San Francisco, CA · Member since 2014 · 161 posts · 26 votes
I am planning to invest in a short-term rental in Cancun or Miami and list it on Airbnb (or have it as a condo-hotel within a hotel and have them manage it directly).
Is Miami or Cancun best to maximize profitability?
An important consideration is what you think the currency exchange rate will do. Let me provide an example of why it is important:
I bought a condo in Puerto Penasco a few years ago when the Mexican Peso (MXP) was about 13:1 to the US dollar. Now the MXP is about 20:1 to the US dollar. So what, you might ask. Deals are struck in US dollars. Ok, but here's the problem:
Property sale prices in Mexico are actually recorded on the deed in Mexican Pesos, even if the property was advertised in USD and the deal was struck in USD. Rightfully so.
But now assume that I sell the condo for exactly the same price in US dollars. When the sale price is now recorded at 20:1 I am looking at a 50% Capital Gain (20/13) according to the Mexican tax authority. So, I would owe something like 15% of the sale price in Capital Gains tax, assuming a 30% tax rate.
Brutal.
So, it you think the USD will appreciate further against the MXP, then you unless you think the Mexico property will appreciate much faster than the US property then you may want to go with the US property. Of course if you think the USD is now out of line with other currencies and will weaken then this is not a concern. Who knows? Currency traders make the wrong call half the time so I certainly would not be qualified to guess.
In my case if I were to sell there has been a real price appreciation in addition to the paper (currency-based) capital gain so I would probably break even, so not a disaster. But certainly the currency issue is material.
I would recommend you take a look at airdna.co (not .com) for financial wherewithal. I don't know about local regulations in Miami but do know that Airbnb is very heavily used in Cancun.
Miami Beach city is fighting Airbnb to protect the hotel industry. They're making it very hard. Earlier last year, the city started charging $20,000 fines for short term rental. My guess is that Cancun may be more open to short term rental.
I agree with @Mehdi Khachani about the city's new ordinances and fines. There are however, some properties that are somehow grandfathered in or are outside the boundaries of those "fine zones", in Miami Beach. If you want to take the chance on Miami Beach, I would recommend speaking with a realtor that knows Miami Beach really well as they will know which ones are able to run as Air BnB rentals. I don't think city of Miami is as restrictive on this as Miami Beach specifically.
An important consideration is what you think the currency exchange rate will do. Let me provide an example of why it is important:
I bought a condo in Puerto Penasco a few years ago when the Mexican Peso (MXP) was about 13:1 to the US dollar. Now the MXP is about 20:1 to the US dollar. So what, you might ask. Deals are struck in US dollars. Ok, but here's the problem:
Property sale prices in Mexico are actually recorded on the deed in Mexican Pesos, even if the property was advertised in USD and the deal was struck in USD. Rightfully so.
But now assume that I sell the condo for exactly the same price in US dollars. When the sale price is now recorded at 20:1 I am looking at a 50% Capital Gain (20/13) according to the Mexican tax authority. So, I would owe something like 15% of the sale price in Capital Gains tax, assuming a 30% tax rate.
Brutal.
So, it you think the USD will appreciate further against the MXP, then you unless you think the Mexico property will appreciate much faster than the US property then you may want to go with the US property. Of course if you think the USD is now out of line with other currencies and will weaken then this is not a concern. Who knows? Currency traders make the wrong call half the time so I certainly would not be qualified to guess.
In my case if I were to sell there has been a real price appreciation in addition to the paper (currency-based) capital gain so I would probably break even, so not a disaster. But certainly the currency issue is material.
@Matt Smith here is an article I just came across that talks about the "short term rental district" that the city of Miami Beach has established in North Beach:
I never met a successful real estate investor whose portfolio consisted of property owned in a far away place. I'm sure they are out there and there's always exceptions to the rule. Just something to think about. The most successful investors I know buy close to home and expand from there.
I am a Real Estate Investor for European Investment fund here in Mexico. One word: Paradise to who knows where and how to take advantage of what is down here.
For example the capital gain even without talking about the peso or dollar, in areas of Cancun in residential properties from 50 to 150k USD we are experiencing 16% capital gain per year.
The rental is also huge, a property that is worth 50k in the right area will rent easily for 450-500 USD per month with a monthly rental contract, if you start airbnb and put a little effort in the revenue starts to become alot higher. But just with a simple monthly rent you are reimbursing your purchase in less than 9 years, unheard of in europe where I come from, and that is not even considering the major capital gain you would have experienced in that time...
But the real opportunity in Mexico is with the banks... The mexicans have terrible financial education and the interests for motgages are ridiculous, 10-16% average, this leads to an extremely high mortgage fail rate, over 6% in 2015. It is extremely difficult to buy from the banks as they only sell in bulk and it's pretty much who you know not what you know... But for example Credit Suisse buys 250 million euros worth every year in Mexican forclosures directly from the BBVA and Santander. If these guys do it is a pretty good sign....
And Matt, yes Airbnb is legal here and more than encouraged.
I have a property I rent here in cancun, 3BD, shared swimming pool in a very nice residential gated complexe a good 15 mins drive from the beach. it's value is around 55k USD and from the 18th of December to the 6th of January (Prime season) I have it rented at 350 USD per night... Those 3 weeks on their own pay 6000 USD and that is after costs and taxes.