All Forum Posts by: Mike Lambert

Well there's definitely tourism going on in Roatan and, when you start from scratch, it's easy to triple. At some point, prices tripled in Nicaragua too. But you're taking huge risks I personally wouldn't take.

The Dominican Republic followed Mexico's playbook. Like Mexico, it has a stable political system, a booming economy and plenty of money in their coffers for investments in infrastructure and marketing. They have a middle class whereby there is a mass of locals that can buy the same properties that the foreigners buy. Honduras, like Nicaragua, has none of that and they don't have the money needed to develop much further. So basically there's no way Honduras can repeat what Mexico or the Dominican Republic have done. Sadly, the country is still as poor as it was years ago.

Mind you, this doesn't necessarily mean that your project won't work. Ultimately, you can almost make money anywhere given the rich circumstances but it's a matter of risk appetite and I wish you all the best with it.

Beware of the sargassum thought. Roatan, being in the Caribbean, has the same issue with sargassum as the Riviera Maya or the Dominican Republic. It hasn't been that much of a problem but it's getting worse as time passes. At least Mexico and the Dominican Republic have access to money to clean their beaches until the time it becomes too much. Honduras doesn't. If you do your project quick enough and get out, you might be less exposed.

As to your Wall St project, can't you get mainstream funding? If you have a good project in the US, you should be able to, shouldn't you?

Roatan is in Honduras, not Mexico but based on what? Honduras doesn't have the infrastructure or money to compete with countries like Mexico. And, then there's the political risk. As a banker, I used to lend in Latin American countries. If I'd dare to suggest we do anything in Honduras, I'd get fired immediately. You need to have the right risk appetite for that kind of places.

I know people who were told 20 years ago that they should invest in Nicaragua and they lost huge amounts of money as the country's situation sadly has only worsen. I've learned to invest in the proven destinations, not the supposedly next hot places, which won't work most often than not.

@Bonnie Griffin Kaake

There are indeed other great places to invest in Mexico than those mentioned by Artur and San Miguel Allende is one of them. However while the returns could still be good, they're much lower as prices are much higher and rental income much lower, as there is less mass tourism than in Baja California Sur or the Riviera Maya. When it comes to real estate, it's more lifestyle than investment.

@Artur A.

Hi Arthur, I'm not sure where you got those figures but I've been investing in Mexico for many years and I can tell you the following:

1. Capital appreciation statistics for Yucatan and the Riviera Maya don't exist (because price statistics don't exist - they're not registered or tracked) so we don't know for sure. But any statistic you read about is therefore inaccurate. It's either somebody guessing, repeating what they've heard or read from another source or lying (if they want to promote a destination).

Given what I just mentioned, I don't know what the appreciation rate has been in Merida/Yucatan but there is no way it's been 15% an it doesn't come close. By the way, if that rate was accurate, investors, including myself, would have bought the whole town by now. That's 5 times the capital appreciation used by deal underwriters in the US!

The figure you mentioned for the Riviera Maya seem more realistic. Bear in mind though that past performance isn't a guarantee of future performance. For example, in Tulum, we now find ourselves in an oversupply situation, which is going to get much worse so I wouldn't surprised to see prices going down in coming years.

In Baja California Sur, price appreciation was actually well above 10% during and right after the pandemic but it has returned to normal levels now.

2. When it comes to short-term rental ROIs, the same applies. There are no official statistics so again, any statistic you read or hear about either somebody guessing, repeating what they've heard or read from another source or lying.

However, in this case, you can compute your own statistics using Airdna and that's the only source I would trust. If you do that, you'll find out the following:

a. You mentioned a "potential" 18-20% return for Baja California Sur. If you buy the right property at the right price, you could get that return but that would be the exception rather than the rule. You can still get great ROIs in the area provided you buy the right kind of property in the right location but it's going to be significantly lower than 18 - 20%.

b. For the Riviera Maya, the days that you could get 8 - 12% are gone, alongside with the pandemic. It's lower now and significantly so in certain areas as a result of higher prices and too much competition.

c. As for Merida/Yucatan, you don't have the mass tourism there to give you an 8-12% return on average.

Of course, in any of these areas, if you buy the right property at the right price and manage it (or have managed) in the best possible way, you can get a return substantially higher than the average, whatever that average happens to be.

Hi Arthur, welcome to the exciting world of real estate investing in Mexico.

I have detailed the risk of buying pre-construction in Mexico in the following post: https://www.biggerpockets.com/forums/76/topics/965030-buying...

As a general comment, Mexico is a great place to invest (especially now) but you need to know what you're doing and especially if you're talking about investing clients' money. And your question about whether you should "consider" hiring a lawyer has me worried. Of course you should and you can't hire any lawyer you need a good one.

While you need to understand the risks of buying from a given developer, it's not a lawyer's job to investigate their reputation. The best way to know is worth of mouth, which is going to happen as you get to know a market. For example, there are some supposedly well-established developers I'd never buy from because I know what they're doing behind the scenes through my contacts on the ground (some of the stories you wouldn't believe).

I have replied to hundreds of posts in the BiggerPockets forums over the years about buying in Mexico, pre-construction or not so you might find plenty of useful info in them. I know the search function on BiggerPockets doesn't work very well. Feel free to send me a private message if you don't find what you're looking for on a given topic or if you need help with anything else as I might be able to point you in the right direction.

Hope this helps and best of luck!

@Alex Scattareggia, you're most welcome. That's what the forum is for.

@Bruce Lynn, you bring some great points. Also, like you, I was never a fan of all-inclusive resorts, except when you're there with a group of fun friends. But, with all-inclusives in Cabo, it's another world. They're among the best if not the best in the world. They have nothing to do with their brethren in Cancun. Guests typically spend more than $600 a night but love it and keep coming back. They get the best of everything back: food, service, ... If you think that, because they pay that much and get the best of everything, they stay in the resort the whole time, you might think again. They still splurge on the most expensive restaurants and other out-of-resort expensive activities.

Now, think of the kind of people that will go into that kind of hostel. If they pay $60 or even an improved $100 per night, do you think they're going to eat at a $200 restaurant or a 5$ taco stand? What kind of tourists do you think the local government and tourism head honchos want to attract?

Cabo has had a huge tourism growth over the last few years and visitors are started to complain about overcrowding, traffic jams and rowdy behaviours. If you follow what the government and tourism leaders are doing, they want to focus on luxury tourists for obvious reasons and they probably would like to get rid of the cheap tourism if they can.

Investing is first and foremost about figures but not only. If you invest in a place like that, you need to know and understand what's going on. So when I looked at it, the hard question I asked myself was whether I want to invest in a business that could be in the crosshairs of what the government is doing (and at the very least won't benefit from what the government is doing). The answer was no and, as a foreign investor, I definitely never want to put myself or any other investor be in such a position. Again, it doesn't mean that it can't work, at least in the short term but you have to understand and tolerate the risks.

To continue on my previous comparison with Playa del Carmen, I think that could be a great business for Playa del Carmen. Different kind of visitors. But for Cabo?

Hello fellow Canuck,

I could help answer some of your Canadian questions but I'll leave it to fellow investors from Ontario, as they'll know better.

Regarding investing in Playa del Carmen / Tulum, I agree with @Bruno Demarco Quiroz's first two points. I'll add to it that you should be careful when using past rental income figures of existing properties as your future rental income could be significantly lower (especially for Tulum). I'm not a real estate agent so I'll won't comment on his points 3 and 4. Feel free to reach out if you want to get the perspective of a fellow Canadian who's been investing for several years there.

Best,

@Alex Scattareggia

Well this makes up for an interesting discussion and it's par for the course that we have different opinions on certain things. Otherwise, what's the point of a forum?

I actually got a great deal staying at one of these condos above Cardinal. Fantastic views! But the main drawback is that I love walking. It's exercise and that's how you really get to know a place, bump into people,... Wherever I'd go, I'd always have to go through that part of downtown and was passing by that hostel more often than not but I didn't particularly like to walk through that whole area to go buy my groceries as the Super Chedraui Select but I wouldn't compromise on the walking part.

Now I'd been many times to Playa del Carmen before I set foot in Cabo San Lucas for the first time years ago. While I like downtown Playa del Carmen a lot, I knew that Cabo was the capital of luxury in Mexico so I had high expectations that downtown Cabo San Lucas would be even nicer. While you could clearly tell while driving through the corridor towards the marina area that there's plenty of luxury to go around, I was shocked and disappointed when I got to the real downtown, as it looked shanty-townesque compared to downtown Playa del Carmen (the term might be a bit of an exaggeration but it's to get my point across)! I understand that most visitors don't care about downtown and don't even go there but I like downtowns personally. If you call that area gentrified, I guess we don't have the same definition of gentrification, which is fine because everything is relative. And, as I was walking through the area, I was rarely crossing the path of any gringos, whether during the day or in the evening. The area where I was staying was the only part that's somewhat partly gentrified in my book. You can get a great deal there, I was told just because some people don't want to have to cross the downtown area like I did to go anywhere.

By the way, San Jose del Cabo, by contrast, has a beautiful historic downtown with a great Mexican vibe. Thankfully, there's no gentrification, as it's so nice and well preserved.

I didn't suggest that the market is prioritizing luxury over value. What I meant to say is that the mayor, the state government, FONATUR and the local tourism board all want to achieve the transformation of Cabo into a luxury destination. They want more $500-hotels and less 60$-hotels. They like the new condos, as long as there isn't too many of them. If I learned anything from investing in Mexico, it's that I want to have the government as a tailwind, not a headwind.

Mind you, that might be where your opportunity. Indeed, the argument can be made that, as hotel rates go up, there is an opportunity to cater to the budget conscious/strapped traveler who doesn't mind staying in an unappealing area. Nobody has a crystal bowl and you never know for sure. It's all about return vs the risks and, naturally, different people will have different opinions about that.

Now your comparison between the boutique hotel and condos is interesting and I'd take the other side and buy the condos for the following reasons:

1. If I'm not mistaken, the largest part of the market is by far lifestyle over investment buyers. If you buy a condo and you're disappointed with the return you get from renting, you can always sell it at a profit to lifestyle buyers, who make up the majority of the market. If you buy a boutique hotel and it doesn't work, what are you going to do? You can't sell it to lifestyle buyers. You can only sell it to an investment buyer, probably at a large discount. That's a risk I'm not ready to take but you might be but if you make it work well, you won't want or have to sell and it'll be all good.

2. Again, the fact that you mention that the market is oversaturated has to do with that area. There actually aren't that many condos there but the problem is that few people want to stay there. This is precisely why I wondered how much more income you can get if you upgrade the rooms given that even some nicer places (the condos) don't get rented. If you buy condos, it's the same story. You have to buy the right condos in the right areas, especially where there is demand and they're undersupplied. Condos and hotel rooms are competing against each other. If condos are no good in a given area, that's not a good sign for hotel rooms, unless the price is substantially lower, which I understand is the policy the current owner followed.

It's all a question of balance at the end. Like you, I could see the theoretical potential. But then I had to weigh it against the location, which is a negative for me. Then I figured out that it doesn't play into the government plans, I factored in the risks and the negatives ended up outweighing the positives for me. Since you think the location is good or at least not an issue, I can totally see that the positives would outweigh the negatives for you.

Don't forget that you'd be the one making the investment so your opinion is way more important than mine. I'm just doing what you asked us to do, help you think and see what you might not see, that's all.

You'd need a loan from the land in which the site is located. If you don't reside there or at least can offer local collateral, chances are almost 0.

As mentioned by @Chris Seveney, this is more of an equity play, which would be more in line with the risks anyway.

@Alex Scattareggia

I'm going to bring a different perspective here since I've looked into the property literally and figuratively.

I spent almost three months during the spring in Cabo and I passed by that place many times and I never saw anybody getting in or out of that building or anybody in that building, save the receptionist. Every time, I asked myself the same question: "Why would anyone stay in a place like that in that kind of a location? I talked to a friend who's been a local developer and knows the area well and he was of the same opinion so, it won't surprise you that I gave it a pass when the opportunity came along. To me, the area isn't nice at all and real estate is all about location, location, location. I'm actually surprised about the $146 ADR you mention in the area but, if you talk about places like Cardinal Living on Miguel Hidalgo, I can imagine paying $146 and ignore the surrounding area.

This being said, it's your town/area and you know it way better than me. Moreover, given how it's operated at the moment, looks like you could definitely do better. The question is what is your vision for the place and how profitable of an investment you want. Or, are you betting that the place would gentrify soon? I have doubt but it could happen and maybe that'd be icing on the cake. Sounds like you could make the place nicer and increase rates and occupancy but how far can you go? A very nice place in a bad neighborhood generally won't work. Generally, you can only make lemonades with lemon. Exceptions are possible but rare and maybe it's one of those. 

On another note, as you know, Cabo has decided to go all-in on luxury tourism. "Cheap" tourism might be the collateral victim and they don't mind about it, quite the opposite. And it makes sense. I'm not the splurging kind of guy but if I pay the ever more expansive airfare to get there, I rather pay $300 to stay in a nice place than $60 to stay in an area like that. I want a nice holiday for my money. Not everyone thinks like me but I wonder who wants to travel all the way to Cabo to stay in a place like that. Mind you, some people clearly still do, given that they're still getting 59% occupancy.

Of course, I most likely didn't write anything you don't already know but sometimes, we're deep into your stuff and it's good to hear different perspectives because, sometimes, we could have some blindness to what we're doing. On another note, I'm a positive-minded person and I'm generally focusing on the positive. You and others here did a good job on mentioning the positives, which is why I looked at things from a different angle, based on my knowledge of the area.

My conclusion might surprise you but different people have different objectives and we might have different risk/return expectations. Moreover, since you seem to have access to funding without risking the money of outside investors, you won't have the pressure to produce a return for them or risk them losing money. So, since this opportunity has been an interest for you for 5 years, if you have a plan and you are clear about the risks and can tolerate them, I'd say why not go for it?

Hope this helps!