Show Summary

How about investing in an International Coffee Farm? David Sewell runs a turnkey coffee farming operation in Panama where other investors own parcels of land. It’s a unique topic, but a show you should not miss. We talk about the pros and cons of investing internationally, investing without toilets and tenants, and turnkey farm investing. Don’t miss this exciting episode of the FlipNerd.com Expert Interview show!

Highlights of this show

  • Meet David Sewell, Managing Director of International Coffee Farms Corp.
  • Learn about a unique opportunity to invest in turnkey coffee farms in Panama.
  • Listen in as David shares some pros and cons of international investing, and discusses this very unique investment opportunity.

Resources and Links from this show:

Listen to the Audio Version of this Episode

FlipNerd Show Transcript:

Mike: Hey, everyone. It’s Mike Hambright with FlipNerd.com. Welcome back for another exciting Expert Interview show, where I interview great guests from across the real estate investing industry to help you learn and inspire you. I used to say “from across the country,” but today our guest is in Panama. It’s going to be a really interesting topic, so stick with us.

For today’s show, I’m joined by David Sewell. David is an expert in offshore wealth management and international real estate investing, and he’s the managing director of the International Coffee Farms Corporation. If you follow this show, today’s episode is going to be different than anything else we’ve talked about before. In fact, I don’t think we’ve ever talked about international real estate investing before at all. We’ve tended to focus on the US, and I guess, kind of be small-minded.

But even more interesting, we’re going to talk about a major project, or primarily, what David’s focus is today is owning parcels of land within specialty coffee farms in Panama. Very interesting topic, very unique. I hope to make this as interesting as possible for you, and I know David’s going to.

It’s going to be an exciting show, an interesting conversation, and I’m already feeling about as inside of the box and simple with everything I’ve accomplished over the years as you can get by primarily wholesaling and rehabbing single family houses in America. So we’re going to get outside of the box a little bit today. And if you are active and watching the show, we know there’s a lot of ways to make money in real estate investing, and this is just one more of them. So today we’re going to meet David Sewell, and we’re going to talk about how to invest in coffee farms.

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Hey, David. Welcome to the show.

David: Thanks very much, Mike. Pleased to be here.

Mike: Glad to have you here. I’m excited about this topic, because it’s so unique and so interesting. I say all the time there’s a lot of ways to make money in real estate investing, but it wasn’t until we signed you up and we got ready for the show today that I realized that there’s a ton of ways that we’ve never even talked about on the show. So I’m excited to have you here to talk about something that’s very unique.

David: It’s a unique strategy to diversify away from tenants, toilets, and troubles into trees.

Mike: Yeah. Awesome, awesome. David, I’m really excited to get into this topic. Maybe you could take a few minutes. I know you have a really rich background in a number of things. You’re a Canadian living in Panama and have a really rich background in the military and other things like that. Maybe you could give us your background and share how you got started and how you got to where you are today.

David: It started in the prairies in Saskatchewan and Canada. I got an undergraduate degree in biology, which back in those days was useful, but hasn’t been very much use these days to me, because it was 1970. I joined the Navy from the prairies and spent 12 years as a combat officer and a destroyer in the Royal Canadian Navy.

Today I want to give a quick shout out to all the veterans around the world, because as we’re recording today on Veterans Day in the US and Remembrance Day elsewhere, thanks for your service and thanks for your sacrifices, veterans everywhere in the world.

Mike: Absolutely.

David: From the Navy, I did an MBA in Corporate Finance and Marketing. I went on through the corporate world for quite a few years in banking and ended up in the investment industry in venture capital. I spent quite a few years in Canada. I left there in 1989, looking for warmer weather and lower taxes. I found both.

I went through Mexico, did a little bit of real estate work there and realized it wasn’t quite the right place. I tried Costa Rica for seven or eight years. It didn’t continue to be as good as it was. I moved on and tried Argentina. I found out that Argentina has snow and I’d overcorrected, so I turned around and came back north and ended up in Panama. My wife and I and our two cats have been here now for nine years.

Mike: Okay. Awesome. In all that time, when you were traveling around, were you primarily focused on real estate opportunities, or were you doing other things?

David: Mexico and Costa Rica were both real estate opportunities. I have an extensive background in the ’80s in the satellite communications and cable television business. So Argentina, I did some contracting work down there for a year. Mostly real estate.

Mike: Okay. And I know you also are the owner of the RE/MAX franchise in Panama, as well, is that right?

David: Yes, we have a RE/MAX franchise in Boquete, Panama, where we are now here, and also in a small town called David, Panama, which is 30 minutes away.

Mike: Awesome. It’s such an interesting topic. I’m trying to think of where to get started here. Maybe you could talk about how you made a transition into coffee farming, and then the opportunity of really what you’re running, as kind of a turnkey operation, where folks can buy land and then you have management solutions in place. Maybe you could talk about how that came about.

David: What happened is in the summer of 2012, I was consulting. I retired in 2007 and wasn’t really doing that much, but I was doing some consulting work. And I came across a group of people at a tradeshow, or investment conference, in Colombia that were trying to finance an operation to acquire coffee farms. My background being venture capital, I was interested in helping them.

We couldn’t come to terms on what they wanted to do and how they wanted to structure it, but we did come to terms on an idea that would meet the needs of people who are looking for offshore investments, offshore, real, hard assets with income, and turnkey management, sort of a finite group of people. We created this business plan. If you could own your own parcel of an operating coffee farm offshore, and it was turnkey managed for you, and the price was low enough to be acceptable to most people, and it had an average annual income that was reasonable over a very long term, would you be interested?

That’s what we did. We structured an opportunity where people can own deeded parcels of offshore real estate. That’s really what it is. That worked out very well. We ended up with somewhere in the order of 160 owners owning 600+ parcels of three coffee farms in Colombia. The owners of that operation decided to no longer acquire farms, just to operate the ones they had, so my partner Darren and I decided that we would do the same thing in Panama. The business model is exactly the same and is just applied differently in a niche in coffee in Panama, which is somewhat different than Colombia’s coffee.

Mike: Right. It’s interesting, just the innovation that’s taken place in real estate. I guess models like this, turnkey and things like that, have been around for a long time, especially turnkey operations and rental properties in the US have been around for probably a long time. But they’re kind of coming of age, because real estate is looked at as more of a Main Street asset class now, or even an institutional asset class, than it was in the past.

But if you compare it to the Ubers of the world and all of this innovation that’s happened, to do something that we’ve already been doing for a long time, just done differently. And if you consider things like crowdfunding and how people are able to do small pieces of things that they can bite off, but are still significant to them, this is really an interesting opportunity.

For somebody that spends hundreds of dollars a month at Starbucks, it’s interesting. Not necessarily that my coffee at Starbucks is coming from your farm in Panama, but just the obsession that people have with coffee in America, I think that’s something that would naturally be interesting to them.

David: It’s very interesting. Especially, the specialty coffee craze is continuing to grow and grow, and people are acquiring more and more quality coffee and more and more knowledge. More people are interested in single-origin, traceable coffee. Knowing the story behind the cup as you’re drinking, you don’t mind paying $4 for it or whatever.

What we do and the disruptive business practice that I like to be part of, which change environments completely, and as you mentioned, the real estate industry is doing that, allows us to be able to put a socially sustainable package together, where 20% of the gross operating profits of the company, for example, are put into a pool to make the lives of the workers a lot better. The facts are that five cents of that $4 cup of coffee that you get every morning goes to the farmer, and that’s not acceptable.

So these business practices that we’re putting into place are environmentally sustainable. They’re economically sustainable. We make money doing it. But they’re also socially sustainable, where we can and are, day by day, right here in Boquete, improving the lives of the native Indian Panamanian farmers who do all the work for our parcel owners, who are profiting thereby. So it’s sharing the wealth.

Mike: Sure. David, if you could talk about how the parcel system works and maybe even what some typical owners are like. These are not necessarily people who have no experience in real estate investing. As we talked about beforehand, there are a lot of people that own a lot of rentals and lots of doors, and this is just another investing opportunity that they look at. But maybe you could start by saying the concept of having a farm, and then you segment it into plots. Is that right?

David: What people are taking advantage of is our boots on the ground. We’re here all the time. We know the industry. We know the locale. We know the people. And we also know the coffee farming business. What we do is we work hard to acquire farms that are appropriate for what we’re trying to do. They’re generally underperforming commercial coffee farms, often owned by a family that’s an old man that’s been running the farm for 50 years or 40 years or 30 years. He’s 75 or 80. His kids are not interested in grubbing around in the dirt anymore in 2015. They’re off in Miami or Panama City. They need to sell.

We’re acquiring those farms. They’re not very easy to acquire. We can balance the farm, the location, the altitude, the soil, and the price, and we can acquire a farm. Once we do that, we subdivide it into 2,000-square-meter or half-acre individual parcels. And then those are offered to people who want to participate in an active, operating coffee farm. That’s our strategy.

Mike: Okay. The way the operation works is that, I assume, the parcels end up being, effectively, shares in the overall operation. It’s not like the lot right next to you performed better because the soil was a little better there.

David: It’s not necessarily shares in the entire operation. It’s deeded property. So the individual owner has a deed in their own name. It’s your real estate to do what you wish, but we restrict you to do that, because we don’t want somebody selling a half-acre parcel in the middle of our coffee farm to a Chinese sock manufacturer. So we try to restrict that a little bit, but we do pool the revenues, and we do pool the expenses across the entire farm. So it really is irrelevant to you which plot you have vis-à-vis your income from the coffee.

Mike: Okay. Maybe just for some context here, I already know the answer to this myself, but I think people will be curious about this, because we talked about it beforehand. What is the typical . . . if you buy a half-acre plot, just on the show, I don’t think we have the time or should get into all of the returns and stuff like that. If folks want to learn more about it, they can contact you. But just to give some perspective, a half-acre plot is about how big of a typical investment if someone wanted to buy in and get started?

David: Currently, you can get started for $18,000.

Mike: Okay. So pretty reasonable.

David: Very reasonable. The average owner is different than my venture capital career, which was largely populated by guys my age and older. We have a lot of young people that are very interested in coming offshore themselves personally, maybe not this year, but maybe in five years.

We have people in their 30s and 40s that are interested in retiring early. We have older guys like me, too, that are just passively investing capital, but a lot of interesting young people that have got some amazing backgrounds in the real estate business in the United States. And they continue to amaze me. At 25 years old, 23 years old, they have 40 doors or 80 doors. And they’re branching out. It’s an amazing group of people.

We have this tour coming up this weekend, where 14 people are coming to spend three days with us to kick the trees, as we call it. And we have as young as a 20-year-old who owns his own bakery in the US, and as old a fellow as a passive investor who’s way up in his mid-70s and everybody in between. So it’s a very cool group of people.

Mike: It’s an interesting concept of being able to visit your farm. You’ve got that land there. I think you probably have some people who are just like, “I’m going to put some money there.” This is how I am with my houses. I don’t ever want to go there again. I’ve got a property manager that takes care of it, and I don’t even want to know. I don’t want to know. Is the grass too long? Is there a shingle that’s out of place? I don’t even want to know.

I’m sure you have a mixture of those. And some people that think the interesting part is getting engaged and coming to check out the farm and the operation and being a part of that. Would you say that’s true?

David: Absolutely. Totally true. We have people who just invest, and we have people who are coming here. And because of our boots-on-the-ground approach, where we can help them do other things besides just be a passive investor in a coffee farm or a parcel owner, we can help them establish financially offshore, getting them residency visas to live here in Panama with a work permit and bank accounts and various other things. There’s a large group of people that are dynamically involved in diversifying themselves away from one currency or one company.

Mike: Sure. In The dollar is the primary currency in Panama, right?

David: Yes. The dollar is still a currency in Panama.

Mike: You say still as if that may be changing. We don’t have to get into that answer.

David: Well, there’s speculation. Nobody knows for sure, but the government here is printing an awful lot of their own $1 and $2 coins and the Royal Canadian Mint in Canada, so one might think that they’re planning for something in the future.

Mike: Yeah. Can you talk a little bit about some of the obstacles that you have to overcome for people that are interested in this? I’ll just throw a few things out there. The fear of international investing at all, because a lot of folks that might be interested in this would have some fears of doing that at all. And some of the risks involved, which are not just currency risks, but international exposure, which obviously could be a good thing, as well. What are some of the typical risks that people think about when they hear this, like, oh, it’s interesting, but what about this, this, and this?

David: Well, it’s the fear of the unknown, the fear of losing their money, obviously. They don’t know us. So we invite everybody to come anytime you want. If you’re here as a tourist and you want to come and visit, or if you want to make a special trip, we’ll give you a private tour. You can come and do whatever you like. Take as long as you want to understand the opportunity.

People are unfamiliar with offshore. Some people don’t have a passport and haven’t been too far away from their home state. They need to get their head wrapped around having some real estate somewhere else that’s in a completely different country. But Panama is a fairly friendly, and as I call it, when we speak at investment conferences and other places, it’s a safe halfway house for Americans.

It’s quite comfortable here. It’s not very far away. The airport is one of the largest in Latin America. The currency is the US dollar. Everything is in pounds and feet and inches. So you can talk. The language English is well-spoken. There’s no currency risk, because it’s the US dollar. So people can come offshore to Panama more easily than if they were going to some esoteric country you can’t even spell somewhere in the rest of the world. So it’s fairly easy to acclimatize people to what’s going on here.

Mike: Okay. And in Panama there, I know you have some restrictions, in terms of somebody can’t sell it to a Chinese sock manufacturer, but can you actually own dirt in Panama as a US citizen?

David: Yes.

Mike: I know some countries you have land leases and things like that.

David: None of that applies here. You have deeded, titled property ownership rights, same as every other Panamanian here. Their only one restriction is, as a foreigner, you’re not allowed to own land within 10 kilometers of an international border. So on the west, that would be the border in Costa Rica, and on the east, in Colombia. But that’s not a restriction.

Mike: That’s not a big deal. Talk about the operation. We’ve talked about it at a high level. You own a coffee farm. I know that you have a lot of social sustainability things in place, which sounds really interesting. And I guess talk about the word “specialty,” what that really means, specialty coffee versus non-specialty coffee.

David: We acquire farms that are commercial coffee. That’s the stuff that is in the Folgers can, the things you see on the store shelf, not the packages you pay $6, $8, $9, $10, $15, $20 a pound for. That’s “specialty coffee.”

Specialty coffee is designed by the Specialty Coffee Association of America, SCAA. Very stringent rules and regulations as to what is encompassed by the term “specialty,” to do with fragrance and aroma and body and acidity and flavor and 10 or 12 different criterion that are necessary to become specialty coffee. Long story short, you sip it and slurp it and cup it and taste it and do all that stuff by Q graders, who are professionally trained people to do this.

They rank the coffee and give it points, like wine still does now and the spectator did 15 years ago, coffee now does that, gives it a number. Anything over 80 out of the maximum of 100 points is specialty coffee. Really, really good coffee, 84 and 86 points, you’re in the top 3%. But I’ve never seen a coffee grade higher than 92 yet, so some pretty special coffees at 84 and 86 points.

Mike: Then just going along the same theme as wines, in terms of branding and packaging, are you selling that to somebody that’s rebranding it, or do you sell your own brands or build your own brands? How does that work?

David: Funny you should ask, just as the business plan is structured to sell green coffee internationally. So by definition, mainly roasters and end-users that would do . . . A roaster in Wichita, Kansas might buy 30,000 pounds, and he would then roast it to the profiles of his 40 or 50 customers, the restaurants and the hotels and the hospital and various people. So that’s the wholesale market into the roasting environment, where the traceability and the single origin is extremely important, because they’re going to tell the story of the coffee roasted to the profile of a customer.

But we also have just cupped our first harvest of coffee this year. In fact, it was just yesterday. We have put a brand on that coffee. And we’re going to give it away, of course, to our tour attendees who are coming this weekend from all over the US to test the brand. And I would think by this time next year, we will also have a roasted and/or beans and ground coffee brand. But the basic business opportunity right now is selling green coffee to people that really know what they’re doing in the roasting business, worldwide.

Mike: Now, would you say, I guess it’s all over the board, but in terms of people who are investing in your farms, do they tend to be somebody who buys one plot, because they want to dip their toe in the water and say they’re involved with that? Or is it people that have insatiable appetites that want to buy large chunks of farms, because they see this as not just a neat thing to do, but “this is a significant part of my investing portfolio”?

David: We have everybody from the beginning of one parcel person, who’s never going to go much further because of capital constraints or personal concerns, all the way up to people that own a dozen and 15 parcels. The average right now seems to be three parcels per person, and mathematically over top of it all. It’s the people using their IRAs, and they’re putting it in their self-directed IRAs and putting it away for a long time.

It’s a legacy investment. It really isn’t something you’d really want to contemplate selling. If Year 10 comes true, and everything we say is going to happen happens and the industry remains growing the way we say it’s going to do, and which we expect it to, you’re going to see high double-digit returns annually. I can’t see anybody wanting to not give that to their kids.

Mike: Can you talk a little bit about some of the other risks that we haven’t talked about, in terms of commodity prices and coffee going up or down? Some of the things that are related more to the coffee industry?

David: The coffee price is almost . . .

Mike: By the way, I’ve never shared this before. I go to a Starbucks by my house. I drop my son off at school, and I pick my wife and me up coffee. It’s kind of our morning ritual. And the line is always insane at Starbucks, even the drive-through line, which is crazy. So that would tell me in just, of course, my limited world. It’s very common you go to a Starbucks and there’s a line out the door or whatever, so it would seem that there’s plenty of demand. But I know there’s a lot more. Starbucks isn’t the entire coffee industry, so I realize that, but just trying to better understand that part of the risk of the commodity industry, I guess.

David: The beauty of it being specialty coffee is we disconnect ourselves from the commodity industry. Commodity industries, you can see it on Bloomberg every morning on the tape on the bottom, and you can see coffee there, and it’s a 1.20 a pound, a 1.30 a pound. It could be as high as $3. It’s been as low as 70 cents. It varies, because it’s a commodity. That’s commercial coffee, not specialty coffee. The demand and supply relationship, even with commercial coffee at $1.20 a pound, it costs $1.60 or more to make it, so it’s a bad business.

Specialty coffee is disconnected from that, because of the supply and demand. The demand is immense, as you know, and the specialty coffee sector of the market is growing rapidly, 20% a year or more. One in every two cups of coffee that’s drunk nowadays in the US is specialty coffee, so the demand is high and the supply isn’t. The issue is the supply varies by El Niño, La Niña, the weather, the location, where you’re doing it, and how much specialty coffee can be produced. And there isn’t enough by a long shot. Supply is really solid in specialty.

Mike: That’s great. Talk about the social sustainability part of your model. We talked about that a little bit before we started the show. I thought that was fascinating. Can you explain to us that part of it and the importance of that part of it?

David: Right off the top, as I said when we discussed this earlier, five cents of your $4 cup of coffee is what is attributable to the coffee farmer in Latin America. The millions of people that are eking out a living making the coffee that everybody is drinking at $4 a cup is unacceptable. That process is just not right. We need to disrupt this business practice in such a fashion that we can deliver more to the people who are helping our parcel owners, for example, profit by their ownership, and more importantly, live a better life.

So we take right off the top 20% of the profits of the company, right after we pay the direct farm operating expenses. Before anybody else gets a share, the farmers get 20%. That goes to paying a social security, paying a higher wage, giving them a pension when they’re finished, instead of farming them out to the rocking chair and the terrazzo of a concrete building with a $1 a day in their pocket.

Pensions, more clothes, better food, better living conditions, changing the unacceptable living conditions that most of these farms are left in to Northern American standards with septic tanks, running water, and flushed toilets and showers and things like that so they can dress properly while they’re working. They’re using power equipment instead of hand machetes. It’s more efficient for us. It’s a better, easier life for them. They wear goggles and masks when they’re spraying and they do all these kinds of things.

That social sustainability comes out from the top. After that’s done and they’re taken care of, then the distributions, if any, are taken care of after that. So we’re all in this together, parcel owner, international coffee farms, all of us, and all the workers. So we’re all on the same page.

Mike: That’s great. It’s really interesting. One question I had, David, is about leverage. Obviously, a big part of real estate investing, certainly here in the states, is leverage, the ability to lever up your investments. It sounds like an individual plot is a relatively small investment, but given that it’s international, and a lot of folks that are maybe listening to the show, if they have access to capital, are using US-based lenders probably. Are folks able to lever those investments at all, or is it pretty much just cash transactions?

David: There would be no leverage. It’s a cash transaction. There’s no way to leverage it here that I’m aware of, at the moment. It’s safe. That way, there’s no banker looking over your shoulder.

Mike: True. David, this has really been fascinating. We’re almost out of time here. First off, I want to ask, is there anything we haven’t covered yet that you want to share with everybody?

David: We invite people to come and see what we’re doing, kick the trees, come on over.

Mike: Have a cup of joe?

David: Have a cup of joe, if you like. A little hint, the brand name that we’re thinking about might have something to do with the words “lava java,” because this is volcanic soil, and the two words go together nicely.

So come and have a cup of joe here. Kick the trees. If you’re in town as a tourist, you’d be more than welcome. Or we can arrange for you to come specially if you’re interested. We’ll give you a private tour. We’re running a group tour this weekend. We have another group tour coming in February or March. That information will be available on our website.

We’d just like to invite people to come and experience Panama and experience the life here in Boquete, a very cool mountain town up in the hills, running water, pine trees, nice temperature. Eternal spring all the time. It’s not a tropical, hot climate. It’s beautiful. We invite everybody to come on any one of the tours or anytime they want to come privately.

Mike: Great. David, if folks wanted to learn more about your company, the financial opportunity or just more about some of the really interesting things you’re doing, where would they go to learn more?

David: The best place to go is to the website, which is www.InternationalCoffeeFarms.com.

Mike: Awesome. We’ll add the link down below for folks that want to learn more. I’ve got so many questions that are still going in my head here. We’re about out of time here. I may have to have you back for another show sometime to talk about this a little more.

David: We could very easily have another session, where we could just talk forever about just coffee operations. It’s fun. It’s really fun, acquiring these farms, turning them around from somewhat of an abused farm to a very well-loved farm. We are enjoying it immensely. There’s a lot to learn about coffee. It’s a fascinating subject. I could go on forever and ever and ever.

But just the operations of a coffee farm, we’re building our own coffee processing mill right now, for example, a wet and dry mill to process our own coffee to add to the value of our coffee. Just that alone is an interesting topic. It’s a very fun subject.

Mike: Absolutely. Again, we’ll add a link down below to learn more about David and the coffee farm. David, thanks for sharing your time with us today. Great to see you. Thanks for sharing this interesting opportunity and just concept with us today.

David: My pleasure. Have a great day.

Mike: Great to see you. You too.

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