Lender needed for investment projects in Tulum, Mexico
Specialist · Colorado and Missouri · Member since 2021 · 20 posts · 4 votes
We own three properties in Tulum, Mexico and would like to expand our investments there, but are having a very hard time finding funding. My husband and I have temporary residency in Mexico, and our rentals are all owned inside a Mexican corporation (S DE RL DE CV). We have LLCs in the US so can use a lender here if they're willing to lend for a project in Tulum, Mexico, but would also love to connect with Mexican lenders to establish a relationship. Currently we have two projects we need to quickly find funding for- 1 is a beach resort we intend to convert into luxury STR and the other is a multi-use building in town w/ STR units and commercial retail space. Do you have any ideas for who we could contact that would be willing to work with us? I would really appreciate any help you can provide. We would prefer debt financing as we plan to hold the resort long-term, but are open to other arrangements too.
I'm wondering if you got my point but, nevertheless, I'm out of this discussion. Indeed, this reminded me of a very fruitful exchange I had with the BiggerPockets forum coordinator a while ago and I learned something great from her.
What I concluded was that, once a conversation becomes about who is right or wrong, it's time to leave, especially if the conversation doesn't help anybody. While we cannot control what others write about us or what they say about what we write, we can still decide how to respond or, oftentimes better, not respond at all.
Also, I was reminded to never underestimate the intelligence of the people on the BiggerPockets forum. Readers can draw their conclusions from what is written and we, as writers, don't need to constantly defend what we write.
I already feel I overstayed my welcome in this conversation but it's never too late to leave. I made my point in my initial response as I thought it'd be helpful. Readers can make their own opinion about it. If they think what I wrote makes sense, they can always send me a DM to pursue to conversation.
Hi Wendy,
One option that might work could be to get unsecured funding. It's out there and available from lenders who don't have as strict criteria as conventional banks.
Best,
Dave
@Wendy Usrey
Do you have any us based collateral that could be used ?
Sounds like a super cool opportunity but can definitely see financing being tough to come by - curious if there are lenders in the US that offer out of country financing
Sounds like a super cool opportunity but can definitely see financing being tough to come by - curious if there are lenders in the US that offer out of country financing
No idea what your loan to value or project is. Your status is not what matters- loan to value, generating income... ???
No idea what your loan to value or project is. Your status is not what matters- loan to value, generating income... ???
We are purchasing a beachfront resort and converting the villas into condominiums so they can be rented as short term rentals and/or individually sold. Resort is not operating right now so not currently generating income (it is still being maintained so not in terrible shape though), but there is plenty of data available for predicting rents upon completion. As-is value is approximately $6.9 million, as-repaired $18m. We expect renovations to be between 2 and 3m depending on the extent of remodel, so with a $10m loan, LTV is about 55%. We have a project summary I can share if there is interest.
The reason I mentioned our status as temporary residents is that it does matter for some Mexican lenders and banks (I know it’s not relevant for US lenders).
The issue might not be a lack of institutions that lend in the area but rather who would lend to you based on the project specifics and its feasibility (or lack thereof). The more I hear about some of the project details, I can see a lender cringe. A beach front resort that is not currently operating... why is this? You are converting it into condos for STRs. What is the demand for STRs in this area. AirBNB has a few listings at $30 a night in this area. How does this support an $18 million valuation you are suggesting? This might be a relatively risky project based on any array of issues the lender may look at. Some can be very location sensitive. A lender here in the US for instance will often not lend in an overly rural area with little or no demand. First you have to ensure you have a credible feasible project but I have no details about your project.
The issue might not be a lack of institutions that lend in the area but rather who would lend to you based on the project specifics and its feasibility (or lack thereof). The more I hear about some of the project details, I can see a lender cringe. A beach front resort that is not currently operating... why is this? You are converting it into condos for STRs. What is the demand for STRs in this area. AirBNB has a few listings at $30 a night in this area. How does this support an $18 million valuation you are suggesting? This might be a relatively risky project based on any array of issues the lender may look at. Some can be very location sensitive. A lender here in the US for instance will often not lend in an overly rural area with little or no demand. First you have to ensure you have a credible feasible project but I have no details about your project.
Hi Frank,
I have a very specific project summary I can share, but I can't post it here because bigger pockets doesn't let me send attachments if we're not connected and because I signed an NDA I can't blast too many specifics over social media. If you are finding rentals on the beach road in Tulum for $30/night there is something wrong. Average daily rates there are well over $1000 per night for a room. Anything under that likely is quite "rustic" with no AC or reliable WiFi. I know the area extremely well and have never seen a beachfront rental that cheap anywhere along the coast in the Riviera Maya. The resort next door to this one has rates that typically start around $10k per night for one room. I have a full set of comps available to demonstrate the rates (and we already own two properties in Tulum (not beachfront) producing higher rates too. Occupancy rates in the area average 80-90% throughout the year. Demand for STR is very high, Tulum needs to triple the amount of rentals in the market to keep pace with demand through next year. With the opening of the Mayan Train in 2023, and international airport in Tulum the following year there will be an even larger shortage of rentals (official statistics show a predicted increase in tourism of 300% once the train is fully operational).
The resort is not operating because the owner has decided to sell it. They still have an on-site caretaker so it is not in bad condition, but the current design and setup is definitely not the highest and best use for the property. They weren’t even aware it could be subdivided into condos until I had our lawyer research it. I based the $18m valuation on comparable beachfront condos and verified this with an experienced broker in the area. I used the estimated value for selling the condos rather than an income approach for the entire project because it is much more conservative and I don’t want any surprises. Selling as individual units is a worst case scenario.
I’m curious to know what details you think would make a lender cringe. This is not a rural area by any means. Tulum is one of the top destinations in the world for travel and the beach road in particular is considered to be a very high end, luxury market ( a lot of celebrities vacation here). This is not your typical inexpensive vacation in Mexico kind of place.
I appreciate the feedback, and completely understand that it’s hard to make a judgement call without knowing the location or having complete information. I didn’t realize I needed to provide so many specifics on the post as I assumed serious investors would ask for more details if they were interested. I am new to posting on Bigger Pockets though so didn’t realize this was the norm. Thank you for the input!
Over the years, I've shared my knowledge about and experience investing in the whole Riviera Maya area through hundreds of replies to posts. This is my most delicate answer to date, the one I didn't want to right because 1) I hate to be a party pooper, 2) because of the trust you seem to have in my opinion and 3) I like to focus on facts rather than opinions (as my opinions could be bad or wrong). As I like to say, we're entitled to our own opinions, not our own facts. If somebody really cares about my opinion, they can ask me through DMs.
Thankfully, I got an out of jail card in that I could and did reply to your DM.
However, I think that my followers would expect me to comment on the facts and figures you mentioned, especially given that what you wrote is way rosier than what I usually right.
And this is where I got a second out-of-jail card card. I'm currently in the area, meeting with my connections from builders to developers to lawyers to property managers and real estate agents so I copied/pasted your last post above and asked them what they thought. Here are some highlights that could be useful to everyone:
1. The answer was unanimous. The fact and figures you mentioned about Tulum make absolutely no sense and are completely disconnected from reality. They're even more exaggerated than what scammers generally tell.
2. You can't have condos in the hotel zone. Who gave you that info? Who are you listening to? Only a letter signed by the mayor would make them believe that can be done. You can pay bribes but, not so long ago, some people who build a hotel and didn't respect the rules got expropriated by the government. Some people also mentioned that this would be federal land.
3. There are reasons why that place is "abandoned" and for sale.
If it was me, I'd ask myself the following question, which I think is common sense. Knowing that the property is in the most sought after part of Tulum and given what you wrote about Tulum, how come I should be able to buy that property and transform it in a super profitable way when the local experienced real estate investors in the area haven't jumped at the opportunity? Do I think I'm smarter and more capable than them?
Two other observations that could be helpful:
1. Many people over there tell you what you want to hear. You have to find the right people and ask them the right questions if you want to get the right answers.
2. You wrote "I didn’t realize I needed to provide so many specifics on the post as I assumed serious investors would ask for more details if they were interested. I am new to posting on Bigger Pockets though so didn’t realize this was the norm." You post whatever you want and I'm not here to play the police but, in your own interest, you have to be careful about what you post. There are rules you need to respect and you're not allowed to look for investors when posting in the forums. Posting the link to your presentation would have been the huge no-no. They monitor the chat rooms and some people are reporting abuses. They'll first delete the post and warn you and I think they might kick you out if you do it repeatedly.
To end on a positive note, I love the fact that you're trying to do something beyond just buying and renting condos so, ultimately it's a matter of finding the right opportunity. And, to me, it's about not believing all that I'm told and be extra careful when using other people's money.
Hope this helps.
Thank you for the response. Not sure why those figures seem so unrealistic as they’re from government, tourism boards and other well respected data sources and are cited in our presentation. We have a law firm in mexico that did the initial vetting for us on the land use and title status and confirmed with 2 engineers/developers that regularly work on the Tulum beach road the viability of our project. I can assure you bribes are not part of our business plan. The resort is not abandoned either, just not open as a resort since being put on the market. I certainly wouldn’t want to jeopardize my own money or reputation with a completely off base project, let alone risk someone else’s money (though I would hope they’d also do their own due diligence on the project and our business). Not here to debate or argue, as you mentioned we all have our own sources and expertise to bring to the table. Clearly the project isn’t for you and that’s ok.
You're welcome.
You're using overinflated figures from the pandemic. The situation has changed and this isn't the future. As an investor, you need to look at the future, not the past. And as the disclaimer for investment products says, "past performance is no indication of future performance".
As I already mentioned, I carefully select the people I deal with, as many people will tell you anything (you want to hear). I wouldn't deal with most lawyers and other professionals.
I suggest using common sense again. If condos were allowed there, why don't they line up the beach like they do in Playa del Carmen? Do you think you know a secret that it's possible to do that nobody else knows, including the wealthy Mexican real estate families who don't need to lend money and could buy this property in a heartbeat? Why hasn't that property been bought by the insiders.
I always listen to my connections on the ground before making my opinions. If I find myself to disagree with them, I ask myself: Isn't that the ultimate form of hubris to think I know better than them. I can guarantee you that this most likely has allowed me to make serious mistakes.
If you really believe in that project, you can always try. I wouldn't knowing what I know but that's me. We're different. Just try to not lose money or other people's and to not get conned. This way, you'll know for sure.
Mexico is a place of opportunity but you need to do the right moves with the right people.
You don’t have to overexplain and definitely do have to be careful who you share certain project details with when on a public forum. I am trying not to appear to be knocking your deal but you don’t want to overinflate your numbers with estimates such as $10,000 per night. This is not a large area so one can literally count the number of hotels and resorts to determine what the rates are to get an estimate. An occupancy rate of 80-90% is probably also a stretch. Usually the valuation of an income producing property will normally use the cash flow from the property to determine value not ‘comps’. I don’t know if the area is a rural area or not.. just stating that lenders generally can be location sensitive in terms of where they lend and some can be deal specific in terms of project industry. This area is some 1500 miles away from Mexico City so you are likely looking for a lending source (and not necessarily a bank) that specializes in resorts and can deal with any seasonality or other industry associated risk.
You don’t have to overexplain and definitely do have to be careful who you share certain project details with when on a public forum. I am trying not to appear to be knocking your deal but you don’t want to overinflate your numbers with estimates such as $10,000 per night. This is not a large area so one can literally count the number of hotels and resorts to determine what the rates are to get an estimate. An occupancy rate of 80-90% is probably also a stretch. Usually the valuation of an income producing property will normally use the cash flow from the property to determine value not ‘comps’. I don’t know if the area is a rural area or not.. just stating that lenders generally can be location sensitive in terms of where they lend and some can be deal specific in terms of project industry. This area is some 1500 miles away from Mexico City so you are likely looking for a lending source (and not necessarily a bank) that specializes in resorts and can deal with any seasonality or other industry associated risk.
I appreciate the input. $10k is not the rate I used, just providing reference as to what properties in this area can and do bring. I understand the need to be conservative. We own two short term rentals there already and have had occupancy rates in the range of 85-95 percent even during low season, so my comments are based on personal experience in the market (although I did do a sensitivity analysis for the projections with numbers as low as 50% occupancy on the proforma). It is definitely a challenging market to analyze because of how unique and varied it can be. Great tip on seeking resort financing. Since we want to pivot into residential/short term rentals I was focused on a different category of lender, but that may be the ticket to accomplishing what we need to right now. Do you have any thoughts on where I could look for a lender that specializes in this area?
@Wendy Usrey
Which places rent for $10,000 per night in Tulum??
The most overpriced and overhyped place is Azulik, where, in the heyday, people would pay up to $2,000 for a room without air conditioning and no guaranteed warm showers. These days are gone and that ship has sailed. The Holidays is the highest season in Tulum. I just checked online and you can book a room in Azulik for on Dec 24 for only $480!!
There are properties in other parts of the world that rent for very high dollars a night or more. They’re luxury villas. Airbnb Luxe is the market leader and the market manager is a friend of mine and he confirms the numbers you mentioned make absolutely no sense.
If I pitch to a lender or investor, I understand that they will do their due diligence and check my numbers and that my credibility is on the line. You found out that it’s very hard to find a lender so, if I was to find one for myself, I’d make sure numbers can’t easily be questioned and can be corroborated.
That is an interesting find in Tulum and the project, but not for me. You won't be able to find a bank in the USA to do it and not likely in Mexico either. As mentioned, you will want a different source for borrowing.
I know you did a title search, but make sure it was thorough because standard title searches would not normally show other things that you may not think about. For example, lawsuits, mining rights that were sold (not a problem in Tulum), etc. If the price is good, for the property, it does make me wonder why it hasn't been snatched up already. There are Mexican and Spanish developers with resorts there already and they are building more.
I am wishing you luck. Do more diligent research then you think you need!
That is an interesting find in Tulum and the project, but not for me. You won't be able to find a bank in the USA to do it and not likely in Mexico either. As mentioned, you will want a different source for borrowing.
I know you did a title search, but make sure it was thorough because standard title searches would not normally show other things that you may not think about. For example, lawsuits, mining rights that were sold (not a problem in Tulum), etc. If the price is good, for the property, it does make me wonder why it hasn't been snatched up already. There are Mexican and Spanish developers with resorts there already and they are building more.
I am wishing you luck. Do more diligent research then you think you need!
Thank you for the advice Aaron. Our attorneys did vetting beyond just a title search. Along the coast we also have to be aware of the permits and site plans among other things, (for example if the construction was not done in a manner consistent with original approval and/or changes to the property were made after the fact because it can result in huge fines that have to be paid before getting approval for what we want to do). In additional to the research the attorneys did we also consulted with two engineers that regularly do work along the beach road (which includes assisting with the permitting process) to make sure we covered our bases. The property is a good find, which is why we are anxious to get under contract before others discover the property and what specifically can be done with it. We found out about it through personal area connections, so I'm not sure how widely marketed the property has been up to this point. I'm we are not the only ones looking into it, but hoping the limited exposure will work to our benefit and buy us enough time to secure funding and move forward. Thanks again for the advice!
@Wendy Usrey
Which places rent for $10,000 per night in Tulum??
The most overpriced and overhyped place is Azulik, where, in the heyday, people would pay up to $2,000 for a room without air conditioning and no guaranteed warm showers. These days are gone and that ship has sailed. The Holidays is the highest season in Tulum. I just checked online and you can book a room in Azulik for on Dec 24 for only $480!!
There are properties in other parts of the world that rent for very high dollars a night or more. They’re luxury villas. Airbnb Luxe is the market leader and the market manager is a friend of mine and he confirms the numbers you mentioned make absolutely no sense.
If I pitch to a lender or investor, I understand that they will do their due diligence and check my numbers and that my credibility is on the line. You found out that it’s very hard to find a lender so, if I was to find one for myself, I’d make sure numbers can’t easily be questioned and can be corroborated.
There are several properties along the beach road that command rates that high, but some are not marketing through typical channels (Aibnb, etc), so maybe that's why you didn't see them. I can't disclose the specific names because of the NDA I signed (it could potentially reveal the property name and/or location). I am aware of Azulik's resort and location, though I don't agree their ship has sailed... it is still one of the most widely discussed properties on the tourism boards I follow and our guests often tell me they tried to stay there for part of their stay and weren't able to get reservations. I know they have a limited number of less expensive rooms (when I last looked the starting rates were $750 - $10,000 per night, but there was only one room that appeared at the low end of the price range). I haven't stayed there myself though, so can't really speak to what the guest experience is. Azulik is not being used as a comparable for this project, so the details are not really relevant anyway.
I have a solid background in industry/academic research and am well aware of how to find reliable data sources and do projections for future growth (I have experience as a real estate economist and did industry forecasts for the state of Colorado in both commercial and residential real estate). My process has to be detailed, accurate and reproducible or I would never have made it through the peer-review process to have research published in academic and industry journals or be invited to present at finance and real estate conferences. I apply that same level of attention to detail to the research and analysis I do for our investments and my clients. I know I don't have a lot of activity for people to view on Bigger Pockets, but I do have a solid background in this area and plenty of qualifications to support what I am saying.
I am not providing this information to convince you to reconsider the project but rather to protect my credibility with others who come across the post and might be interested in talking with us about this or future projects. I'm not trying to discredit you or say you are wrong either, we have different backgrounds and experience. It doesn't mean one is better than the other- both have value when it comes to the business we are in. It's fine if you and your contacts disagree with my figures and projections. You already said you weren't interested in the project so I'm not sure why this continues to come up.
If an investor would like more information and specific citations for all of the data sources I am more than happy to provide them with the details. The project summary I provided to you was designed to be an introduction to start a conversation, not lay all of our cards on the table from the start (again for confidentiality reasons and to protect ourselves from someone poaching the idea).
I do not have the time nor the interest in continued debate for the sole purpose of arguing. I appreciate the time you spent reading my proposal and the points you have brought up, but I won't continue to have this conversation here. If you would like to have a serious discussion please feel free to send me a message so we can keep it from muddying up the waters on this post.
My comments weren't about your credibility; they were about numbers that you suggested can be made in Tulum. Discussions about facts and figures is one of the usual features of the forum. Why post in a public forum if we can't stand a disagreement?
Of course, if we quote some numbers that some disconnected from reality, some people might question our credibility I guess. But that was never the subject of my comments so you can't hold me responsible for that.
Again, I'm not discussing whether your academic background in the US makes you credible when it comes Mexican real estate. Who am I to judge after all? However, aren't the people who have decades of experience in real estate in Mexico credible too?
As @Aaron B. suggested and I did suggest before, if you can make such numbers, why haven't the cash-rich Mexican or Spanish developers snapped up the property in a heartbeat? They don't need to find a lender!
Do you really think the real estate in-crowd in Tulum doesn't know about the property? In fact, I've been shown the property by someone and, if that person knows, the who's who of Tulum real estate knows about it too.
I would need to review project specifics (in detail) to get some idea about the economic feasibility and to determine best route for financing. For confidentiality purposes you can connect to send the information. There isn't a resort financing category per se but there often are lenders who are more active in the hospitality space generally. Some sources are primarily concerned with the project cash flow and profitability.
Hi Wendy!
I'm curious your experience with opening a corporation in Mexico. I'm purchasing a vacation rental in Tulum with my sister, and will be opening an LLC here in the states, but was told that buying with a corporation in Mexico is really complex/expensive/tricky when reselling.
Would love to hear more from someone who actually did it-- thank you so much!