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Everything that's wrong with Panama's agents and why I'm one of them. The following is a document written by my friend Kent Davis. Kent is a consultant in the City and he wrote the words below as a response to his many clients who were interested in details about making investments in Panama. Kent is arguably the most reliable agent I know in Panama and although his work clearly conflicts with our interests here at The Panama Report, we thought it was important to post.
Introduction:
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My name is Kent Davis and I have been selling real estate in Panama
for almost two years and quite frankly, business is good. Demand is
high, supply is low, and good information about real estate in this
country is very much absent from the market, which puts me as the real
estate agent in a powerful position: in terms of selling real estate,
all the stars appear to be aligned.
What follows is my take on what is going on in this crazy
environment, written as a warning to those considering making a
purchase here, from someone in the trenches. Take this with a grain of
salt, because nowhere in this document are my words challenged: not by
real estate associations, competing agencies, or tourism board
directors. I am using this piece as an outlet to present my own
opinions about the experiences that I have had in the course of my 9 to
5 because I have seen things here that would never fly in the US, and I
have dealt with just about every type there is to deal with when it
comes to real estate in Panama. This is written in first person, mainly
because I'm not a journalist and don't know how to write any other way.
I am sure I'll get a lot of flack (even rage) for writing this, but
these things need to be said, publically. After all that I have seen,
done, and had done to me, I still believe in Panama both as a place to
live and as a place to invest. This country is a wonderful place to be,
but it is not for the faint of heart.
In these pieces I detail my history in the Panama real estate world;
from my first contact with Panama as an enthusiastic traveler, to my
current success as a real estate agent. My motivations for writing this
report will become clear, but first and foremost let me say this: I am
writing this report to make sure that you as a reader and a potential
investor go into this country prepared. The last thing that this
country needs is for you as a buyer to get screwed, cheated, or
otherwise hustled in your pursuit of property here in Panama, and then
go home and tell your friends what happened. Not good for you and not
good for Panama.
The Panama real estate market is a national gold mine and what I
describe in this report will make it clear to you the reader that it is
not nearly as glitzy or as glamorous as you think, and certainly unlike
any other market in the world. The international investment community
has only recently discovered Panama, and for this reason the market
remains fairly naïve; regulation, multiple listing services, and
ethical principals have not yet become standard practice, and it is not
evident if any of these will be developed anytime soon. Buyer beware.
This report has been on the drawing board for some time now, but I
decided when better to release it than at the height of one of the most
talked about and competitive real estate markets in the world: Panama.
I hope it to be an insightful meditation on the inner-workings of a
beast that I have ridden now for almost two years for better or worse,
through thick and thin.
Part 1: About Me
Before getting into the “meat and potatoes” of this report, I should
probably tell you a bit about myself. Feel free to skip to the good
parts if you don’t really care, but in the interest of building a bit
of credibility, I’ll fill you in on the guy behind the keyboard.
I was born in Honolulu, Hawaii into a good Roman Catholic household.
I ended up attending high school in Virginia and later pursuing a
degree in Marketing at James Madison University in Virginia. After
college, I was fortunate enough to be recruited by one of the largest
wholesale distributors of construction materials in the world, Hajoca
Corporation where I spent the next five years working in places like
Cleveland, Richmond, and ultimately Atlanta. I ran the commercial
plumbing supply business from 2001-2006, and I loved my job. At the
peak of my career in the US, I was making a healthy six figure income
and I was on top of the world.
Then one day in 2005, a surfing buddy of mine called up having just
returned from an epic Central American surf tour. “Dude, you gotta
check out Panama! I'm telling you man, that place is so YOU". That
piqued my interest and I began looking into it, and the more I
discovered about the country, the better it started to look.
Of course, Costa Rica was on everyone’s radar in the 90’s, but to me
it seemed like it had reached its peak, and that’s why Panama seemed
like an attractive place – sort of like “ The next Costa Rica”.
One cold February morning, I pulled the trigger. I quit my job, sold
my car, and broke up with my girlfriend. Well, it didn’t actually
happen that quickly and I wont bore you with the details. But it all
ended up with me here in my new Urban Jungle: Panama! I absolutely love
this country and could write a novel about all of the amazing people
that I have met and beautiful things that I have seen, but we'll save
that for the email to Mom.
Part 2: Why I am writing this Report?
While I would love to say that my time and energy spent over months
writing this report was simply my gift to new buyers, it's not
necessarily all that philanthropic.
One reason I decided to sit down and document my time in the
industry was for myself. I decided that years from now, it will be
interesting to look back on a time and a country that was booming in
every single way. So in documenting my journal-like experiences, I
attempted to find a safe harbor where I could express, without
censorship, my time in the Panama real estate world.
An author I like, Lois Guarino who wrote Writing Your Authentic
Self, said a journal should be "a record of internal life ... A place
where...you can commune with rarely explored parts of yourself and
where those parts can answer back. It is this dialogue, carried on over
an extended period of time, that has the potential to bear surprising
insights, support truth-telling, and foster courage." Smart dude.
And that's where the second implication of this report became clear.
In writing this journal and concentrating on specific issues, I decided
the information might be useful to outsiders looking to find some
guidance in a foreign market so I decided to organize it into sections
based on my ramblings. The amount of misinformation and suspicious
activity I've seen while selling real estate in Panama is disturbing,
so hopefully this report will help alleviate some of that tension and
clear up some misconceptions and fallacies about the market here in
Panama.
In the course of my job, I have come across some very talented and
savvy real estate agents in this country. I have also been burned,
stabbed in the back, lied to and otherwise screwed every which way from
Sunday. I am not going to name any specific names, because that would
be truly damaging and not the intent. However, upon reflecting on my
experience I feel like I am able to document what happened and why, and
I think that type of information needs to be made public, if anything
to educate and protect the buyer.
Panama as a country has tremendous potential: as a new home for
expats from North America, as the play ground for Central and South
America’s rich and famous, and as a world class tourist destination and
thriving place to start or expand a business. I don’t want some
dishonest real estate deal turning anyone off to this country, so I
figured the best thing to do would be to write a book and explain to
people what to look out for. From somebody that's been on both sides of
the game.
Part 3: The Lies in Panama Real Estate
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Purchasing real estate especially in a foreign country is all
about trust. Most of the people that come down here know very little
about what is available, what a fair price is, and what they need to
watch out for, and these factors play a huge role in the power, be it
good or bad, of a Panama real estate agent.
I have seen many agents, lawyers, and even bankers misinform
clients knowingly, simply because they can. I’ve seen developers
publish false sales numbers, I’ve seen agents sell apartments in
projects that were going under, and I’ve seen my fellow professionals
aid clients “like family” while they are here in Panama and never
return a single phone call once the first deposit is made. Like I said,
its not good for the people that are at the short end of the stick, and
its certainly not good for Panama.
This market is full of misinformation and I have seen it first hand, so my first piece of advice is to question the source.
Useful Tip: Don’t always assume that your guy’s word is
gold. Don’t be afraid to double check with another realtor, a
developer, or someone else who may be in the know.
"This is the last two bedroom unit I have left!"
"Tomorrow the price is going up $200 per square meter!"
"As a matter of fact, I just had someone cancel on that unit, but you have to reserve it NOW!"
I used to use these tactics, and I always had some very flimsy piece
of information to support my cause: "I have only one two bedroom unit
left!" What I didn’t know at the time is that I had one two bedroom
left on the 4th floor facing the ocean for under $200,000, but there
were still a bunch of two bedroom units left (not necessarily at that
price, or on that floor, with that view), but there was still more than
one left. And all I needed to do was get clarity from the developer by
asking them point blank, instead of relying on their published price
sheets. What I did not know at the time but know now is that developers
often release units in stages, and if you have a client that's looking
for, say, a two bedroom unit and there does not appear to be one
available on the current price list, odds are the developer is sitting
on a few choice units to sell at a premium later. Again, its something
you have to experience (or read about ) to know. So ask!
Useful Tip: Don’t always assume that your guy’s word is
gold. Don’t be afraid to double check with another realtor, a
developer, or someone else who may be in the know.
Nothing wrong with putting your agent on the spot, and it is an easy phone call to the developer to verify availability.
How about this one: “ The price is going up next week!" Actually, in
this market that could very well be the case, but don’t let that affect
your decision. If you are really thinking about purchasing a unit in
said development, odds are your agent (if he’s good ) can get you in at
the old price. Just make sure that when the price actually DOES go up,
you are in a position to make a move and either put in an offer at the
old price or accept the new price.
Promises: I usually tell my friends down here that the movie is
starting at 8pm when it is actually scheduled for 8:30. We are lucky to
make the previews. Know why? Because Panamanians have absolutely no
concept of time. But it's not impossible to deal with. When that
developer tells you that they are going to start construction in the
next three months and should be completed with the project in 12-18
months, plan on AT LEAST two years. And this goes for small contractors
as well, tenfold. They’ll show up two hours late and then be MIA for
two weeks. How do you avoid that? You don’t, you just plan on it and
take a deep breath because you know that you are paying a fraction of
the price it would cost you back home. And then you go get a delicious
$2.00 lunch at one of your favorite restaurants here.
Useful Tip: Don’t always assume that your guy’s word is
gold. Don’t be afraid to double check with another realtor, a
developer, or someone else who may be in the know.
False representation: Scam alert! Everybody here in Panama these
days seems to have a piece of property that they are selling. Of course
it’s titled! Full unobstructed ocean views! $2.00 a meter with road
access! Under $100,000 in El Cangrejo! Nine times out of ten, you are
not talking to the actual owner and are probably not getting the full
story. Again: question the source. You’re not down here to make friends
with your agent, and don’t forget that we don’t get paid unless we make
the sale. Don’t be afraid to ask the tough questions!
Having a good agent means you are dealing directly with the person
running the show. I cannot tell you how many times in the beginning
that I went to show a client a piece of property in the Caribbean or
Pacific coasts only to find out (after the fact ) that the gentleman
claiming to be the owner was only actually 'representing the owner'.
Part 4: My Competition
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Increased competition in any industry generally leads to more
choices, better prices, and stepped-up service for both buyers and
sellers alike. And with the rise of the real estate industry in Panama,
competition has certainly increased ten-fold. But the market is far
from mature, and the effects of competition in Panama are not as
healthy as one might think. Competition usually brings innovation, but
at times this market seems to be trapped in the backwards thinking and
antiquated systems of a third world country.
One of the reasons for so much of the deceit and misinformation
regarding real estate in Panama comes from the fact that we have no
industry-standard multiple listing service, or MLS. Instead of writing
a chapter on how this affects you as a buyer though, I’ve decided to
lay out what it means to me as an agent: so that you in turn can get a
different perspective and perhaps understand better what you’ll be up
against.
The majority of my clients who arrive in Panama are already familiar
with an MLS which for those that do not know is essentially a giant
digital warehouse in which properties from across the country are
stored. The typical MLS system is a database of information that allows
agents across said country to collaborate and buyers to compare and
contrast. Information is consolidated and organized in such a way that
it's as easy as selecting from a list that includes: a neighborhood,
price range, size, amenities, etc. If you're reading this, you probably
already know how an MLS works, so I wont get into it.
In Panama, that giant warehouse doesn’t exist. Instead, we have
hundreds of small, competing warehouses known as real estate agencies.
Each real estate agency in Panama has their own inventory of
properties, some of which overlap with other agencies. Not unlike a
tiny version of the really early MLS system in the USA, here in Panama
each agency has someone who compiles information regarding sales and
new property listings, then posts that information for the rest of the
agency employees to see: so that everyone knows the new product, and so
that no one is selling property that’s already been sold. But keep in
mind that all of this is done internally, and very few competing
companies share their listings.
I can only imagine how useful a MLS service would be as a real
estate agent. To think, after defining my clients’ needs, I could
easily identify available property and present said property to them in
a reliable and well organized format. Ha! That'd be the day!! At this
point its only a dream, because the concept of "sharing commission"
makes everyone nervous, even though no one is seeing the big picture
clearly enough to realize that we would all be 20 times more efficient
and thus able to close 20 times as many sales...
Not having an MLS severely restricts the portfolio of many agents so
if you the client comes in looking for something like, say, waterfront
valley property, chances are that agent will have nothing. As you might
imagine, this restrains the agent’s flexibility in terms of what they
can offer, thus encouraging them to push a different product. Any good
company that's earned their stripes should be able to offer their
clients both wide variety AND niche products.
Imagine sitting down for a nice dinner at a fancy restaurant in
Italy, having craved mushroom risotto for weeks before your trip. What
if the waiter not only told you he did not have access to mushroom
risotto, that no one else in town would have mushroom risotto, and
furthermore mercilessly tried to persuade you into ordering the steak
fajitas.
“ I didn’t come to Italy to eat steak fajitas,” you might say. “I
came to eat mushroom risotto! Give me my mushroom risotto!” It’s the
same with real estate in Panama: if you’re not dealing with the right
agent, you are not going to have access to the widest variety of
property and will only be shown the limited number of properties that
they have.
The lack of an MLS also limits each agency’s (and accordingly each
agent’s) access to buyers, meaning if I had the most spectacular piece
of property on the market, I wouldn’t necessarily be able to find the
best buyer for it because my reach was only as far as my marketing
tools spanned. This applies to niche real estate like mountain property
or beachfront property and it dissuades most agents from becoming
specialized in a specific region or property type because there’s no
direct or steady feed of buyers.
As a rookie a agent, my job used to be extremely hard because I had
to search like a gopher for that risotto and in the process avoid
resorting to a steak fajitas fix all property which the client probably
wont like. While I personally am a fan of referring clients if I don’t
have what they want, most agents in the City are not, which leads me to
my last point.
Not having an MLS in Panama makes my job difficult and makes me less
effective as a salesman because I am not encouraged to communicate or
interact with other real estate agents. The MLS system ensures referral
commissions from agent to agent and the United States judicial system
is pretty reliable if worse comes to worst. That protection does not
exist here and for that reason collaboration is pretty much unheard of.
Cooperation amongst agents (or lack thereof ) is a cultural thing, and
most agents are so worried that I may steal their listing that they are
afraid to tell me enough information about the property that they “
have “ , such that I am never able to pre screen apartments and end up
spinning my wheels looking at terrible properties, with the agents,
with no owner present. Get with a big agency and your problem is
solved, because they have enough pre screened properties and direct
contacts with the owners that you’ll end up having a true
representation of the market.
Keep in mind also that the various sites you’ll see online that
claim to be an MLS basically just mean to say “we’ve got a lot of
listings.” Websites and agents use this tactic because it’s what
foreigners know. Most of the time, the listings are outdated and
probably already sold, but they remain online as a teaser property to
get clients interested and give the appearance that the firm has more
listings than they actually have.
Does it sound Wild Wild West-ish? Does it seem like it’s easy for
you to get scammed or confused by a market you’re not used to? Does the
lack of an MLS make getting what you truly want, a mushroom risotto, an
incredibly arduous and depressing task?
Trust me, I feel your pain and I am here to help you.
Part 5: The Playing Field, The Players, and the Games they Play
Like I have said over and over, there are some very smart and
talented people in this market. There are a number of Panamanian agents
who have risen to the top through hard work, determination, and all of
the other factors that makes one successful selling real estate. There
are also some very savvy foreigners who have moved to Panama at the
right time and are now enjoying unprecedented amounts of success
selling the market to an ever expanding clientele from all over the
world. Property is still reasonably cheap, cost of living is a fraction
of what it is in most parts of the developed world, and the climate
beats the heck out of 5 months of winter. Panama’s an easy sell, but
buyer beware.
I chose Panama for all of these reasons listed above, but there are
some people that have come down here because they are running from
something, or have something to hide. These are the smooth talking scam
artists that are trolling the casinos and the airports, looking to
latch on to the unsuspecting buyer. For the most part, these folks are
fairly easy to spot because what they are offering just seems too good
to be true. Trust me, they are around every corner. You’ll also run
into the folks that, even if they are not cunning and deceitful, could
screw up a cannonball. These are the bumbling idiots that may have been
able to sell Panama about four years ago before anyone had any idea
about a fair asking price or a standard operating procedure, and that
are still floating around feeding off of the scraps. Watch out for them
too, because they’re not so easy to spot. More on these folks and their
tactics later.
In my previous life, I preferred to work with suppliers and clients
that returned my phone call or my email promptly. Given the sheer
volume of inquiries combined with the inherent manana manana attitude
of Panama, sometimes I don’t receive an answer for a day or two and I
have learned to be patient. This is Panama, and things NEVER happen as
quickly as you expect them to. Don’t expect to get voicemails returned
(ever ) and good luck getting an email response. Most business is done
in person here, and it may be worth your while to just head on down to
so-and-so’s office instead of leaving countless messages. If you are
dealing with either a government entity or a bank, plan on at least
four hours no matter how seemingly mundane or easy the task may at
first appear. There’s always another form to fill out or another $2.00
processing charge to pay.
Remember too, that in this booming market, the housewives have come
out to sell, and what this means is that you have agents showing up two
hours late, getting lost looking at properties, speaking very little
English, or trying to push one particular property even though its not
at all what you are looking for. Forget about directly asking the owner
any questions. Why? Because there is no MLS, and the selling agent
feels that they must protect their inventory and fears that you (or the
agent representing you) could go around them and buy directly from the
owner. This inevitably adds to the confusion, delay, and inefficiency,
but its all a part of the market here, so be prepared.
Working as an independent free lance agent also put a lot of
pressure on me because the best real estate agencies are a
one-stop-shop, offering legal, banking, and financial contacts out of
one office. Get with the wrong firm and you'll lose your shirt in more
than one way. Sure your guy can show you some great property, and you
may even end up closing the sale with him, but as far as after-the-sale
support, forget about it.
Back to me for a second, or at least me two months in…
So here I was, eager to please, full of answers, and driving around
this city like a deer in the headlights- chasing the dream. I let
developers feed me lines, pump me with false information, and otherwise
play my clients and I for a fool. I failed to advise my clients
properly and I basically approached my new gig as if I were a pistol
toting gun slinger in the wild west, shooting from the hip. But for the
record: I never lied to any of my clients, I never stole from my
clients, and I never knowingly cheated anyone out of anything. That’s
not how I operate because I knew better than to do any of that before I
ever came to Panama. However, I had let myself fall into the world of
hype.
I was naïve enough to take everything at face value and question
nothing, especially if I knew that it was the answer that my clients
wanted to hear. On properties with individual sellers (usually locals )
I increased the price to include a healthy commission for myself, which
( I found out later ) is not ethical.
Useful Tip: keep an eye out for agents who add exorbitant commissions. Anything over 6% is considered out of line.
Back to me, the rookie salesman…
Well, here we are, looking at an absolutely stunning piece of
property- in fact exactly what my clients and I had been searching for.
We are in a field about 130km from the city, as this farmer is telling
me and my client that what we are looking at is his his land. He’s
showing me a piece of paper that he claims is a title and insisting
that the neighbors sold their farm for $50/meter. My clients are hot to
buy and I am hot to close my first land deal so we shake on it and
leave with the understanding that we would be reviewing the terms of
the contract and be forwarding the deposit monies. Two weeks later, we
delivered the $2,000 deposit check and one week after the contract was
executed. Cha Ching right? Not so much...
One thing that struck me as a bit strange after my first sale is
that this man, who was selling a 2.5HEC piece for $150,000 had to
borrow my cell phone because he was out of minutes, and hopped on the
bus after our meeting. Red flag numbers one and two...
It turns out that this guy was NOT the owner of the property, and
this piece of land was NOT titled, but rather in the "process of being
titled" (right of possession ) which can last anywhere from two months
to two years plus. Good thing I had formed a relationship with a very
diligent and seasoned attorney, who eventually advised me (and my
clients ) to walk away from the sale.
Fortunately for us, the contract was worded in such a way that my
clients could get out having only lost their deposit monies. Otherwise,
that could have been a very bad situation. What to take away from this
little tale of rookie salesman and over eager client: make sure you are
dealing with the owner or owner's agent, and make sure to get a lawyer
involved as early in the game as possible.
It’s one thing to be buying in your native country, where you are
familiar with all of the laws, restrictions, and pitfalls of your local
market. Switch gears and put yourself in a foreign country and its a
whole new ballgame...
Panama is a country that has its own set of ethics, a very
complicated bureaucracy, and a culture of "juega vivo" that it is like
nothing my clients have ever seen (at least those that have never done
business in South or Central America). This “juega vivo “ mentality
encourages a culture of taking advantage -- and not necessarily just
taking advantage of foreigners.
No where else is the beuroctractic system more visible than at the
bank, especially when trying to set up a corporate account or obtain
financing. In a land of banks and the banking industry, one would think
that opening up a new account would be as simple as it is in the United
States. Walk in with a check, show some ID and voila!
Not the case in Panama. Anyone wishing to open up a new bank account
must have two letters of reference (which are a joke, but an absolute
requirement), a Panamanian sponsor and two forms of ID. And that’s just
to open up a savings account! I laugh when foreigners expect to walk
into a bank, be seen immediately, and leave within the hour having set
up a bank and pre-qualified for a mortgage. Nothing happens quickly
here, so plan on at least half a day when you are either dealing with
the banks or the government.
Useful Tip: Most banks and government offices open at
7:30am or at the latest 8:00. Get there early and you’ll get out early.
Get there after 9 and you’ll find yourself on the wrong end of a line
that doesn’t move.
That said, it becomes that much more important to be working with
someone that is going to call you back, going to help you dot your I's
and cross your T's, and basically act in your best interest when you
leave Panama with unfinished business. Make sure “your guy” is not
going to forget about you when you leave- because sometimes here its
“out of sight, out of mind.”
Part 6: The Ugly Side of Panama Real Estate
This is the part of the book that I was looking forward to writing
the most. This is where I am going to tell you about the money
laundering, whore mongering, and profiteering world of realtors in
Panama.
Back before I met and fell in love with my girlfriend, I would often
stay out all night with clients. These were the first-timers in Panama;
the single guys who had never been to a country with so many beautiful
Latin women just begging to be taken away by their prince charming.
Granted, most of said women were from Colombia and they didn’t exactly
have their suitcases packed. Actually, most of these girls were on the
clock, and at one point I had about 10 beautiful women I could call
that were always looking to dance the night away with a wealthy gringo
investor on a business holiday. Why? Because there is no bond like the
bond of love, and if this is how my clients wanted to remember Panama:
a sultry Latina who was ready to party 24 hours a day, then by God I
was prepared to do whatever it took to make that connection. It was
that universal bonding experience that brought us together, sort of
like a rite of passage that any first timer in Panama had to do to
truly experience the wild side of life in Panama. I was the guy who
would make the party happen, and then I usually got the heck out of
there but you can bet I was around to take the happy couple out to
lunch the next day and help translate during the awkward second date.
There wasn’t usually a third date, but my clients got what they were
looking for and it ended up being a win-win.
Cash is king in Panama, and although myself or my firm never
willingly accepted laundered money, I know that it happens in this
industry. I have heard stories of entire buildings being purchased with
cash. Hotel scheme rumors run rampant: tales of empty hotels turning
away potential clients and cooking the books to make it look like they
were at 100% occupancy. I’ve seen elaborate schemes involving agents
driving around with clients prepared to pay cash on the spot from an
unsuspecting farmer who has no idea the true value of his property only
to turn around and sell that property without even telling their
agency. Im sure it happens around the world, and its happening in
Panama.
Another interesting facet of the real estate industry in Panama and
one that has brought an interesting element into the country is the
notion of offshore corporations. In fact, Panama is the second largest
offshore country in the world, second only to Hong Kong. I usually
encourage all of my clients to form a corporation, mostly for taxation
benefits, but the privacy laws are no joke: an anonymous corporation is
just that -- anonymous.
That means that I can own a huge portfolio of properties under the
shroud of a corporation and no one has any idea who truly owns the
properties.
With offshore corporations comes the notion of asset protection,
which essentially means hiding as much money as you can from people
like creditors, ex-wives, and the IRS. Some folks are in the middle of
a divorce and want to get their money out of the country and others are
involved in cash related businesses (not all of which are entirely
legal) and need a country that is safe to park their money.
Other clients come here to get away from it all. The married men
that may have girlfriends in Panama, the single ladies that are tired
of their 9 to 5. Business is all about trust and relationships, and
some of these people really open up almost to the point of awkwardness.
I have had grown men babbling drunk, literally in tears confessing
their deepest secrets and misgivings in life after having just met me.
“Easy there tiger, I just sell real estate”. I would say my closing
ratio with these type of clients is close to 100%.
Part 7: Questions and Answers
So after welcoming a number of clients to Panama and spending
significant time with them either on the road looking at properties or
in the office discussing contracts, I like to think I’ve identified a
few commonalities between the experienced buyers and the rookies.
It might be helpful to know the questions that, for me, distinguish
a qualified buyer from a tire kicker who is only going to waste my
time. Here’s a list of questions that I get and what I think when I
hear them:
1. Tell me a little bit about yourself?
Panama is currently experiencing a gold rush and this means that
hoards of people, both honest and devious, are flocking to the isthmus.
The amount of shady characters who have arrived in Panama because they
aren’t welcome elsewhere in the world is frightening: so it’s always a
good idea to get a grasp of who your agent is, where they come from,
and how they arrived in Panama. The rookie investor who just jumps
right into the deal without getting to know me usually represents a
trigger-happy tendency: and someone who’s more interested in buying
something fast than doing enough due diligence to figure out who’ll be
representing him.
2. How many sales have you made in the last six months?
Yes, it sounds a little personal, but knowing the record of a sales
agent means knowing their productivity and accessibility. Top agents
are always highly sought after for their hard work, honesty, and
knowledge: so it makes sense to go with an agent who has made a good
number of sales in the recent past and isn’t looking for a sucker to
break his/her slump.
3. Who do you represent?
This is the a great question a seasoned investor will ask anywhere
in the world, but in Panama it is especially important seeing as though
the credentials and regulations for those who sell real estate are
simple and not enforced. The right answer should ALWAYS be you, the
buyer. In order to have a completely fair and honest buying process, it
wouldn’t make sense to be discussing negotiations with someone linked
to the seller. The inexperienced Panama investor would forget to ask
this and thus go into a deal with no one really on their side.
4. Do you have a support staff?
Because there are so many nuances associated with buying and selling
real estate in Panama, oftentimes the amount of work for a deal is
simply too much for one agent to handle. The best agents in Panama are
partnered with good assistants and specialized professionals who can
help them get the small (but important) stuff done. Tasks such as
forming corporations, finding comparable properties, and combing
through contracts are on the short list of things that need to happen
to close a sale. This will allow the agent to focus on you the buyer,
while his team is busy hammering out the kinks that inevitably appear
in every sale. A first-time or naïve investor might bypass this
question and assume that his/her agent can take the process head-on.
Every agent needs a good team, so if your guy is on his own, make sure
he’s got some sort of support network to complete the sale.
5. What separates you from the competition?
Business is good here - people are coming from all over the world to
buy property in Panama for a number of reasons. In the last two years,
I have seen the amount of real estate agencies triple. A good question
I like to hear is “ What makes you different from the competition”,
because it allows me to explain the service that my firm offers, the
skills that I bring to the table, and my personal philosophy of
business. It allows me to explain why the company I work for is top
notch. Why developers call US to represent THEM. People know my firm,
and I am proud to say that I work for them.
It’s the inexperienced buyers who tend to skip this question and go
with the first, friendly real estate agent they find. In the end, it
may not be the “nice guy” that is going to get the job done for you.
The people that are successful in this industry and get referrals and
repeat business are the agents that are going to negotiate with the
developer on your behalf, stay on the case for you, and otherwise make
sure that your best interests are protected in any situation- weather
it is with the bank, the seller, or a developer.
6. Where would YOU invest right now?
I like this question because it allows me to be honest and reveal
where I AM currently investing. It also represents a balanced point of
view from the buyer, in realizing that the best value investment in
Panama may not necessarily be what they were envisioning. If a better
investment exists than the one currently being considered, the wise
investor always finds it with this inquiry. Oppositely, a novice
investor in Panama might forego this question because they have their
head set on something different (which might not be the best bang for
its buck, or may be based on faulty sources of information).
Bad Questions:
On the other hand, there are some red flags too: questions I get
from clients on occasion that wreak of inexperience. When I hear these
questions, it usually signifies the end of the relationship on my end.
1. What's the cheapest thing you have?
OK, so maybe your interested in a small scale investment. Or maybe
you'd like to get your feet wet with something that has a relatively
low cost of entry. But asking this question certainly tells me you are
a tire kicker and in my experience it's these clients who are the most
difficult to work for. A true investor in Panama, even if he/she is
interested in something below, say $100,000, won't demand "the cheapest
thing on the market" as they know that probably means poor
craftsmanship, materials, location, etc. There is nothing wrong with
stating your price range, but please don’t just ask for “something
cheap.”
2. Where would YOU invest right now?
I’ve listed this one in both sections for a reason. You and I are
different, and this is not my money that we are playing with. It is my
job to find out enough about your investment strategy to make
recommendations and suggest properties based on your personal strategy
and investment philosophy. I am a pretty young guy, and I plan on
staying in Panama for a long time. With that said, I can afford to buy
a piece of property and forget about it for 10-20 years. If your
strategy is, say, a short term flip then we are not comparing apples to
apples.
3. Can I have a beachfront condo in good condition close to the city under $200,000 ready NOW??
This may not seem like an unreasonable request, but if you knew
enough about this market you would realize that the majority of
inventory on the beach will not be delivered until next year at the
earliest. Its not so much the question that is a red flag, its the
reaction to the answer. What I usually tell the client is " I
apologize, but unfortunately that is not available right now ". If the
client is not willing to compromise a bit i.e. raise their price range,
allow for more time, or look further outside of the city, I usually
tell them that my firm will not be able to help them and I throw em to
the sharks.
4. Can I double my money in one year and then flip?
If I knew exactly what the market was going to do in one year, I
would be driving a lot nicer car. With that said, I can tell you that
hindsight is 20/20, and I've watched my clients double their money in 6
months. At the time, I advised them that a particular investment could
show promising returns, but in the end no one can predict the future. A
more reasonable way to phrase this type of question would be " my
investment time frame is somewhere in the neighborhood of one year, and
then I would like to get out." I can work with that, because it
demonstrates a clear investment strategy and gives me some parameters
to work with.
The Rental Myth
It might be helpful too to provide the following approach I often
see taken by real estate agents which buyers regularly don’t question
as much as they should:
Hotel occupancy in Panama is high. Both the City and various beach
and mountain towns do indeed experience high rates of occupancy, but
this fact, especially when proclaimed by real estate agents, can
sometimes be misleading.
I have heard many times agents say to their clients “oh, you’ll have
no trouble renting this out for most of the year at X amount of
dollars.” In fact, when I was relatively new to the market, I believed
and assured people of the same thing. Times have changed though and
I’ve come to realize the truth.
Rental rates are high, because at the moment supply is very low and
demand is high, so finding a tenant these days is not a problem.
However, make sure to have a good property management company (few of
which exist in Panama) lined up before you sign the dotted line. And
also keep in mind that in this dynamic market it is difficult to
predict where rental rates are going as supply increases.
Additionally, it’s important to realize that tourism in Panama is
very new also, so take tourism predictions with a grain of salt.
Granted, this country is experiencing significant growth in the travel
and leisure sector, but nothing is ever set in stone. Long story short:
do your homework ( or get your agent to do it for you ) and check
online at places like www.comprealquile.com or even Craigs list for
current rentals rates before jumping into a rental property, and if you
are investing in a vacation property, make sure it is somewhere that
people are going to already.
Part 8: Swimming with the Sharks
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First, it might be helpful for me to tell you what you should expect to experience upon arriving in Panama…
The onslaught of promotion will probably begin on your flight down
here, from the in-flight literature to the chatty neighbor in the seat
beside you. When you reach Panama’s Tocumen International Airport,
you’ll find hundreds of magazines with beautiful buildings on the
cover, filled with advertisements, hook-em-in prices, and promises of
"your dream home.”
All of these magazines (and most of the content within) are
completely paid advertising. This is not New York Times unbiased
information, so take these magazines with a grain of salt with the
understanding that almost everything you will read or hear in Panama
has a spin.
Once in Panama, you’ll probably be approached by a number of people,
both locals and foreigners, asking if you’re here for investment
purposes. If you answer yes, chances are they are either selling
something or have a friend who is. Fight off the sensation of feeling
special, having made an “amazing contact in Panama just minutes after
you reached your hotel.”
Trust me: it happens to everyone. Take a deep breath and stick to
your plan. If you don't have a plan, find an agent. Not someone with a
property that they are trying to sell, but rather someone who has
access to what you are looking for.
During your tour of the City or outlying areas, you’ll come across a
second slew of shameless promotion: billboards, flyers, magazines,
newspapers, and TV ads. Ivanna Trump beckoning you to see her "Jewel of
Panama". Huge signs on job sites, some of which have grown dirty and
rusted, promoting projects that are still years from completion, and
still others promoting projects that may never even get started.
So let’s say you’ve withstood this barrage of information and
advertising and are still willing to consider buying real estate in
Panama. What do you do?
Well, most visitors contact someone, whether it’s a real estate
agency or an actual developer. Because the majority of developers in
Panama don’t focus on sales (instead hiring agencies to do it for
them), I would suggest finding a good agent and not ever getting
involved directly with the developers. Avoid the temptation of the
shiny developer offices and beautiful people working the front desk.
You’re not going to get a significant discount purchasing direct from
the developer, and in fact you may end up paying more. Your best bet is
to contact an agent.
The first thing to know about Panama real estate agents is that not
all of them will have a license. This is a double-edged sword: the
obvious downside is that it’s not traditionally sound to do business
with a professional who doesn’t have a license. This concept is
certainly not a misconception, but more of a general rule in business
because we all assume that licenses usually require tests, and passing
a test usually requires some body of accumulated knowledge or level of
expertise.
Panamanian law does not require a real estate "advisor" to be
licensed. Anyone can show, list and sell property. However, Panamanian
law requires a licensed agent or agency to close the sale.
What this has created is a unique situation in that the most
qualified person to show you property and help you with your real
estate search not be a licensed real estate agent. In fact, some of
Panama’s most competent and connected real estate salespeople (
“advisors” ) are foreigners and don’t have licenses themselves. These
are usually the people that have been working in this market for years,
and have the experience and wherewithal to guide you through the
pitfalls and headaches that you will most certainly encounter. These
are the people who can advise you in your native language and get a
true understanding of your expectations.
Because real estate is so new to Panama, it’s understandable that
many of the locals who have obtained their licenses are not as well
versed as they could be. In fact, most of the agents are still looking
at real estate as a get-rich-quick business and a part-time gig, making
them green to the market and its intricacies.
And while many foreigner experts in real estate have flown in from
Costa Rica, Belize and even European nations to take advantage of the
booming market, these foreigners are not permitted licenses until
they’ve spent five years in this country and can pass a test that is
entirely in Spanish.
The theory of the law is meant to protect Panamanians from losing
jobs to foreigners. What this has translated into, however, is a bunch
of licensed Panamanian housewives, running around trying to close deals
with no real knowledge of the market. All they see is what is directly
in front of them, as opposed to a 5,000 foot view; they do not have
that macro understanding of a market and the effects of scarcity,
oversupply, pricing pressures, and the ability to identify true market
opportunities. They lack that "big picture" approach that is important
in real estate, especially investment-focused real estate. Granted,
they may do a great job finding you a two bedroom pre-construction
condo in San Francisco because in all honesty you could throw a stone
from Atlapa and hit seven of them.
It doesn't take a genius to pick up a real estate magazine and make
a phone call on behalf of a client to close a sale. However, if you are
looking for solid and financially sound investment advice, a licensed
Panamanian agent is not automatically your best bet. Not to say they do
not exist, but the whole license thing is worth only as much weight as
the agent who is carrying it.
Part 9: Types of Agencies
Good agents can find the good deals. The internet has created a
market of its own, and prices can be inflated based on " what my
neighbor is doing ". Good agencies dedicate enough resources to finding
existing properties, and have an entire department focused on actively
acquiring new listings, keeping these listings up to date, and
maintaining some sort of master database of properties sorted by
various criteria.
Land is another facet of the real estate business here in Panama,
and good agencies usually have their scouts in the interior of the
country scouring the beaches, mountains, and small towns in search of
raw undeveloped land. Keep in mind, most agencies do not focus on this
side of the business, because it is very labor intensive and requires
strong local relationships with landowners.
The Master brokers operating in Panama are the agencies that have
good relationships with a number of developers, brokers, and
specialized agents ( the land guys ). Often times, developers will
chose to form an exclusive arrangement with a master brokerage and pass
along all of the sales and marketing responsibilities to said brokerage
firm. Developers realize that the master broker will have relationships
with a number of other small real estate agencies both inside and
outside of the country. This "catch all " type brokerage house is
usually the best type of firm to work with if you don’t know exactly
what you want.
Part 10: Know Thy Developer
There are about 10 big developers in Panama and about 100 other “one
hit wonders” who are doing their first project in Panama and may be
getting in over their heads. Big does not necessarily mean best though,
because some of my worst experiences have been with the “big boys”.
Preconstruction is based on trust- you see the slick designs and all
of the fancy graphic renderings of what the building is GOING to look
like, but the fact remains that all of this is based solely on promises
and a TRUST that the developer will deliver on what they have promised.
If you sign a contract with the wrong developer, you are going to have
problems. I have seen clients that have waited for five years for a
project that was slated for completion in two, and I have seen other
clients that were told that they would have to pay an additional
$20,000 because the developer “underestimated the rising cost of
materials ”or was “unable to continue in good faith with the terms of
the presale contract”. Align yourself with the right developer and you
wont have any problems. Find an agent that can give you a complete
developer bio, and Google the developer yourself to see what comes up.
I have seen horror stories over the last few years of clients being
over promised and under delivered. Projects taking five years to
complete when the developer had committed to three. Other projects come
to a grinding halt because the developer broke ties with his builder.
Other times, I have even seen developers completely back out of their
contractual obligations and refund all deposit monies to my clients.
What other projects has this developer done? This is an obvious
question, but too many real estate agents will glaze over the fact that
this is the developer’s first project here in Panama and they have
literally no point of reference for other projects anywhere else in the
world. This is a big red flag. Actually, I would say this is a yellow
flag…be cautious!
Just because a firm is doing their first project in Panama doesn’t
necessarily mean that the project is going to be a disaster or will
never come to fruition . It is just an indication that further research
needs to be done, and your realtor should be in a position to tell you
about the entire Development TEAM ( builder, architect, site engineer,
etc ). Make sure someone on that team has a track record in Panama,
because you DO NOT want to work with a bunch of hot shot developers,
builders, and engineers ALL from outside of the country. Foreign run
projects are usually a recipe for disaster because connections in this
country within the bureaucracy can either make or break a project.
Be wary when an agent tells you “ this is one of the most well known
developers in Panama “. What are they known for-lousy projects? I would
say “established” is probably one of the most important criteria for
determining a developer, with a proven track record of similar
projects. Just because the developer has built four gas stations in Rio
Bajo doesn’t mean that they have the expertise to build a 60-story
high-rise in Panama City.
2) Financing- I always like to give my clients some indication about
what percentage of the building is sold, because in all likelihood the
developer has some magic number whereby once they reach it, they’ll
start construction. Most of the time, the developer usually wants to
have at least 30% of the building sold before starting the site work
and laying the foundation. Sometimes its as much as 50-60%, so its very
important to ask your sales person how much of the building is sold and
what benchmarks have yet to be met.
There are those rare projects that are so well financed that the
start of construction is a firm date that will be strictly adhered to
and set in stone regardless of the amount of presales. However, that
does not mean that after great hoopla and an on-time-start, the project
may not come to a screeching halt because sales have been poor.
3) Who is the builder? The Builder is one of the most important
parts of any development team, and oftentimes the developer sub
contracts the work to an outside building firm. Nine times out of ten,
the company doing the building is Panamanian. In that rare instance
that someone tells you “ They are bringing in one of the best building
companies from Country XYZ to do all of the construction, ” buyer
beware.
Construction labor in Panama is a very sticky subject, and 99% of
the work force is unionized so its virtually impossible to keep any
sort of construction on schedule if a foreign builder is doing the
work. Not only will there be political headaches and work stoppages due
to protesting workers, but in all likelihood the building firm will get
so fed up with the bureaucracy and the nuances in Panama (supply
availability, language issues, juego vivo, etc ) that they will
probably end up picking up shop and heading back to their home country.
Useful Tip: Make sure that the project you end up investing in is being completed by a Panamanian building firm with a solid track record.
Take that extra hour and have your realtor drive you across town to
show you another building that has been completed so you can get a look
and feel of the craftsmanship and quality of work that this builder has
done. Things to look for in a model apartment or existing building:
Lines, seams, and symmetry: start with the bathrooms- does the door
close flush with the floor and wall? Is the toilet and lavatory set
properly and plumed professionally? How do the walls line up with the
roof?
Doors, floors, and countertops- do they close and seal? Are tiles caulked, doors solid, and counters/cabinets set evenly?
The way I figure, if the developer doesn’t put their best foot
forward with a model apartment, what will the rest of the building look
like? In the case of an existing building: Has the building stood the
test of time, or are tiles falling off of the roof, paint peeling from
the walls, and doors coming off of their hinges? In an existing
property, I always check the water pressure too.
Don’t try to buy directly from the developer; because 1) you
probably wont get a better price and 2) you definitely need someone on
your side should things go wrong.
Part 11: My Favorite Contract Debacles
So you’ve found that perfect place here in Panama. Most of the time,
some sort of deposit is required to hold the unit, usually between
$1,000 and $10,000. By putting money down before signing, you are
basically holding your specific unit and locking in a price. Most
developers and real estate agencies that I deal with will hold a unit
for 30 days, however some of them like to put added pressure and knock
the terms down to four days. Tell them you want 30 or they can shove
it. I always suggest that my clients make sure that the deposit money
is fully refundable in the event that you decide to back out of the
sale.
Useful Tip: Get everything in writing (In Spanish): even email stands up in court in Panama.
The best place to start is by finding yourself a good lawyer:
preferably someone here in Panama who is already familiar with the
project, location, or developer with whom you are signing your life
away. How do you know you have a good attorney?
Connections are huge in Panama, perhaps more so than wit or talent,
so I always like to refer my clients to the same three or four lawyers
whom I know can get the job done simply because, as it seems, everyone
owes these guys a favor or two. While it might seem logical to go for
the biggest and the best firm, these guys are often over booked and
less able to give you great customer service. I like to recommend my
clients the smaller firms because they will find that the personal
relationship and commitment is much stronger with these smaller
agencies. Prices with the smaller firms are also much lower so it's a
win, win.
A legally binding contracts must be in Spanish here in Panama, so
what you will usually find is a contract in Spanish with a side by side
exact English translation attached. If your contract is only in
Spanish, someone like me should be able to get you a translated
version. If your agent hands you a contract that is only in English,
walk away because either there is something fishy going on or you are
dealing with rookies.
There are almost always two parties involved in the contract, the
first being the seller and the second being the buyer. I like to make
sure that the party listed as the seller is truly the seller. In the
case of purchasing a pre-construction unit from an individual seller (
a resale ), make sure that the property is held in corporation ( or
else the seller will be hit with 12% taxes and may try to pass this
cost on to you ). Also, find out if there is any materials escalation
clause because you as the new buyer will be responsible for this. Also,
make sure that the property is actually listed with the government as
being held under said corporation ( an easy inquiry by your lawyer ).
In the event of a pre-construction promise to purchase contract
directly from the developer, make sure that the seller in said contract
owns said property or represents the developer in some way. This
verification can be handled by your lawyer with a simple inquiry to the
Registro Publico.
Having come across a number of contracts during my days here, I have
come to identify a few red flags. The following are clauses I have
encountered, sometimes the hard way, which I believe are of the utmost
importance for an agent in Panama to focus on:
Materials escalation clause: This is contained in every single
pre-construction contract, with the exception of those that are within
six months of being completed or in the event of a resale where the
previous buyer has negotiated its removal. If you see a materials
escalation clause in a contract for a building that is going to be
completed within six months, tell the seller you will not sign until it
is removed. How much can the cost of materials reasonably go up over
six months?
This clause is a fact of life and not a dirty trick used by
developers to squeeze that extra penny out of you. Actually, it is a
dirty trick, but everyone’s doing it, especially in today’s
inflationary times. But there are ways to have this clause removed.
First of all, know that the maximum possible rise in your price should
be 5%. If I see anything more than this, I always make sure it gets
capped at 5%. What I usually tell my clients is that because this
clause is fairly standard wording, we need to do something that will
set you the buyer apart from the pack. What does that mean? One obvious
tactic would be to purchase more than one unit. If you are not in a
position to purchase multiple units, don’t worry.
Another bargaining chip is to put more than the required amount of
money down, or at least accelerate the down payment time line (thus
showing your interest and seriousness). Most projects require a total
of 30% down before the unit is delivered. A typical down payment
schedule is the following:
- 10% upon signing ( less the deposit monies)
- 10% when construction starts
- 10% three to six months after the start of construction
In the case of a unit that is more than one year into construction,
the developer will often ask for the full 30% down upon signing the
contract. Some developers are eager to get a sale and will drop the
escalation clause just for asking. At the same time, I am always on
guard when more money is requested down, seeing as though it can
indicate the builder is a) running out of money, b) behind schedule, or
c) low on sales.
I always recommend my clients keep in mind that developers here are
usually in the power seat: they often start buildings with very little
down themselves, instead waiting until a certain percentage is sold to
begin construction. What does this mean? Low risk on behalf of the
developer CAN (but not always does) represent a lack of commitment.
This is why, as noted before, I always recommend dealing exclusively
with reputable developers. People like me, in the business, know these
guys like the back of my hand. But as a new buyer, chances are these
names will be new to you. In such case, do find an agent who can give
you the green light before you start to fall in love with a unit and
it's developer.
Maintenance Charges clause: Pretty much worthless. Actually, you can
count on the developer holding this maintenance charge ( which is
usually a flat fee or a per square meter charge ) for no more than one
year after they deliver the building. After one year, the developer’s
obligation to manage the property terminates ( and they relinquish
liability regarding any defects in construction ). That’s when the
professional property management firms step in, and the fees can go up.
After the first year, the property administration ( home owners
association ) takes bids from private firms and it is up to them to try
to find a company that is offering prices at or near the original
maintenance fees. That usually doesn’t happen, so budget on paying at
least 25-50% more after the first year. That being said, to date there
are very few property management firms in Panama, much less quality
ones. So take this into account and make sure your agent is giving you
proper quotes.
Cancellation clauses: Be vary wary if anywhere in the contract you
see wording such as: The seller has the option to cancel this contract
at any point, at which point all deposit monies will be refunded. I
have seen this happen, especially in a market of rising prices where
the developer feels like they can break with the original buyer and
turn around and sell the same property for doubl.
This type of clause is not cool anywhere in the world, but it does
happen here in Panama, regularly; perhaps the result of such a new
market. As a representative of the buyer, I always make sure that my
clients are covered in the event that the project does actually fail.
Some developers offer a return on all deposit monies plus an extra 2-6%
interest. If I don't see any of this protective wording in the
contract, I make sure it gets put in before anyone signs.
Non-transferability clause: Some developers include in the wording
of their contract a clause that prohibits the buyer from reselling his
property. Sometimes this will be "within six months of occupancy", or
other times you have to get written approval from the developer. What
does that mean? It means that they are going to try to collect
commission, which comes directly off of your bottom line, if you try to
resell your unit before it is completed.
How do I help my clients avoid this clause? Purchase the property
under corporation! Not only will this save you money in taxes, but, in
this case transferring ownership is merely a matter of passing the
bearer stocks of the corporation to a new buyer. In the event that you
decide to "flip" the property before occupancy, a typical resale
contract will be between two individual parties and is a private
affair, so the developer or the government does not need to be involved.
Part 12: Conclusion
I’ll make this short and sweet because nobody likes a speech or book
that goes on for too long. This country is amazing! Cost of living is
very low, the people are wonderful, and the real estate is still
affordable for what you are getting. There are thousands of people
moving here every month, and this country has absorbed them with ( for
the most part ) open arms. Panama’s long history has always been one of
tolerance: Religious tolerance, political tolerance, racial tolerance,
and tolerance of foreigners living in country. Unfortunately, this
tolerance has been extended into the real estate world and to date, no
one has stepped up and called out some of the games that are being
played and the tricks that are being used.
The real estate market in Panama has made and will continue to make
smart investors a lot of money.. The negative stuff I mentioned in this
report and not meant to dissuade anyone from coming down to Panama
because the benefits (in my humble opinion) far outweigh the risks.
Just find the right partner, and you’ll do fine. Know what pitfalls to
avoid, know the tricks people will use, and know Im here to help if you
need me.
Nothing makes me happier than a satisfied customer who will go home
and tell all his friends how wonderful his experience purchasing real
estate in Panama was. Like I said earlier, I am writing this report so
you the perspective buyer can be clued in to what I the real estate guy
have seen in my time here in Panama. I’m not going anywhere, and I will
probably be hard at work while you are sitting in your office reading
this boring report. So if you like what you saw here, give me a call,
even if it’s just to chat about non-transferability clauses.
Your man in Panama,
Kent Davis
Real Estate Advisor
Email me:
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