Q&A with @CalvinFroedge on Emigration from the U.S.

[As a follow-up to our correspondent considering emigrating from the US with his family, and our July post with @halifaxshadow on the same topic, another CBS reader offered to share his own emigration experience in the form of a Q&A. You may follow him at @CalvinFroedge on the twitter.]

How old are you and where did you grow-up?
I’m 31. I grew up in a small town in Kentucky called Tompkinsville. I walked through the woods and fields to my grandmother’s house and my dad’s welding shop. My nearest neighbor was a few hundred yards away. I wrecked my grandpa’s truck when I was 12. My grandma made apple pie nearly every week. Cornbread and beans were included with dinner most nights. My parents were both scientists and our house was filled with books. When I was young we were poor and my mom volunteered at a Montessori school 40 miles away so I could get a head start. I was a country kid with smart parents and lots of learning opportunities. I dropped out of high school and never went to University. One regret has always been not dropping out sooner.

How long have you been an American ex-pat? Have you been in Panama the whole time, or did you do some amount of traveling before settling on Panama?
I left the United States for the first time when I was 19 to do mission work in the Philippines. I was making websites and doing videos at the time and sort of fell into a charity called Little Children of the World. They ran an orphanage and a school. I felt a strong motivation to do some good and to see the world. That was the first time in my life I got to see just how detached from reality American opinions generally were. I was there a few months and interviewed kids who had lost both their parents and were forced into selling drugs or stealing to survive. It was a life changing experience.

A few years later I was running a software team in Crimea (Western Russia) and got a second round of foreign exposure, this time for a year. I met a lot of smart people who didn’t speak English, and a lot of smart people who spoke five languages. Some of the guys who were working for me were better at programming, yet were charging a fraction of the price. It humbled me, motivated me to work harder and learn more, to invest in myself. Ukraine can also be a very dangerous place, and a few experiences like close calls with the local mafia, dealing with multiple robbery attempts, and discovering that locals thought I was CIA taught me a lot about how the world worked.

When I was 25 I was living in a slummy apartment paying tens of thousands of dollars in taxes and thought, “there’s something wrong here”, so I did all the tax optimization I could do: IRAs, self employed 401k, health savings account, etc. I kept maxing out what I could defer taxation on. When I learned about the FEIE (Foreign Earned Income Exclusion) and realized I could take another big chunk out of my US tax burden. I decided to go for it. I moved to Panama at 27. By that time I had been doing freelance IT work, or running a small software shop, for nearly 15 years. Panama had the cheapest immigration program and I knew some Spanish. I picked a little mountain town where the weather was nice, sold everything and moved.

Do you retain your US citizenship, or have you paid the exit tax and broken all ties?
Not yet. I’m probably about two years from having Panamanian citizenship.

Being abroad or mobile for most of your relatively young adult life, I assume you started for reasons liking travel and adventure. It appears as time went on your motivation morphed following that of an engineer's proclivity to maximize the solution to a problem: in this case tax burden. Since this series of posts originated with a CBS correspondent's political motivation to emigrate, may I ask whether political concerns such as woke-progressivism figured any into your decision?
I went to the Philippines because I wanted to help. I’ll never forget the advice of the president of the local rotary club: Go make your fortune, then come back. You’ll be able to do a lot more good.

I haven’t been solely focused on making a fortune. For a long time my focus was on becoming a great software developer. I’ve also spent months at a time outdoors – I hiked the entire Appalachian Trail one winter –  and I’ve had bouts of focusing on women. However, I have dedicated a lot of time and energy into making money. By the time I was around 25, I was starting to figure out that my greatest expense by far was what I paid in taxes, and if I wanted to maximize what I’d be able to earn and invest that was the first problem to deal with. That’s most of why I left so early in life. The woke-progressivism scared and enraged me and gave me a kick in the butt to get out, but it wasn’t the primary motivation.

Could you share a little of your family situation... have you gotten married? To a local or bring a girl with you from Kentucky? Any kids?
I am still single but have a girlfriend I love. She’s a local. Incredibly kind, hard working, curious and intelligent. No kids.

Many readers would need employment in whichever country they were to move to. You were doing remote-work contracting when you moved there. On twitter you've mentioned owning a hotel and of course you recently started TankerData.com. I take it you're not reliant on the local job market?
Correct. I have multiple income streams. I own a small hotel in Panama. I was the first investor in an ISP in the US. My TankerData.com project is my newest source of income, but the fastest growing by far. I also make a little money in the markets and from managing my other investments. I recently applied for a job in the maritime sector as well, mostly to improve my access to information.

Tell us more about the hotel. Sounds interesting.
It's more a boutique apart-hotel. There are seven apartments. 8 bedrooms, 7 kitchens, 8 bathrooms. I bought it because it was a good deal (neglected for five years fixer upper) with an amazing view and I had cash burning a hole in my pocket. I've experimented with a few different business models and kept extremely detailed financial records. What I can tell you is this: A place really needs someone on staff full time for maintenance and improvements. If you're doing short term you also need someone handling reservations and guests, you also need cleaning services.

I've experimented with bringing coders from other countries for medium term stays. I've made some great friends this way but it doesn't make a lot of sense from a financial perspective, at least at the scale that I've done it and the rates I've charged. However, having coders who could come and pay long term rates did cover the majority of my opex during the pandemic. I've never tried doing long term leases, but with the exception of the one apartment, all of my apartments are studios, so it's not really suited to the local long-term rental market, which mostly consists of retired Americans and Europeans who typically want a lot of space.

The best way to make money with my place is via short term rentals, i.e. hotel market. I swore off short term renting before because I really don't like dealing with people, but from a financial perspective, it's the most profitable way to do things. To give readers a few stats, in January, February, and March (pre-pandemic), my place grossed 10k, 14k, and 7k respectively. I had a few units during that time which were rented long term. Net operating income was $3-5k per month. On the other hand, April through September I lost a few hundred bucks a month, but all of my coder tenants with SaaS or other consulting income paid their rent. In October and November when things opened up those guys moved on and I started renting short term again. Gross revenue for November was back to 7k and December looks like it might break $8k.

It takes three people for the business to run without my involvement. It's not a business that will make someone rich, but it's a great income for Panama. It took me a few years to get it there. The first year was lots of capex with an operating income of ~8% of my initial purchase price, the second year was my experiment in only renting to coders with operating income around 4% of total invested capital, and 2020 looks to be similar despite the pandemic. I think from 2021 onwards I should be at 10-12% return on invested capital, and that's with plenty of money budgeted for maintenance and new projects. All of these numbers are unlevered returns.

Do you think expatriation is practical for a family man with a modest 6-figure nest egg doing it on his own, ie. does not have a multi-national, NGO, or State dept job? If not, what do you think a viable exit nest-egg would be for someone looking to live modestly, but somewhere safe and with good schools/peer-groups for his children?
There are some decent jobs in Panama City with banks, tech companies, multinationals, and NGOs. I recently saw a CTO position at 400k/year. The UN jobs pay really well. Some of the banking / multinational exec positions are six figure. I think the executives of the companies who are only headquartered in Panama and do not pay taxes are also exempt from income taxes. So there are some opportunities here, but only for the elite.

For me, I avoided the traditional route, avoided big companies, and never went to university. I've always assumed that side of things wasn't even open to me. I also hate dealing with company politics and/or having a boss, so it's mutual. But yes, those opportunities do exist.

I think the right strategy if raising kids here is to make them international citizens. Private school them or home school them. Make them internet natives. Why limit them to Panama? Panama simply provides nice weather, lower cost of living, and a tax-friendly domicile.

I think if you’re single and have the ability to generate even $1000 per month in continuing income, you could move to Panama. You’d be making more than the average local. That amount of money could cover an apartment, food, communications, public transportation and a little beer money. You can rent a bed in a hostel for under $10/night while you get your feet wet.

If you’re talking about taking the family with you, one thing to keep in mind is you’re not going to be able to get financing on real estate here unless you have local employment history, which obviously you won’t have. A few thousand a month will cover a decent life for your family as a renter. If you want to own a home for a small family, there are cinder block houses in residential developments where all the houses look the same for $50,000, or you could buy for example a small hotel where you could live and generate enough income to support your family for $500k-$1M.

It’s good to keep in mind that in Panama and many developing countries there a huge disparity between the costs of living in the city (where renting a house with a yard in a decent neighborhood is a few thousand per month) versus living in the country (where perhaps you could rent a villa on a small farm for the same price).

Panama in general is pretty safe and I’ve found the average person knows how to do more and is much more trustworthy than the average American. However there are narcos and thieves here, and crazy things happen. It’s still Latin America.

Conversely, for older and younger readers, what are some of the practical considerations? I assume there is completely different calculus for 20-somethings vs. retirees, and singles vs. couples, and maybe even men vs. women?
I think as a young single man, leaving the US or Canada for Latin America (or pretty much anywhere else, really) is literally the best decision you could make. I was blown away with how much easier it was to date here. On the other hand, I think it is harder for single women.

You’re going to pick up a new language much faster as a young man. As a retiree or a couple, the adjustment process may be a bit harder, but there are many who make it work, they just tend to stay within the communities of other expats, whereas I feel I’ve truly integrated with the local population. Speak the language fluently and you’re going to have a far easier time.

In your estimation, what are the marriage prospects for young people of European descent in Panama?
If you’re a young, good looking guy with a little bit of money, you can date and marry virtually anyone you want. Just don’t let it go to your head because there are a lot of girls who will be with you for the wrong reasons. Of course that’s true anywhere, but I feel it’s especially true here.

OK, as we asked in the first interview, are these even the right questions to be asking? Anything you want to add?
These are the right questions. Regardless of whether or not you want to renounce US citizenship, moving abroad is going to reduce your tax liability by probably $30k/yr if you have a $100k/yr in self employed income. Panama is great because they don’t tax income earned remotely, and the US doesn’t tax you on income you earn while living in another place until it goes above the FEIE threshold, assuming you follow all the rules.

For Panama in particular, these are the things that could potentially drive you crazy: Traffic, Lack of urban planning (some places), Poor infrastructure (some places), Lines / forms / make work culture.

I think overall you’ll have a better quality of life here, but some things that should be easy are just hard in Panama. Opening a bank account can be insanely difficult. One friend hit a snag in her immigration process because there was no certified government translator who could translate her Lithuanian birth certificate. The government here is slightly dysfunctional. On the  other hand, it’s also much easier to get through and connect with a real human who can help you with something. It can be as simple as giving someone a piece of candy, flirting, or just looking someone in the eyes and asking for help. Manana culture (forever pushing back on engagements due to laziness or lack of planning) is present in some individuals, punctuality as Americans know it is not a widespread cultural norm here. Nonetheless, I’ve found the people in Chiriqui province to be especially industrious and honest.

Thank you, Calvin. This was excellent intel and very generous of you to share. Before you go, how about a quick plug for your hotel?
De nada!
(I also have my own website for long-term rental inquiries.)