered claims with various authorities and finally purchase the land if nothing is amiss.

Investing Safely

The biggest obstacle to consistently purchasing and profiting from ROP land isn’t the unusual system, it’s the poor grasp of the system by foreign investors.

Investing in ROP is no different than any other sort of investment. Once the understanding is there and it can be done safely and profitably.

NEXT: Advantages & Disadvantages of ROP