Creative INTERNATIONAL Real Estate Financing/Strategies

Creative Real Estate Financing
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Creative INTERNATIONAL Real Estate Financing/Strategies

Daniel Dawson
Homeowner · Wilmington, NC · Member since 2020 · 6 posts · 6 votes

Hi there! If there's a better forum to discuss international real estate, please let me know.

I'm a new homeowner of just over a year now. I own a condo in coastal North Carolina which is perfect for my semi-nomadic, low-maintenance lifestyle and use it as a home base right now. Fortunately, because of the market, it's appreciated about $40k over the last year. 

Anyway, I live half the year (4-6 mo) every year in Puerto Vallarta, Mexico and would love the opportunity to own a condo there for both my own use and as a vacation rental. There are tons of pre-construction and renovation projects and also more traditional houses/villas/condos on the market. I think it's a great market for vacation investment and have only seen it grow tremendously over the last few years. 

I'm looking for advice on international home ownership and financing. For the range I'm looking at ($150 - $250k), having enough liquid cash is holding me back. Even for pre-construction of lower $100k (which are few and far between) I feel just out of reach for the amount of cash needed for developer financing options. By comparison, I could easily put 20% down and get a traditional 30-year loan here in the US for the same price range with the cash I have now. I haven't heard of many financing options for international properties besides a HELOC, and my current property just wouldn't provide as much as I need.

I would love to hear advice from anyone who has been in a similar position, any other financing options I may be missing because of inexperience or generally chat about international real estate. Again, if there's a better forum please let me know!

Thank you! 

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  • Mike LambertPro Member
    Investor · The Americas and Europe · Member since 2016 · 1k+ posts · 1k+ votes
    3y

    Hi Daniel,

    There's an international forum here.

    You are correct, Puerto Vallarta is a great market and I've started working on a project there.

    Mexico is mostly a cash market because of the availability and conditions of financing. While this put some American investors off, it shouldn't. What they don't realize is that, on an unleveraged basis, Mexican real estate is often more profitable than US real estate. You can even get a more profitable investment if you pay 100% in cash in Mexico than if you take a mortgage in the US (and you're debt-free). In the US and Canada, most real estate wouldn't be worth investing without low interest rates and low interest rates are a thing of the past.

    Like-for-like properties are much cheaper in Mexico but, irrespective of the profitability, you still need to have the cash available, which seems to be your issue. Moreover, if an investment is already very profitable if you pay cash, it would be even more profitable if you can use leverage at an interest rate that works. I currently borrow in Mexico at interest rates well below US interest rates but that's not the normal scenario.

    If you want to get financing in Mexico, your options are (in no particular order):

    1. A Heloc

    2. A mortgage with a Mexican bank. Much higher interest rate and lower LTV than in the US.

    3. Developer financing when you buy pre-construction with much lower interest rates. I'm offering that in our deals but I'm not sure how many developers do. This was always the exception rather than the rule and is even more so now given how hot the market has become.

    4. Seller financing. It's not common but it does exist. It can work if it's a win-win for both parties. In fact, I have sold with seller financing in the past because the conditions offered by the buyer were too good to ignore.

    5. You could use your retirement fund but, of course, that's ultimately your own money.

    Finally beware of the finance companies offering Mexican mortgages at interest rates around 2 - 3%. These are creative products whereby the principal of the loan increases over time so your real interest rate is actually between 10 and 20%, notwithstanding the fact that these loans are generally in pesos, which is a big no no. Of course, they don't tell you about the real interest rate unless you realize how the product really works and asks.

    Hope this helps. Feel free to DM me if you think I can help you further.

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