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!
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).
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.
Once again, great feedback. I’m just at the beginning of poking around but I will definitely keep you posted.
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.
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.
Am also in Calgary, sent a message to you
Hi Ori, any updates on your findings. I am doing some research for a friend of mine that lives in el DF, Mexico and looking to start investing.
Mike you have some good knowlege and points. I would like to chat sometime and pick your brain.
Do you know any professional property management companies/general rates to handle short term rentals from Cancun down to Bacalar or Tolum?
Still doing my due diligence. I have a few leads and I've been learning a lot about the market down here. I think there are some very good opportunities, but I am aware that I am well out of my field of experience here so I'm taking it slow. I do have some contacts at this point, a couple of them are people who are realtors who also do property management in Cancun area. We have vacationed in Bacalar twice and loved it. They were building a house right next to the one we rented right on the lake. Completely isolated and beautiful. I heard from the guard (so not sure how accurate is the information) that they are selling the new house for $350k, which seems like a great price to me. We stayed at an identical house that we rented for $500 per night.
What type of property is your friend looking for? Why is he looking in this area and not DF?
All the DF people want a beach escape house that can give them a break from concrete jungle. (City is amazing, but lack of green space and nature) He is not sure which type of property, but no condos.
Thanks for the compliment. There's something I'm not sure I'm getting. A friend of yours who lives in Mexico asks you, an American living in Atlanta? to do research for him on real estate in Mexico?
Granted, one of the investors who invests with me in the Riviera Maya is a Mexican but he lives in LA. So I'm on the ground more often than he is, I was already investing there and have the market knowledge and precious connections he doesn't have and I have access to deals he would never get access to. But I didn't get the impression from what you're writing that you are in the same kind of situation as me.
Nevertheless I'm happy to help if I can so feel free to send me a private message and we'll arrange something.
Hello Mike, thank you for your comments. Last night I was browsing and thinking about opportunities to invest in Playa. Your comments align a lot with what I thought the situations in Playa currently is. I am a novice investor and real estate agent here in the US but my family and I travel at least once a year to Playa and would like to explore finance and seller finance options for a condo with mid term to long term investing goals. Any ideas where I can get further information?
Thank you !
My best suggestion is for you to send me a private message so I put you in contact with my preferred buyer broker on the ground. I think that sellers who provide financing are few and far between but I'll be happy to explain what I do, as I'm not in the forum to help out rather than promote any product or service.
I have spent a free vacations in Puerto Morello and really felt in love with Cancun . Every time I want to go in vacation i choose the same hotel, which is not a very fancy one, but I just love employees there, the weather , the sea…
I have house in Europe that I intended to rent, but I was also thinking of the possibility to sell it and buy an apartment in an all inclusive hotel in Cancun ( if possible Puerto Morello) , beach front.
This would allow me to spend one month of vacation or more , and rent it the rest of the time.
But I know nothing about that, if it is risky, what are usually the conditions of the hotel in this situation, etc.
I saw on internet apartments with prices around 250K $. I could bring 130K $. How does that seem to you? Is it complicated for Europeans to get a loan in Mexico ? Or should I look for apartments that are cheaper in order to have more chances?
Any of you could light up on this subject? I would really appreciate it.
I don't know if you can buy an apartment in an all-inclusive hotel. Would that be a hotel suite then? Personally, I'd avoid that because it means high prices and huge HOA fees and you have no control over your revenue stream so this isn't the best way to get a great ROI. Moreover, more end more people visitors prefer to stay short-term rentals over hotels.
For example, we bought a group of condos in Playa del Carmen in pre-construction that has pretty much all the amenities of an all-inclusive resort for much less money, much lower HOA fees and they're in a much better location than pretty much all of the all-inclusives in the area.
You're much better off buying a nice condo for that price. I'm not as familiar with Puerto Morelos as I am with Playa del Carmen or Tulum because I like it much less for investment purposes. Yes, you'll pay slightly less for the same condo but your potential rental income will be much lower. I would be surprised that you can get anything beachfront for 250 k other than a small studio. Most short-term renters will not pay significantly more to rent a place that is beachfront so your ROI will be lower. Those who will pay for that will want to be something much more high end. Generally speaking, a beachfront property will be more for lifestyle than for investment, unless it is high end. Mind you, it sounds that you want to buy for lifestyle and investment purposes so that could work for you and Puerto Morelos might make sense for you as well.
You could get financing in Mexico as a foreigner but the interest rate is very high and it's not easy to qualify if you don't have links to Mexico. You wouldn't get more than 50% loan to value from banks but that's enough in your case. Mind you, given how profitable the right short-term rental can be in Mexico, paying a high interest rate might not be an issue. Beware of some companies offering mortgages to foreigners that are advertised with interest rates in the 2-4% area. The real interest rate of these products can go to as high as 20% but the loans are structured in such a complicated way that, sadly, most people don't realize that until it's too late.
The alternative to bank financing is seller financing. It's not that common in Mexico but it exists. We've already sold with seller financing and we're open to do it again for the right buyers if we sell some of the condos I mentioned above in Playa del Carmen by the time they're delivered in a few months.
I hope this helps. I responded to several hundred posts on investing in Mexico and in the Riviera Maya in the forums here. You can find them through my profile. Alternatively, feel free to reach out to me directly if you think I can help you out further.
Thank you for your answer @Mike Lambert
What I am interested in is a room with a bathroom .But the main condition is to be front beach . With the cleaning service included. I don’t know if I express myself clear enough as I am really not familiar with what we can or cannot but in Cancun.
I just know that I saw a lot of publicity on the road when I was there , advertising rooms that could be used by the owner and rented when he is not there.
I found the idea interesting , but I don’t know any details.
As I understand from your message , it is not.
Could you give me more information about your project of condo?
The house that I own and use for renting only brings me 8k $ per year. That’s why I thought to sell it and maybe buy something in Puerto Morello. I thought I could earn more , and also be able to spend my vacation “for free”.
But is there any way I could still have the “all inclusive” services ?
Sorry if I ask stupid questions, I really have no clue about what is possible and what is not .
Thank you for your time and answer!
What you're talking about is being done around the world. I didn't know they were doing that in Mexico either because it's new or I never paid attention because I have no interest. Clearly, if you saw it advertised on the billboard, it's being done.
It's up to you to decide whether it's a good idea for you and I can't have an opinion on that given that I know pretty much nothing about your circumstances and objectives. It's a bad idea for me because I think the return would be too low for me and I don't like the risk profile.
If you are interested, you should contact the advertiser and find out what kind of return on investment (ROI) you can get. You'll most likely make way more than 8 k a year but that doesn't necessarily means it's a good investment for you since 8 k over a 250 k investment is a 3.2% return! I've seen 250 k properties in the Riviera Maya grossing up to more than 50 k and that were rented only part of the year so you understand my point.
I don't like the risk profile because you're completely dependent on the hotel and its management. You can only rent to vacationers and you can't rent to any of the other booming sub-markets: digital nomads, snowbirds, local residents or retirees. Similarly, when you sell, the only potential buyers will be other investors so it might only that easy to sell.
However, if you want to be by the beach and have all inclusive services, you have no other choice than that kind of deal. There is actually one exception: the largest all-inclusive resorts can have condos and villas besides the hotel and you could get one of those. In that case, you could buy one of these hotels or villa. While the resort might be beachfront, it's the hotel that will be beachfront and you'll be at the back of the property and sometimes pretty far from the beach. You'll have to pay a daily fee to get the all-inclusive services and you'll have to rent the property by yourself as if it was a completely independent property.
I'm not sure what's typically the profitability of property like that. Indeed, typically, the renters who look for a condo or villa are those who don't like all-inclusive resorts so I don't think it would be too attractive to them. As to the people who want the all-inclusive experience, I don't see the point of paying extra to be in a condo or a villa instead of a hotel room. Indeed, they generally want a cheap holiday, they don't need a kitchen or a living room since they spend most of their time at the various resort facilities, including restaurants. Therefore, I don't think they'd want to pay extra to get a condo or a villa. And, as an owner of one of those, you'll have to compete against your own all-inclusive, which has a big marketing budget and the flight included in its prices.