Hi all, newbie here with a few questions regarding investing in STRs in Tulum. I’ve been evaluating a few different recommended markets for STRs (Florida panhandle, Smoky Mountains etc) and I’ve found that from a numbers perspective, Tulum has the most potential for returns, here’s why:
1. You can buy a pre-sale hotel-condominium with resort like services and property management features for 100-150k. These have potential to easily go for $100+ a night. I don't know much about management fees, but from what I've found is that they rival HOAs in popular STR markets
2. Tulum is growing very quickly and it’s easy to find developers who are building new condo-hotels left and right. I know that supply must meet demand but it seems like the growth in Tulum has a ton of potential to aid in appreciation
3. Real-estate in Tulum has been heavily impacted by Covid thus slashing prices.
I’d love for someone to point out what I’m missing in my current analysis and let me know what the risks are
The sargassum has been an issue for a while now but it's mostly seasonal and so its impact hasn't been what I initially feared, as you can read from this very recent article: https://www.riviera-maya-news..... Mind you, if its was to become a more serious problem, it would be a disaster for your state of Florida, which is being hit as well (in particular the Atlantic side).
The potential oversupply issue is a serious problem for Tulum. The path of progress has been moving from Cancun to Tulum through Playa del Carmen. When I decided to invest in the Riviera Maya a few weeks back, Playa del Carmen was pretty much "done" and Tulum was supposed to be the next best thing. Yet, I went first for Playa del Carmen. Part of it was for lifestyle reasons but I thought it was a better investment.
Like in the US and everywhere else for that matter, real estate investment is about location, location, location. And there is no more land available in Playa del Carmen proper. I had the opportunity to invest in the last plot of land available and we'll be almost right by the beach and 5th Avenue. This is absolute prime location. Even, if, for any reason, the overall occupancy rate for short-term in Playa del Carmen would drop (for example as a result of an increased supply), we'll probably still get rented. And new construction occurs further and further from downtown, which is much less short-term rental friendly.
In Tulum, there is no 5th Avenue and there aren't any condos or villas close to the beach. So, unlike Playa del Carmen where it's about being close to the beach and the 5th Avenue, it's about being in the jungle in Tulum. The problem is that there's already a huge amount of condos under construction in Tulum and there's a huge amount of jungle left to be built out. So, yes, there is a potential oversupply problem there. Moreover, what people liked about Tulum was its hippie bohemian chic character that is fast disappearing with the huge developments taking place there. As Tulum becomes more like Playa del Carmen, it will lose its attractiveness to these people. But it will never be as Playa del Carmen because of the building restrictions so it won't be a viable alternative to the Playa del Carmen-style people like me either.
Many people have been discovering Tulum recently but it's nothing new. The best time to invest there was a few years ago. When buying a new property today, I'd definitely be conservative when it comes to rental income projections.
I'm not sure why you tagged me in your post but, since you did, I'm going to comment on what you wrote.
I think that Playacar is great place to live (which is what you're doing I understand). It's not the best place for a rental though. The whole point of renting an STR in Playa del Carmen instead of staying at an all-inclusive is to be close to downtown, the 5th avenue with all its restaurants and shops and the downtown beaches. Playacar is way too far for that and it's a residential area without the eating, shopping and entertainment facilities that most renters want. Moreover, the nicest part of town is the part of 5th Avenue that's opposite the side where Playacar starts.
As for Tulum, I personally know the guys behind Tulum 101 and yet I don't agree that it's better than Aldea Zama because it's closer to the beach. If you're not directly by the beach, being closer to it doesn't matter as much as you think, especially since the opening of the second beach road, Kukulcan Avenue. That's because the closer from the beach means the farthest from the town. So you'll be further from the town than Aldea Zama and most other popular areas.
You're not (necessarily) gonna get more rental income but the developer will have you pay more under the misconception that it's better. So you might actually end up with lower returns. I think Park 101 is an example of a development that's outrageously overpriced (I've been offered condos in the area for much cheaper) and the ROI would be too low for me but you might have a lower ROI hurdle. And, as we all learn on BiggerPockets and elsewhere, when you invest, you make money when you buy.
I'm not suggesting that Playacar or Tulum 101 are bad investments but I believe that, as an investor, you can do (much better) elsewhere, depending on what you buy.
Rental Property Investor · Atlanta, GA · Member since 2018 · 65 posts · 29 votes
5y
@Mike Lambert i don’t agree on playacar been far from downtown. I’m 5 minutes from 5 avenue and same to the beach bike riding , probably 15 minutes from downtown and i don’t have all the noise from those crowded places right out my place.
You will always pay more in the best locations, you probably make a little bit less money but i feel like having a solid asset will be easy in case you need to cash out.
Thank you for your suggestion, there are many different ways to invest in real estate, and every investor pick the one that feeds better.
Most areas in Playacar is more than 5 minutes from most of downtown even by car and most people visitors don't want to have to rent a car and drive You can't walk there and it can be a long bike ride for most people. There are other areas literally one block away from the best part of 5th Avenue downtown where you don't hear a damn thing. No need to go as far as Playacar for that. So we'll have to disagree on this one indeed.
The most expensive condos are the hardest to sell, especially in Tulum. I'm not sure what you mean by a solid property but you might end up with a property that's less profitable and less liquid and therefore harder to sell. For the price of certain of these condos, you could pretty much by a villa, which would be way more profitable.
And yes, there are many ways to invest in real estate and I wasn't giving you any suggestion, especially since you've already bought anyway as far as I understand and I hope you'll do the best with your investments regardless of my opinions. I had the reader in mind, who gets the opportunity to read different points of view and make his/her own mind, which is great I think. :)
Investor · NJ · Member since 2021 · 17 posts · 26 votes
5y
@Arwin Nassiri We started renting our home in Tulum just last month. So far we are happy with the PM: Top Rentals Mexico. Feel free to email me for details.
@ Deisy P. we are also looking to invest in Tulum so just wanted to follow up on how your experience has been so far in terms of the purchase process, renting so far, finding property management companies. We would eventually like to retire there but that is a few years away so the intent is to buy something now and be able to rent (STR) and be able to manage all that from overseas (we are in Canada).
I'm a fellow Canuck who's been investing in STRs in Mexico and the Riviera Maya for a few years now and have responded to hundreds of posts on the topic. You can browse through them through my profile to see if you find anything you're looking for there. I know it's not easy to search that way so feel free to reach out to me directly if you don't easily find what you're looking for.
I’d avoid condotels. Very expensive for what it is and you have hardly any control. Plus their rental projections are generally wildly inflated. I’d go for a real condo itself and avoid those that have a rental pool (unless you want to have nothing to do of course).
A number of foreigners have been killed in the Caribbean resort town of Tulum, shining a spotlight on a rapid rise in violence in one of the most sought-after destinations in all of Latin America.
Between January and September 2021, the town registered 65 murders, an 80.5% increase over the same period last year when just 36 murders took place, according to statistics from the National Security System.
Investor · The Americas and Europe · Member since 2016 · 1k+ posts · 1k+ votes
4y
I'm not sure what's the added value or the objective of copy/pasting only the most "sensationalistic" part of a piece of news about a subject pretty much everybody is aware of (the drug-related violence in Mexico) without going over the whole article and putting it into context. In order to try to provide value to the community, let me try to to just that here.
I wouldn't doubt the murder statistics mentioned in the article. Moreover, I think few people would argue that most of these murders are drug-related and that the demand for drugs come from visitors. From the statistics I've seen (and that might seem pretty obvious to anyone), there's probably been an increase of 80% or more of the number of tourists between January and September 2021 versus the same period last year, which is included the lockdowns. Unlike other places, tourism didn't go to 0 but the hotel occupancy rate hovered around 20-30% vs the usual 80-90%. Given all that I mentioned, you'd sadly expect an 80% increase in the number of (drug-related) murders. So it's not that violence is out of control. This is once again an egregious example of headlines and news articles, while literally accurate, are written in a way to scare and sell.
The article then talks about the murdered foreigners. We know of two and then they mention three nationalities so we know there have been at least five. The articles also mentioned that foreigners account for a very small part of the murders. Since there were 65 in total, the number of foreigners can't be much more than these 5.
As much as the death of 5 people or any person whatsoever is tragic, that number is tiny compared to the millions of visitors visiting Tulum each year. Hence, the murder rate of visitors in Tulum is most likely lower than the murder rate in most US city, (where people buy real estate an invest no questions asked). This is why, more and more foreigners keep visiting and buying real estate in spite of this statistics.
Now, should we bury our head in the sand and see life with rose-tinted glasses? Absolutely not and hence the hotel association is right to be concerned and demand that the government take preventative action. There is no doubt that, should the violence really get out of control, you'd expect it to have a detrimental effect on tourism.
The Riviera Maya is Mexico's tourism jewel and juggernaut and accounts for 75% of Mexico's tourism income. Nobody from the Mexican government to local businesses to foreign investors to drug cartels has any interest whatsoever in killing the golden goose so we should expect they'll do whatever is in their power to avoid that violence gets out of control and threatens tourism. Yet, you can never say never and any investment carries a certain degree of risk.
The issue of drug cartels and violence in Mexico has been going on forever, with some ups and downs. If we look to history for guidance, there is only one location where drug-related violence has taken its toll on foreign tourism and that is Acapulco. Clearly, the Mexican government and other actors have learned their lesson and are investing resources to make sure that this doesn't happen again. And, ironically, it seems that Acapulco has undergone a renaissance with Mexican tourism.
On January 16, 2017, 5 people, including foreigners died in an exchange of gunfire at the Blue Parrot nightclub during a music festival as a collateral damage of a fight between drug dealers. Many predicted the end of the Riviera Maya and Mexico as popular tourist destinations. In reality, the growth in the number of visitors to the Riviera Maya and Mexico has continued to grow ever since (temporary Covid effect aside).
Let me finish with an analogy. I live in Montreal in Canada, one of the safest countries in the world. Yet, we've have had a wave of shootings related to the organized crime lately. The local press has been all over it to the extent that the opposition tried to oust the mayor capitalizing on crime at the occasion of our municipal election, which took place last year. It didn't work as we didn't really care that much. Indeed, we know that the probability that something happens to us is tiny and we won't let the media scare us.
Generally I personally strive to have a balanced attitude between not falling for media sensationalism, putting things in context and looking at facts and figures while not ignoring potential problems.
Brianna, you mentioned you were looking at PH by Anah in Tulum. Did you get any further with that? Looking at the one called Maria. Seems like a good location. Any and all thoughts would be appreciated! Thanks!
Real Estate Agent · Tulum Mexico · Member since 2021 · 65 posts · 62 votes
4y
Hello Zach & Brianna,
I have been investing and helping friends invest in the Riviera Maya. I have multiple properties in both Playa del Carmen and Tulum. I live full time here since 2014. I know of some people that bought in Anah a couple of years back and had some issues with both legal and physical delivery of their units. There are a couple of blogs about it: www.anahsucks.com and https://www.tripadvisor.com/Sh.... Maybe they have solved this problems but please be carefull. I have been here for 7 years and know who the solid and reputable developers are if you want any feedback I would be glad to share my experience. If you do decide to buy with them please have a reputable law firm do a title report and review the agreement. If you want my personal opinion on the best developers in the area I am happy to help, you can contact me in a private message.
Here is a video I did about the real estate market in Tulum a couple of years back hope it helps:
Brianna, you mentioned you were looking at PH by Anah in Tulum. Did you get any further with that? Looking at the one called Maria. Seems like a good location. Any and all thoughts would be appreciated! Thanks!
Are you familiar with the Samsara development in Tulum or the developer Grupor4? I'm considering a 2 bedroom garden condo as a STR and would love to hear your thoughts.
I know you are asking @Mike Lambert directly, I have had personal experiences with Grupo R4 in the past and can give you my personal opinion.
I am almost certain you are buying through RETA / International Living / Ronan MacMahon since they have Samsara as an exclusive. Grupo R4 is one of the largest groups from the Yucatan peninsula, they are one of the largest land owners in the area and they developed Aldea Zama along with Inmobilia a while back, they split up and now Inmobilia has Tulum 101 and Zama Desarrollos along with GrupoR4 which is a family company that own Selvazama which is the strip of land from Aldea Zama to the beach where Papaya Playa Project and Azulik are. They have developed multiple successful projects however I had a situation on one of their projects Essentia in Luum Zama where there was a delay of over 1 year. They had a 6 month grace period (which is more than the standard in the area) and they went over it, there were If I remember correctly around 3-4 months where the government stoped construction due to COVID and they claimed force majeure. Still took another 6 months to deliver after that, we went to the building site and while everyone else had workers on site Essentia was stopped. We were lucky to get a large monthly penalty added to the promissory agreement since the beginning for any delays and that protected us. There is proof of all im saying about it if you want contact me in a private DM and I can share. Hope this helps you make the best informed decision. The condo has been delivered and as of right now everything is working and renting great with impressive nighty rates, we are making some solid ROI!
I'm not aware of any significant issues with the developer that haven't been mentioned by Sebastian Papworth.
I don't know whether that would be a lifestyle purchase, an investment purchase or a mix of the two for you.
As a lifestyle buyer, I don't like the location because it's a isolated and in a cul-de-sac and, as far as I know, not in a gated community. Mind you, some people might like the fact that it's isolated.
As an investment buyer, I have three issues: 1) I'd be worried about potential renters thinking like me about the location, 2) the location is unproven and 3) there are better locations in my opinion.
Sherman Oaks, CA · Member since 2017 · 2 posts · 1 vote
4y
Thank you @Sebastian Papworth and @Mike Lambert for your input on this, its much appreciated. Given the location and current market climate with an anticipated delivery in summer of '24, what would you say is a reasonable $/SF for a 2 bed/2 bath condo with a patio and plunge pool?
Would also appreciate any thoughts on an average SFR nightly rate (peak and off season) and occupancy % for underwriting purposes?
Let me start with your second question. You cannot necessarily expect that the situation in the summer of 24 will be exactly the same as it is today. Yet, today's and past data is the only data you have available. You can use Airdna for that. However, it won't help you distinguish by location and isolate data from places that have a patio and a plunge pool.
Because we're working on a development and want to be sure we give a good deal to our future buyers/investors so we wanted ton have better data. To this end, we have developed a proprietary data system that looks at future bookings rather than past data and allows us to isolate properties along many factors, including amenities. Therefore I will have a better idea of the answer soon enough and you'll be welcome to check with me directly.
Also, you can reverse engineer. Start with the return you'd like to make and, after having factored the costs, determine the gross income you'd need tomato to get that return. You could assume that your condo is occupied two thirds of the time or half the time if you want to be more conservative and see what nightly rate you get. If you need to be expensive, that's a problem. If you can be cheap, it looks good. You can then stress test with the occupancy rate and see how low you could go. I'd suggest you do your own calculations as opposed to trusting figures from the developers, who unsurprisingly can be wildly exaggerated.
Now, a reasonable $/SF is subjective and might be different for everyone, especially if the purchase is partly or fully for lifestyle. And that will be the case everywhere, not only in Tulum. In a market that has an MLS, you could think that a reasonable price would be the average or median price within the market but that wouldn't make sense if the market is in a bubble. In any case, Tulum doesn't have an MLS. If you buy (mostly) for investment, your expected ROI could be the indicator. With respect to that, don't forget that, generally speaking, you pay by the amount of sq ft but rent by the amount of bedrooms.
Given that the market has been red hot, the risk is that you (wildly) overpay if you buy the wrong property. If you find something of particular interest but are unsure about it, feel free to DM me like many others have done before.
Investor · The Americas and Europe · Member since 2016 · 1k+ posts · 1k+ votes
4y
Hey Dennis,
This is a condotel and, generally speaking, I'd never invest in such a project. It might sound attractive at first glance because you won't have anything to do. Personally, I rather be responsible for the management of my properties as my costs woulod be much lower and I believe I'll get higher occupancy and income and therefore a much higher ROI. If you don't want to manage yourself, you can hire a property manager.
The problem with a condotel is that you have absolutely no control over your property or your income. You can't fire the manager if he's doing a poor job and they will make most of the money through there exhorbitant fees. Because they control the prcing policy, it's very difficult to estimate how much you will make in this case. I wouldn't trust their ROI figures with a 10-foot pole, unless the price is very low, which I doubt.
Finally, the website has alarm bells all over:
- no about us section so we know nothing about the developer;
- no contact details;
- no English version for the website but titles in English while everything is in Spanish; generally speaking, it looks like a bad job done by an inexperienced VA and not vetted by the owner;
- how are you gonna communicate with the developer in case of problems if you don't have a phone number and they don't even speak English?;
- it's marketed uniquely to Spanish-speaking people. I wonder why.
Conclusion: it'd have to be very cheap to make financial sense but, even then, it could be very risky. I'd definitely stay away!
Real Estate Agent · Tulum Mexico · Member since 2021 · 65 posts · 62 votes
4y
Hi Dennis,
It's amazing that you're looking at investing in Tulum. It's always been a magical place and lately there's so much public and private investments that gives us further certainty about the destination. Actually, 2021 was the best year so far for one of the condos I've purchased a few years ago making 123k in reservations, and this month has broken all past records we have $18,289 USD of reservations for December, I paid $250K USD for it.
Regarding KIIN, knowing that it's a condo hotel that may not give you the flexibility of usage on your property that you probably should have as an owner. Also, I've researched about the developer but it seems like they’ve never done anything in Tulum yet, besides a couple of commercial buildings in other states of Mexico. It is key that you choose a developer with a local track record before considering to invest with them. Lastly, I think there are better locations with better accessibility, infrastructure and services.
I recently did a market study for a friend, so if you're interested on details, please DM me to provide the top projects we found out to be the most solid options.
Investor · Lake Worth, FL · Member since 2016 · 233 posts · 140 votes
4y
@Arwin Nassiri for condo hotels ypu have to pay every time they replace furniture to suit the new style or image, not to mention wear and tear. It can run $20k or more, sometimes yearly.
Also they can change management companies any time, resulting in additional fees, renovations and style changes to common and in unit furniture. Net profits aren't as they initially look on paper.
Thank you all! The developer told me that I dont need to use the Service of condo hotel, I can choose also other property Management Company if I like too
I don't know if they'd allow that from the beginning. In any case, they're probably more interested in selling their remaining condos than doing property management at this time.
The problem when you buy in a condole is that you might have little choice other than being part of their program if you don't have to because:
1. Many of the renters will go to a condolel to get the services of a condotel, which you presumably won't want or be able to offer;
2. It's likely that most of your neighbours will be in the program and offer the services of the condotel and therefore you'd be at a competitive disadvantage to them. Therefore, your only option would be to compete on price and that's a bad recipe for a profitable investment.
Chicago, IL · Member since 2011 · 10 posts · 2 votes
4y
You may have a hard time having a bank lend you money on a house in Tulum. Costa Rica for example is nearly impossible to get banks to lend so most buyers have to pay cash.
It's actually less hard with Mexican banks than with Costa Rican banks provided that you do it the right way and have what it takes (I used to lend to banks in both countries when I was an international banker years ago so I have insights in how they work). Although not very common, an alternative is developer financing. In either case, you'd need the right kind of deal to make the figures work though.
Often people have multiple questions for me about the options they have for financing a real estate property in Mexico. I am happy to help any reader interested in investing in real estate and show them all the options available, so that you can decide which best fits your needs.
The first thing that is important to point out is that 90% of the foreign buyers in Mexico are cash buyers. The real estate market in Mexico is a cash market, which is definitely a big plus, since it gives stability and lowers the risk of home loans defaulting.
5 Options:
1. Developer financing (There are at least 3 projects in Tulum offering direct financing) 2. Mexican Bank (I have a couple of contacts in banks here that offer options with higher interest rates than the us or Canada) 3. Financing in the US or Canada. (Most people are using a HELOC to buy in Tulum or the Riviera Maya) 4. Financing with your 401K/RRSP using a self-directed IRA in USD. 5. Cross Border finance companies (If anyone wants to go this route I know the 3 largest in the area)