Are you an investor in Cancun (Quintana Roo), Mexico?

7 Replies

Hello!

My family and I are currently staying in Cancun, Mexico for an extended period of time.

I am interested in meeting active investors who have personally done flips/holds/Brrrr in the area of residential or multi-family buildings. (Note: I am NOT looking for airbnb or vacation rental models).

If that's you, perhaps we can chat and exchange some stories and experience?   Hit me up!

Regards,

Ori Skloot

I've been investing in the Riviera Maya for years now. The market there is totally different and you can't just apply what's being done in the US because oftentimes it won't work.

The market in Mexico is divided in two parts: the market for the wealthy Mexicans and foreigners in which properties are traded in USD and the "local" market, in which properties are traded in pesos (MXN).

The USD is overwhelmingly condos and some villas as well. So no apartment buildings. As to flips you can't flip a condo. You could int theory flip a villa put generally speaking buyers in Latin America go for new properties.

If you want to go into the MXN market, you'd have to work and compete with the locals. You're at a huge disadvantage by not being a local. Buyers son't have buying power so they buy cheap houses. I'm not sure how you could make money flipping. As to apartment buildings, I don't even know if they exist. But, even if they do, the multifamily model in the US relies on a certain type of financing that you can't get in Mexico.

What works best in Mexico is short-term rentals or property development. Obviously, property development is hard unless you have the proper local associates and connections and have access to financing.

Thanks Mike for the great info.  Right now with Covid, short-term rentals are in the toilet in Cancun.  Plus, the market is pretty saturated and daily rent for those properties has been slowly going down due to over-supply.  I'm not too interested in property development because all I've seen offered is pre-completion discounts given by builders looking for capital to finish their projects.  I've heard from people that they buy this product, wait until completion and then sell the property for a profit.  That works so long as prices are trending up and there isn't over-supply.  

As you said, competing with the local market puts foreigners at a disadvantage.  I have family in Mexico so that helps give me an edge.  And, where there is a barrier to entry perhaps there is more opportunity.  Population of Cancun is over 600,000 and all those folks live somewhere.  There are lot's of multifamily buildings for locals, ranging from very cheap, run-down, and "worse" areas to higher-end apartments/houses which are inhabited by locals.   That's the sandbox I want to play in (or at least explore).

Ori,

You're welcome!

Regarding the USD condo market, you're right about the current oversupply of rentals. But that is like in any international destination at the moment because of Covid and the Riviera Maya (including Cancun) is probably one of the least affected areas as it is one of those that accept visitors and on of the very few that accepts American visitors. I'd never buy a pre-construction condo and speculate that I can sell it on delivery at a profit in any market. That's speculating, not investing. And most people who buy pre-construction buy to hold because they want to use the property for themselves and they can get great rental income returns when they don't use it.

However, this is temporary and, in real estate, unless you flip, you generally invest for the mid-to long-term and once Covid is in the rearview mirror, the oversupply will be gone. So, if anything, the current situation allows you ton get a deal you'd never had the chance to get otherwise. For example, I sold one of my properties in Playa del Carmen at a great price in the middle of the pandemic as a result of an unsolicited offer. The buyer asked for seller financing, which is rarely available in Mexico and I agreed to give it to him. As a result, the buyer got a killer deal and I got a great price. A great win-win. I never thought about doing that but now I'm seriously thinking of doing that for other properties.

People who want to buy pre-construction are better off avoiding Cancun because they have to and can't compete against the all-inclusive resorts. Most people who go to Cancun go there for the all-inclusive resorts. So, buyers are much better off buying in Playa del Carmen, where large all-inclusive resorts aren't allowed and where the people who don't like all-inclusive results go.

I've never thought about buying and holding or flipping in the local market. Yes, people need a place to live but they mostly live in very cheap places so I'm not sure how you can make money with that. And then, you'd have to deal with the locals as a gringo so you are at a disadvantage compared to the locals and you could be taken advantage of. But you have family in Mexico so it could actually work well for you. Let me know what you find out if you want. It's an area I haven't looked so I'd be curious to see if there are opportunities there.

What scares me about Cancun, but really Mexico in general is the lack of financing available. Most things are very (compared to the USA) short term mortgages with high interest, high down payment. I have (very shortly) looked into owning a condo (they call them apartments) but the purchase price was about $125k USD rent is about $700 USD but it needed about 40% down, 6% interest and a 15 year term. Plus about $175 USD per month for HOA fees (they call it maintenance fee) Overall it didn't seem like that good of a deal to me, but I will be the first to admit I didn't look too much into it. Maybe you guys have some different information that I don't know about. Please keep me informed.

@Jordan Schoner

I'm not sure why you'd get "scared" about the lack of financing. If anything, it reduces your risk because it prevents prices to drop sharply like they do in the US when people can't service their mortgages and have to sell.

The downpayment and the interest rates are actually very low for Mexico. Normally, with Mexican banks, it's 50% and the interest rate is in the double digits! And 15 years isn't exactly short term; it's a standard term in the US.

Is this a pre-construction purchase with developer financing? If yes, bear in mind that Mexican developers rarely give post-construction financing at all, let alone at such advantageous conditions. Therefore, if they do, beware because they might be desperate to sell.

Given the price tag, it looks like the property is a North American standard type condo. It makes absolutely no sense to rent such a property long term. If you rent it short term, you could make thousands of dollars per month, which could make this a killer deal!

When you invest overseas, don't just try to imitate what you'd do in the US, as it often doesn't work. You have to do what works in that market.

Mind you, when it comes to short term rentals, I buy in the neighboring Riviera Maya rather than Cancun. Indeed, it's very hard to compete against the all-inclusive resorts and their amenities in Cancun. In the better areas of the Riviera Maya, these resorts are not allowed and visitors who go there are precisely those who don't want to stay in an all-inclusive resort and like to stay in short-term rentals.

And, then, if you do well with a short-term rental area, it could still be a great deal if you buy for 100% in cash like so many people do. Indeed, you would get your cash back through rental income in just a few years. So you get to keep all your (very high) cash flow after just a few years instead of having to wait for 15 or 30 years for that if you have a mortgage.