Investing outside of US??

Question

Hello! We are going to Playa Del Carmen in November (our favorite spot) to look at condo options for short term rental income for the next 10-15 years. Then live there 6/12 months of the year (but still rent out when not there). Has anyone on here done something similar? What did financing look like? We are working with a local RE/MAX realtor in PDC right now.

What financing have you used? Mexican banks require at least 30% down and paid within 5 years. Looking to get US financing, anyone with experience in this area?

Will Fraser · Answer

@Mike Lambert for the win, Ladies and Gentlemen!  Thanks, Mike, for this incredible detail and experience that you've shared with us.

I like your business model and am putting you on my "partners to watch" board to see if I can pick up some PDC deals from you in the future.

Will Fraser · Answer

Hi @Teresa Thomas, this is a fun idea to explore!  I’ve kicked around this approach in Thailand, India, and the surrounding area, but not yet in Mexico.  The thing I ran into while exploring those purchases was this:  I could not find a US bank that would lend on a property outside of the US.  I may have been looking in the wrong areas, or asking the wrong questions, but the looks and responses I got were all (rationally) “umm . . . We don’t do that.”

So, If that anecdotal experience proves true I would venture to guess that private money is your only US based funding solution for foreign property.

A power play could be to find deals that work on the local loan protocols and be fist-pump excited when you own the thang outright in 5 years!

Mike Lambert · Answer

@Will Fraser

You're very welcome and thanks for the kind words. Sadly, there's not much info available about investing outside the US. Some people still invest without doing their homework. If they lose money, they tell that story over and over again. People hear about it and it sometimes gives international investing a bad wrap, even though it can be way less risky than people think. I'm just doing my little bit to help and fill the void.

Mike Lambert · Answer

@Teresa Thomas

@Will Fraser

The default situation is that you should never be able to get a mortgage for a property that you buy in a foreign country for two pretty obvious reasons:

1. A bank or a private lender doesn't have the resources or willingness to go to the process of taking a mortgage on a property in a foreign country and worse, trying to get the property if you don't pay. They'll just never do it. You'd be wasting your time by asking left and right;

2. A local bank or lender won't lend to you as a foreigner because all your income comes from out of their country and all your assets are out of the country so all they have is the property and they can't go after your income or assets overseas.

There are no exceptions to rule number 1. You might hear somebody say they got a mortgage to buy a property in Mexico. They didn't. They just took a HELOC on their US property so the bank doesn't care whether the money is used to buy a property in Mexico or to go on an expensive holiday. The bank's security is the US home and they get their money back through the US income of their borrower. They've basically just refinanced and encumbered their US home. This completely defeats the purpose.

There are exceptions to rule number 2. Certain banks in certain countries will give mortgages to foreigners. Why? Because the rules will be so strict that they risk will be very low and they'll make a lot of money off you, as their margin loan will be huge because you'll pay a much higher interest rate than locals for the privilege.

Since I've been buying and selling properties in Mexico and Playa del Carmen, I'll now concentrate on that area, which is the one I'm talking about.

You can (in theory) get a mortgage from a Mexican bank to buy a property in Mexico but it's very difficult to qualify. You need to have a pristine file and you can pretty much forget it if you don't have W2 income. And then, if you qualify, the process is complicated so forget about getting a letter of pre-qualification to take advantage of the deal.

If you qualify, forget about getting any conditions close to those in the US. Forget 30% LTV or less, the maximum LTV will be 50%, for the reasons mentioned above. The term of the loan will be shorter and the interest rate much higher.

I hope you're not discouraged by now. You can make great investments in Mexico but you need a mindset shift. Many US investors are so addicted to cheap US mortgage financing that they can't see the forest from the trees. Mexico is normally a cash market for foreigners. Is that such a bad thing? It'd be a better deal to buy a 20% CAP rate property in Mexico with 100% cash than a 5% CAP rate property in the US with 10% cash (moreover, your risk would be lower because you don't have the debt). So, you could get a great deal in Mexico with an unattractive mortgage because you could still be cash flow positive.

The only other alternative is seller financing. It's not very common though. The problem with that is that you'd need a motivated seller since it's a cash market and a motivated seller won't give you financing because he needs cash!

I might actually be one of the few exceptions. For example, I buy pre-construction condos in Playa del Carmen and around and resell them with financing. It's just my business model; I'm not a motivated seller.

Investing outside of US??

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