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Mazen Al Ashkar
  • Real Estate Investor
  • Montreal, Quebec
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Investing in Mexico, Puerto Vallarta

Mazen Al Ashkar
  • Real Estate Investor
  • Montreal, Quebec
Posted Feb 27 2021, 19:42

Hello BP,

I have a friend of mine who's enjoying his condo investment in Puerto Vallarta, beach front condo for ~100k USD. With short term rentals, he's making healthy returns. I have some cash set aside and was wondering if anyone had any experience in Puerto Vallarta or Playa Del Carmen since i hear those are the hottest 2 spots to consider as an investment. I don't have much experience in the Mexican market. Would love to get your input

Cheers

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Mike Lambert
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Mike Lambert
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Replied Feb 28 2021, 05:23

Hi fellow Montrealer,

You are right! I've been investing in Playa Del Carmen or a few years now. And when I started, the purpose was to make a great investment while having places to escape the harsh Montreal winters. Since I'm already in Playa Del Carmen, I'm currently working on a deal in Puerto Vallarta.

If your friend paid around 100 k USD for a beachfront condo in Puerto Vallarta, it must have been years ago. We're way pas that now and he must be sitting pretty, on top of the nice rental income he must make.

I've responded to plenty of posts on investing in Mexico in the forums here so feel free to check that content and reach out if you need more help.

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Replied Feb 28 2021, 12:29

Hello! 

I've been living in Playa del Carmen full time for 8 years! I have a lot of friends in real estate here, and right now the market is RED hot with tons and tons of Canadians moving down here. You won't find too much for 100k anymore, maybe if you look on the west side of the highway in places like Real Ibiza or Selvanova.

(Honestly, I'm looking to find a place in Puerto Vallarta as they have better weather, overall better quality of life, conveniences, etc. over there.)

Hope that helps! :)

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Mike Lambert
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Mike Lambert
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Replied Mar 1 2021, 14:10

@Misti DelMar

You'd probably agree that, if you'd want to make money in short-term rentals, you'd never invest West of the highway. The closer to 5th Avenue and the beach the better, taking prices into account of course.

I think you meant there are a lot of Americans moving to the area, as I saw for myself during my last trip. We Canadians are now locked in our country! ;-)

We're kind of in the same situation in that I already own multiple properties in Playa del Carmen and am now working on a development in Puerto Vallarta but for diversification purposes, not because I think it's better. I have been multiple times to both and the weather, overall quality of life and conveniences are pretty much the same. Also, bear in mind that Puerto Vallarta was already an established resort town in the 1960's whereas Playa Del Carmen didn't even exist 30 years ago!

Which one of the two is best depends on whether you want to buy for investment or lifestyle. As an investment, both have their merits. If it's for lifestyle, it depends on what kind of lifestyle you prefer.

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Replied Mar 1 2021, 20:02

@Mike Lambert 

Yes I probably wouldn't invest on the other side of the highway for short-term rentals. I was just saying that's probably your best shot at buying under 100k in Playa ;)

After being here full time for 8 years, and making a few trips a year out to the PV area- I think the quality of life is better there. Especially since police extortion has become a real problem here in Playa, a major annoyance in my day to day life.

We all have different experiences though, so c'est la vie! Still love Playa in many ways, the beaches are definitely better here- but it's time to move on. For me at least.

Best of luck in your Mexico property adventures!

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Jason Rhodewalt
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  • Sacramento, CA
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Jason Rhodewalt
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  • Sacramento, CA
Replied Jun 7 2021, 15:26

I’m in PV right now and there are some interesting condos for sale but certainly nothing for $100k on the beach. How has the Mexico government taxes and fees been for others? Is it a pain or pretty easy?

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Mike Lambert
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Mike Lambert
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Replied Jun 8 2021, 05:52

@Jason Rhodewalt

There are taxes and fees to be paid when closing on the property, representing around 6 to 8% of the purchase price. Apart from that, I wouldn't worry about government fees and taxes. Annual property taxes are practically 0 and, generally speaking, holding costs in Mexico are very low. These are some of the advantages of investing in that country.

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Eric James
  • Malakoff, TX
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Eric James
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Replied Jun 8 2021, 07:00

When you purchase there is it cash or can you get financing?

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Mike Lambert
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Mike Lambert
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Replied Jun 9 2021, 10:41

@Eric James

Most buyers North Americans are happy to pay cash for several reasons: 1) they can get a higher return on their cash than with most other "safer" investments, 2) they buy in Mexico / Puerto Vallarta in order to diversify their investments overseas in a market where prices aren't artificially held high buy leverage and artificially low interest rates and 3) they realize that, when real estate prices in their home markets become too disconnected from rents (who can't grow to the sky) and interest rates inevitably go up, prices can (significantly) drop like they did in 2007-8. 

You can get financing in Mexico to "turbocharge" your returns but don't expect LTV, interest rates and fees to be anything close to what they are in the US and you have to qualify. However, you could still cash flow under those conditions if you buy the right property. Also, since the unleveraged returns in Puerto Vallarta are (significantly) higher than in most places in North America, you don't need the lending conditions to be as good to get an equivalent return.

Many North Americans have a third option, which is to take a HELOC on a US property and bring the cash to Mexico.

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Nikki Stoddart
  • Rental Property Investor
  • San Francisco, CA
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Nikki Stoddart
  • Rental Property Investor
  • San Francisco, CA
Replied Jan 22 2024, 17:01

Thanks for these great details! Do you know what income tax obligations Americans would have in Mexico? Say for example, I was to purchase an STR that makes $80K gross per year. How does the taxation work? Thanks!

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Mike Lambert
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Mike Lambert
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Replied Jan 23 2024, 05:22

@Nikki Stoddart

You first have to pay taxes in Mexico. Assuming you buy in the forbidden/registered zone:

1. If you buy through a fideicomiso, gross rental income from the leasing of real estate, property and time-sharing services by a nonresident individual is subject to a 25% withholding tax. No deductions are allowed.

2. If you buy through a Mexican corporation, you'll pay the 30% income tax after deductions of expenses.

Bear in mind that the expenses in Mexico are much lower than in the US.

If you use a Mexican corporation, there are costs associated with it and you'll have to lodge a tax return in Mexico. Therefore, the general advice is to go for the fideicomiso if you buy one property and the corporation if you buy multiple properties. Bear in mind that there has been talk of a fiscal reform whereby the deductibility of expenses within a corporation would only be allowed if the corporation has a real business and merely renting properties wouldn't qualify as a business.

The, you'd be taxed at the US level but you should be able to deduct your taxes paid in Mexico by virtue of the treaty for the avoidance of double taxation between the two countries.

For many Americans who buy in Mexico, this means that they'll end up paying the same amount of income taxes as if the property was in the US.

I'm not a tax advisor so don't take my word for this and consult with tax specialists as needed.

Hope this helps!

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Nikki Stoddart
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Nikki Stoddart
  • Rental Property Investor
  • San Francisco, CA
Replied Jan 23 2024, 06:36

This is super helpful!  Thank you!