Part 1: The preliminary purchase agreement – investing USD 228,000 and hoping for around 7 percent return?
Can a rented apartment in Panama really generate an attractive additional income? Real estate offers often come with appealing return calculations. What matters, however, is not what looks possible on paper, but what actually remains after all costs.
We want to test it – with our own money and a real apartment.
In August 2026, we signed a preliminary purchase agreement for a small apartment in Panamá Pacífico. The purchase price is USD 228,000. The apartment is intended for short-term rental. According to the calculation provided to us, average rental income of USD 2,000 to USD 2,200 per month and a net return of approximately 6.5 to 7.4 percent per year are expected.
We do not know whether that calculation will prove correct.
That is precisely why we are starting this series now – before the apartment has been fully paid for, taken over and rented out for the first time.
This article is part of our series about a real property investment in Panama and supplements the information in our book “Auswandern am Beispiel Panama”. We are documenting the purchase, costs, rental activity and actual return from the beginning. This is one specific case and not a general statement about real estate investments in Panama.
The property: around 53 square meters in Panamá Pacífico
The apartment is located in a new building in a central area of Panamá Pacífico. We deliberately do not name the project, the exact apartment or the people involved.
The apartment has around 53 square meters, one bedroom, two bathrooms and one parking space. The purchase price is USD 228,000, corresponding to roughly USD 4,300 per square meter.
One special feature is that the apartment was previously used as a model unit and is already furnished. Under the preliminary purchase agreement, the existing furniture is therefore not considered new.
For the planned rental operation, the existing furnishings are initially an advantage. We do not have to furnish the apartment completely from scratch. Whether additional purchases or the replacement of furniture and inventory will later be necessary remains to be seen. Such costs will be included in our later return calculation.
Why this particular apartment?
The answer is less complicated than one might expect for an investment of USD 228,000.
We liked the apartment, the location and the view. It was already furnished, and we could imagine that it might work well for short-term rentals.
On the other hand, the price of roughly USD 4,300 per square meter seemed very high to us. That is precisely what makes the experiment interesting: Can such a purchase price and the ongoing costs actually be justified by the rental income?
We do not know yet.
In that sense, we are asking ourselves the same question as a reader considering a property as an investment: Does it really work?
Why invest in property in Panama at all?
In addition to the expected rental income, diversification of our assets plays a role for us. We do not want to rely exclusively on equities, bank deposits or real estate in a single country. For us, this also includes geographic diversification of property investments.
Our current assessment of Panama is positive. This is expressly a personal assessment, not a forecast.
We see ourselves how much is being built and invested and how the economy and infrastructure are developing. From this, we derive the expectation that properties in good locations may at least offer a degree of long-term value stability. A possible hedge against inflation also forms part of our thinking.
Whether this assumption is correct is just as uncertain today as the expected rental return. Economic conditions can change, property prices can fall, and political or geopolitical developments can overturn expectations in a short period of time.
Nevertheless, our assumption at the time of purchase is that Panama currently appears to us to be an interesting location for part of our real estate assets.
We are deliberately recording this assumption as well. Perhaps we will later confirm it – perhaps we will have to revise it.
Panamá Pacífico is not a typical tourist destination
Panamá Pacífico is not a classic holiday area where most guests are tourists looking for accommodation for a few days. It is also a business location with companies, jobs and corresponding infrastructure.
There is a distinction between long-term and short-term rental. Not every apartment may be rented freely for short stays. Depending on the property and the applicable rules, minimum rental periods may apply.
The apartment we purchased is intended for short-term rental. It is to be offered on platforms such as Airbnb and may, for example, be rented by the day, week or even for a month.
Our assumption is that demand will not come mainly from traditional holidaymakers. Business travellers and other people who need temporary accommodation in Panamá Pacífico for professional or personal reasons may be more relevant.
The business model differs substantially from long-term rental. Successful short-term rental can generate higher rental income. In return, it involves more work and generally additional costs: guests change more frequently, the apartment has to be marketed and managed, cleaning is required, and the actual occupancy rate becomes a decisive factor.
We therefore intend to document occupancy as well. An attractive nightly rate alone says little about the return. What matters is how many days per year the apartment is actually rented and how much income remains after all related costs.
We have already written about Panamá Pacífico in our book “Auswandern am Beispiel Panama”. Based on the additional experience we are gaining, we may present the area in greater detail in a future update.
Before the purchase comes the preliminary purchase agreement
The actual transfer of ownership has not yet taken place. We first signed a “Promesa de Compraventa”, a preliminary purchase agreement.
The agreement is extensive and, in our view, clearly drafted in favour of the seller. We therefore read it carefully ourselves and also analysed it with ChatGPT. This produced several questions that we discussed with the seller before signing.
A few examples show what concerned us.
Paying USD 224,000 before becoming the owner
The payment schedule sets a total purchase price of USD 228,000. An initial USD 2,000 reservation payment was agreed, followed by another USD 2,000 upon signing the preliminary purchase agreement.
The remaining USD 224,000 is due on August 20, 2026.
At that point, we are not yet registered as owners in the Public Registry. The planned handover and transfer of ownership are to take place afterwards.
This was one of the issues we questioned before signing. The preliminary purchase agreement provides different methods for settling the remaining balance. Ultimately, we decided to pay directly.
With a six-figure amount, there is also a very practical issue: international transfers can take longer than expected. Banks may request additional documents, ask questions or initially review a large transaction.
We therefore transferred the required funds to Panama in advance. We did not want a tight contractual payment deadline to depend on how quickly several banks processed an international transfer.
Backing out can be expensive
We also looked closely at the provisions that apply if the buyer no longer wants to proceed.
Depending on the timing, the preliminary purchase agreement provides for substantial financial consequences. Under the relevant provision, a withdrawal within the first 90 days generally results in reimbursement of 75 percent of the amounts paid. Within six months, 50 percent is reimbursed. After that, the entire amount already paid may be retained if the buyer withdraws.
The agreement also contains significant sanctions for certain breaches and delays attributable to the buyer. Under certain circumstances, for example, a monthly charge of 1 percent of the outstanding purchase price may apply.
These provisions were among the reasons why we wanted several points explained in more detail before signing.
The agreement also sets the framework for the inspection
A joint inspection of the apartment is planned before final handover. Valid defects identified at that stage are recorded and are to be remedied afterwards under the warranty process.
We found it noteworthy that, under the preliminary purchase agreement, such complaints are generally not grounds for refusing the final takeover or the signing of the corresponding deed.
This is another example of why we regard the agreement as relatively seller-friendly.
Why did we sign anyway?
We discussed our main questions with the seller and received various explanations.
Among other things, we were told that the agreement had to cover different apartment types and very different buyer situations. The comparatively strict payment provisions were explained in part by experiences in handling sales to buyers from different countries.
These are the explanations we received. They do not, of course, change the wording of the agreement we signed.
Some of the explanations appeared plausible to us. On the other hand, a provision that is unfavourable to the buyer does not automatically become favourable simply because there is a plausible explanation for it.
At some point, a decision like this requires weighing the remaining risks.
We would have preferred to sign an agreement that reflected only our own preferences. We would also have preferred a lower purchase price.
Neither option was available.
After the discussions and our review, our overall impression was positive enough for us to accept the remaining risk. We signed the preliminary purchase agreement.
A simple error that can easily be overlooked
Our experience also shows that it is important not to focus only on complicated legal provisions.
In one version of our preliminary purchase agreement, one digit was simply missing from a passport number.
The error was corrected before signing. Small mistakes like this can nevertheless cause unnecessary problems later.
Our practical advice from this experience is to check names, passport numbers, property details, purchase price, payment amounts and dates just as carefully as the contractual clauses themselves.
The forecast: around 7 percent net return
This brings us to the central question of the series.
Before the purchase, we received the following approximate annual calculation for the planned short-term rental:
| Item | Annual forecast |
|---|---|
| Rental income | USD 24,000–26,400 |
| Rental commission (15%) | −USD 3,600 to 3,960 |
| Property management | −USD 2,400 |
| HOA/building administration | −USD 1,956 |
| Property tax | −USD 1,188 |
| Forecast net income | USD 14,856–16,896 |
Based on a purchase price of USD 228,000, this calculation results in an expected net return of approximately 6.5 to 7.4 percent per year.
The middle scenario assumes monthly rental income of USD 2,100 and a return of around 7 percent.
That sounds attractive at first.
However, this is not our actually achieved return. It is the forecast that was presented to us before the purchase.
And this is where the real experiment begins.
What may be missing from the 7-percent calculation?
The calculation already includes several major costs. It does not, however, include possible expenses such as electricity, internet, insurance, repairs or the later replacement of furniture and inventory.
Acquisition costs are also not included in the return calculation. We will only learn during operation which additional short-term rental costs ultimately remain with us.
The 6.5 to 7.4 percent figure is also calculated solely on the USD 228,000 purchase price.
We therefore intend to use a stricter calculation later.
On one side, we will record as far as possible the total capital actually invested: purchase price, acquisition costs and any further necessary initial investments.
On the other side, we will count only income that was actually earned.
From that, we will deduct the ongoing costs actually incurred.
We also want to document the workload associated with the rental: What does a service provider handle? What do we have to do ourselves? And how much of our own time does such an investment actually require?
Any increase in the property's value will initially be considered separately from the ongoing rental return.
7 percent – or perhaps considerably less?
Today, we do not know how the experiment will turn out.
Perhaps the forecast will be confirmed. Perhaps the actual return will be substantially lower. Perhaps the rental will perform even better than expected.
That is why we are recording the starting figures now.
As of August 2026, the forecast is USD 24,000 to USD 26,400 in gross annual rental income and a net return of 6.5 to 7.4 percent on the purchase price.
This will allow us to compare the later results without adjusting the original expectations retrospectively to fit reality.
In the next part, we will report on the completion of the purchase, payment of the remaining purchase price, inspection and transfer of ownership. After that comes the truly interesting part: the rental operation. Forecasts will then begin to turn into actual income, costs, occupancy rates and experience.
And after one year at the latest, we want to answer the question with which we are starting today:
Buying and renting an apartment in Panama – what return will really remain?