Investing in Mexico's Riviera Maya (Tulum, Playa del Carmen, Can)

[Patrick Sullivan]

Some information that I wish I had known 5 years ago...

I have now invested in a few properties in Tulum and the surrounding area. One thing for N. Americans to note is that you are REALLY taking a chance if you buy pre-construction. They NEVER finish on time and there are always problems with the construction quality. I highly recommend looking at re-sales and getting a good inspector to do due diligence on the property. I still love the area and will continue to invest in it, but this is the biggest thing I have learned in doing business here and thought I would share for those who originate outside of Mexico. For example, you can have a binding real estate contract that stipulates penalties for late delivery or construction defects. Lawyers will tell you before signing that you are protected by the contract. However, actually suing someone in Mexico takes minimum 3 years and then you only get the award for the specific item (no lost income, lost interest, etc). What ends up happening in pre-sale is that, even though you have done due diligence to get a contract that protects you, de-facto it is too difficult to sue so you end up accepting all the problems you wanted to avoid and the contract language is superfluous. As a result, I advise not buying pre-sale unless you are ready to factor in a minimum of 6 month delay and a minimum of 10-15% cost additional to fix things the builder won't fix.

Also, "reputable" builders are the only way to go for pre-sale. However, "reputable" builders will still reneg on contracts and can just as likely be extremely late in delivery as well as provide a building with many construction problems. 10 fold more than what you would expect in N. America and N. Europe. For example R4 is a very well known builder in the Riviera Maya (Tulum, Cancun, Playa del Carmen) and realtors will tell you that you can't go wrong with them. I can assure you that they are more corrupt and incompetent than any builder in N. America. So it is a matter of re-setting expectations.

Hope that helps.

[Bruce Lynn]

@Patrick Sullivan   

Sorry to hear all the trouble.  Developing countries are different....although there have been plenty construction delays in my market as well.  Plenty of supply chain problems with just about every component of the build jobs.   Things seem to be getting back on track now some though or managing thru it at least.

Did you use any builder/bank financing or was it all cash?

Are you planning for STR or LTR or something else? Who will rent and manage for you?

What kind of ROI are you seeing?

[Patrick Sullivan]

Hello Bruce.

On the construction problems/delays - yes.  It is just a fact of life down here that needs to be incorporated in the thought process.  It is still an amazing area around Tulum and I'm happy to have property there.

Tulum is definitely a hot market for STR and that is what we will be doing. I used cash financing mostly, but there are mortgage/bank finance options in Mexico. Finance options to purchase in Mexico are not good compared to the US. Very high interest rates (2x the US), high fees, etc. US banks generally will not loan for property purchased in Mexico. ROI is very different depending on the unit characteristics/area. But overall it is good.

[Benjamin Canyon]

@Patrick Sullivan Fancy seeing you here! :) I hear you on the construction quality issues and also how difficult (read: nearly impossible) it is to hold developers accountable. It's just really tough and I've lived through it several times.

But following all the stresses, delays, and finish quality issues—once I started making income on my properties, I've come to see all these challenges as the price you pay for the type of ROI you can get in Tulum. Of course this depends on the purchase price, developer, etc., but if you do it right, it can really pay off.

So if you can stomach the roller coaster ride of development projects in Tulum, in my personal experience it has been worth it. For example, on a $250k investment, I'm netting around $70k/year in rental yields (28%), which is pretty solid. I don't think that's very common. But even half that yield is pretty decent.