All Forum Posts by: Mike Lambert

@Christian Romano

Getting ahead of the Mexican government infrastructure investments in the past has been a passport to the riches. It starts with with infrastructure and then they bring hotels and flights. They've become the masters at doing that. However, this isn't what it's going on there.

The Mexican government has earmarked the area for low-density luxury eco-tourism so it won't be the next Riviera Maya. The airport is actually privately built by the people building the resort, hence the speed of construction. This is because they know that the Mexican government won't built an airport there given the lack of demand for economic flights and, most importantly, the lack of significant economical impact of the area. So, I'm not sure what you can do there aside from trying to compete with the likes of the Four Season's.

The success of a real estate investment Mexican model hugely rests on mass tourism and that's the basic ingredient that's going to lack there. The Oaxaca coast is different because it's had had economical flights for years, including international flights from Canada (only) so it looks like a better candidate for one of the next places to invest. Yet, it's been developed for years but there's still no direct flights from the US to get to the popular town of Puerto Escondido. You'd thought that it would be a better investment than the most established beach areas of Mexico as it is behind on the path of progress trajectory but, in reality, it has been no match to the three powerhouses of Mexican beach tourism: the Riviera Maya, Baja California Sur and the Puerto Vallarta - Riviera Nayarit areas, which likely will remain the best places to invest for most, although some areas of the Riviera Maya are facing overbuilding and other issues. After those many years, the Oaxaca Coast has been no match while being in a better position than Costalegre to become one. Therefore wouldn't bet the farm on Costalegre. It simply doesn't have and won't have the same ingredients for success.

@Sebastian Papworth It's good to get your perspective as somebody who lives and invests in Tulum and is a realtor too. In your comments, you focused on opportunities and, in mine, I focused on risks. This is a difference in perspective that makes total sense, given our different situations.

You live, work and invest in Tulum so you (have to) try to make the best for it. You started investing there years ago, when it was much cheaper and there was much less competition. As in any competitive market, you need to find deals and find ways to distinguish yourself from the competition. And you need to look for the positives. After all, if you don't, who will.

I'm an international investor and I look primarily at those risks because I can get a better return somewhere else in Mexico or in other countries without taking those risks. If the market involves in a way I don't like, I can go and invest elsewhere.

The results you mentioned are great but it's the percentage return that matters, not the amount of dollars. 5 properties with double digit returns are great but again, people need to be cautious when looking at this.

Let me illustrate what I mean with one of my own examples, a recent acquisition in Spain, because it perfectly illustrates the point I'm trying to make here. We launched a new short-term rental in the Costa del Sol in December. The professionals, who tend look at their market with rose-tinted glasses told us to expect an occupancy rate between 51% and 55%. With that occupancy, we should have been deep in the double digit returns. Why not a higher occupancy though? Because it's a seasonal market, whereby we should expect full occupancy during summer, some occupancy during both shoulder seasons and we should have been happy if we get any occupancy in the winter. We put our secret sauce to work and, so far, we've gotten 70% occupancy in December, 94% in January and 86% in February. While I'd encourage anybody to invest in the Costa del Sol, I'd never suggest they could get the returns we're going to have, as that's simply not realistic. They certainly won't get those supercharged returns if they don't find the right property and doing the hard work that we're doing with our properties.

There's nothing wrong in showing what's possible but I think we should all be cautious managing people's expectations. I'm not sure whether your double digit return is calculated on your past lower purchase prices or today's actual prices but, even if it's the latter, you're going to work very hard to keep getting those kind of returns given the tidal wave of competition that's coming at you. I'm sure that, as @Bruno Demarco Quiroz mentioned, you'll be the first to agree that getting a double-digit return today or in the future will likely be the exception rather than the rule, at least until the municipality stops giving building permits to anyone and their mother like and decide to reign in supply like they've done in other parts of Mexico like Cabo for example.

Not long ago, I met with a real estate agent on the ground who mentioned that, given the changing market, Tulum had become a lifestyle market rather than an investment market. That made sense to me because, given the low operating costs in Mexico, you could buy a property, use it part of the year and rent it the rest of the time to cover your costs, which you could do even if competition brings the nightly rates much lower. My main concern about a lifestyle purchase is the sargassum. For all of us on the East Coast of either Canada or the US, it's easier, quicker and cheaper to go to the Riviera Maya than to competing places like Cabo or Puerto Vallarta but we might care less about that if it means not having sargassum on the beach. Also, places like Cabo and Puerto Vallarta have become aggressive at competing with the Riviera Maya by expanding their airports and bringing in more direct flights, who'll end up making a big difference for someone like me and others.

To conclude, it's good to get both sides of the argument and do one's own individual SWOT analysis, as you suggest.

@Bruno Demarco Quiroz thank you for "correcting" me somewhat over my comments on the airport, thereby allowing me to clarify my thoughts regarding that topic. You are correct that Tulum airport is closer + you're likely gonna get out of the airport quicker in Tulum. It normally takes 1 h 30 from Cancun airport to Tulum and that's what it's taken me on average - it can be less with low traffic and if your driver speeds because you could miss your plane ;-). It's essentially 74 miles of nice highway. However, there have been at times nasty traffic jams due to works on the road, heavy traffic or some traffic light and controls, hence it could take up to 3 hours if you're unlucky. I'd choose a Tulum flight over Cancun if both are available at similar prices.

Let's be clear. An additional airport is a positive. But, unlike Bruno, many locals tend to overhype it for obvious reasons (whether they believe in it or not). To clarify my comments on the topic, what I meant to say about that point is that I've never met anyone who wouldn't go to Tulum because of its distance from Cancun Airport or complained about it. That's corroborated by one of my friends who's an experienced market manager at Airbnb, who told me that the overall majority of travellers don't have any issue commuting for up to 2 hours between the airport and their accommodation. This makes me wonder about the additional number of visitors that airport will bring, irrespective of its capacity.

To be clear, I don't have a crystal bowl to predict the future so it's all about risk taking and managing, assuming you can get the return you're looking for of course. You might just want to make sure that whatever you invest in fits within your acceptable risk/return profile.

@Jonn Vidal

I'm going to expand on the international part of your question, since that's what I specialize in. It really depends from country to country. Some countries don't even have a licensing body, which means that everybody and their mother can decide they're a realtor.

I'm not sure why you ask the question. It isn't necessarily a big deal if you want to take advantage of the huge opportunity that investing overseas represents assuming that you know what the licensing situation is and you educate yourself and know what you're doing or know people who do. There are resources around. Case in point, it's to bridge the gap that myself and others have been trying to help and educate BP members over the topic for years now.

I could be giving advice based on my years of investing in Mexico and the Riviera Maya and helping many buyers and investors do so but I won't because I have no fiduciary duty towards you and you're going to be the one to bear the consequences. Instead of giving advice, I rather share facts (there are many opinions but only one set of facts) and I'm trying to help you come to your own conclusions.

With this in mind, if I were you, I'd ask myself the following questions:

1. Are you comfortable buying anything in Tulum given the amount of building going on and planned and therefore the competition you'll face when renting? Ask yourself who is going to live or rent these properties. Think supply vs demand. Yes, you're gonna have the new airport and the upcoming Mayan Train. If you're seriously considering investing there, I assume you've already been there so you've been landing at Cancun airport and got a ride on the nice highway to Tulum. Do you think many more people will go there because of the train. The train is going to stop at one single station and then you'll have to go to your hotel or Airbnb. How much time are you going to spare, if any? The Tulum airport isn't in Tulum, it's in Felipe Carrillo Puerto, which isn't that much closer than Cancun International Airport. Also, given the size of Tulum airport compared to Cancun Airport, how much more additional visitors is this airport going to bring, also taking into account the fact that the amount of directly connected cities will be limited.

2. While Tulum and the Riviera Maya have deployed many efforts to be not about just the beach, most visitors wouldn't go if it wasn't because of the area's beautiful beaches. Are you comfortable with the sargassum issue. We haven't been able to find a solution to that problem and it's likely caused but global warming and pollution so it's difficult to see a solution anytime soon. I'm actually surprised it hasn't affected tourism more yet but that's probably because it's cheap and so it attracts price conscious tourists, especially in a period of high inflation. As a short-term rental investor, do you want to own a property where people go because it's cheap? People who go to Mexico and have money can choose where they go and they go mostly to the Pacific side. You might want to ask yourself why.

3. Ask yourself what your strategy is and whether it makes sense. It seems that you're considering buy, hold and rent. If your renting activity ends up being unprofitable or less profitable than you thought, what would you do? If you decide do sell to reinvest the money in something better, are you comfortable taking a loss given the amount of new construction condos selling at a discount you'll have to compete against (and buyers typically prefer a new property unless they urgently want to buy).

4. Assuming that you're still comfortable investing in Tulum given the above, it makes sense to ask yourself what kind of property to buy because, in order to limit the impact of competition, choosing the right kind of property might make a difference. Because man more condos have been built, investors started to snap villas to have something different to offer to renters but then the developers started building a large amounts of villas. Also, if condos rents for half the price of a villa so villas has joined condos in the commodity category. The conclusion could be that, while you might get a higher (or less low) return depending on the kind of property, your return will likely mainly be determined by what the market does as a whole. Think of a stock market analogy. You'll make more money if you invest in the stocks of the best companies but, when the market goes down, you'll generally still lose money because the stocks of the best companies will go down too.

I could write a book about this but hopefully I already gave you enough food for thought. Hope this helps!

@Bruce Lynn

You might to go about finding an agent internationally can be very different than in the US for the following reasons:

1. Agents are unlicensed in many countries so anybody can become an agent, including people freshly landed from overseas who don't have a work permit (since this is a business rather than a job). As a result, many of them don't know what you're talking about.

2. They know that most foreigners are lifestyle buyers and are therefore only going to buy one property in their market so their incentive is to sell to you and make the highest possible commission. They're not interested in relationship building since they know you likely won't buy another property.

3. They don't have the same fiduciary duty as in the US.

4. If you're not happy about their service, there's little you can do to damage their reputation so many won't really care.

5. With very few exceptions, there is no MLS. Therefore, if you work with an agent, all you'll see will be his/her inventory and that of the agents he/she might be working with. Also, he/she will tend to be biased towards that inventory.

Many people ask me for reference and I always reply that I don't work with buying agents. Instead, when I find a property, I contact the listing agent. I thereby get access to the whole inventory. In your situation, you can of course "use" an agent to gather market information but bear in mind that that information might be biased so you need to do your own analysis and corroborate the info.

@Alex F. Clearly more due diligence than in the US is needed given that you generally have to pay most of the purchase price before the property is built and delivered. Mind you there is a way to protect yourself against the risk you mentioned: using an escrow account. Most developers won't offer it because it's against their interests though.

@Alex F. I'd run away from it too for reasons I've already mentioned. However, certainly not because presale would have a high probability of failure in Mexico because the developer run away with the dollars. There have been hundreds if not thousands of pre-construction projects done in Mexico since I started investing there years ago and neither I nor anybody in my network on the ground know of any for which that occurs. So I wouldn't call that high probability. I'm surprised you made this comment since you mentioned in another post that you bought pre-construction and were happy with it! Yet, it is a risk and proper due diligence should be done when buying pre-construction.

@Eddy Wehbe I've been through the process multiple times and it's been way easier than you described. Just sent you a DM.

@Andres Vite

Yes, there is a lot of corruption, as in many countries but oftentimes more. I think pretty much everybody knows about this, including foreigners who invest in the country.

Yet, foreigners are investing there in droves and making a lot of money doing it. The overall majority of foreign buyers have never been involved in a lawsuit and never will. By doing so, they have created immense wealth in the country, which has helped many Mexicans get out of poverty and join the ranks of the middle class (and, as a result, they've big buyers of upscale Mexican real estate themselves).

Since I started investing there many years ago, I have met a very large number of very happy foreign property owners and none of them has had issues with corruption or complained about their neighbors. By contrast, I know plenty of corruption cases in my home country's Canada building industry, even though Canada is one of the least corrupt countries in the world.

The situation with mortgages for foreigners in Mexico has changed a lot over the last few years. Did you know that plenty of foreigners have gotten mortgages on Mexican properties in their own name without starting a company or having any tax return there?

You can be proud of being  Mexican. You guys are generally such nice people! Great food, great culture, beautiful country, great architects, beautiful real estate. Yes, the country has its challenges that we all know of and hopefully they'll solve them, one day at a time.

Let's celebrate your country and all it has to offer while acknowledging its issues. By investing there, we can make great money and have a positive effect. As you'll probably agree though, let's make sure we know what we're doing so that we're part of the overall majority of the foreigners who have a positive experience.

Hope this helps.