Real Estate Investing in Mexico - Best way to get loans/financing?

Question

Hi guys, I am a Canadian citizen with permanent residence in Mexico.

I've been investing in real estate in the state of Yucatan (the safest state in Mexico) for the last 1.5 years and have learned alot.. so far I've invested exclusively in presales and a land purchase, one property was an oceanside condo that will be delivered in June, it's currently up around 35% in value (great!), the 2nd was a private 3bdr family home in a gated community that just broke even (merp), and the 3rd is a piece of land that has increased 400% in value since a public announcement that a busy tourist train will be built along the highway 4km away from the property (nice!).

Currently the large part of my liquidity is locked up in the oceanside condo, and the property I am keeping with the intention of developing into a 150-unit community once the train gets built. I have found a great opportunity to purchase about an acre of land strategically placed on a main road in a beach town called Progreso that is exploding in popularity among Canadian, USA and European expats. As a Canadian in Mexico it's proving hard to get loans from either Canadian or Mexican traditional lenders, and since the oceanside condo is a presale and the title isn't in my name yet its difficult to use that as collateral for a loan or financing, any advice on securing loans/financing through non-traditional sources is greatly appreciated!!

For reference, land in the area I'm considering purchasing increases roughly 17% yearly without touching a brick, the land I want to purchase is roughly $80k USD. My plan is to use income from my Scooter Rental company here to build a café and rental units as the ROI for both business models is high and in 3-5 years planning to sell the land with businesses attached.

Mike Lambert · Answer

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You're very welcome. In the meantime I read your reply to Henry Clark about why you chose Yucatan/Progresso. A few points regarding that:

1. The way you explain it makes sense from your point of view.

2. I assume the train is going to get built. Construction is well underway and it's one of the pet projects of the current president. And maybe there's going to be a connection to Progreso that's not 100% clear. What I was mentioning though is that myself and others think that the positive effect of it is going to be very limited and certainly not the pie-in-the-sky story that is being sold by many.

3. My apologies if I wasn't that precise when it comes to Progreso but the way I was talking about included the nearby towns as well as Yucalpeten.

4. The middle class in Merida/Yucatan is pretty limited in size so I was included it in what I referred to as Merida's elite. Sorry again if I was a tad imprecise.

5. "Yucatan state is projected to be #1 in Mexico for real estate development volume in 2023, with a heavy emphasis on the city of Merida." Obviously the statistics aren't out yet so I imagine you read that somewhere. Do you remember where? It doesn't make any sense to me. The bulk of the investment comes from the hotel sector and the overall majority of it is going to the beach towns for obvious reasons.

6. As to Progreso becoming another Playa del Carmen or Tulum, I don't think so. Playa del Carmen and Tulum became what they are as a result of a carefully planned strategy and massive investments by Fonatur and there are no such plans for Progreso as far as I know. Progreso isn't even mentioned in their latest strategic plan. Do an experiment and randomly ask 100 people if they know what Progreso is. You'd be lucky to find one person who knows.

7. Many people/investors love a good story and, to be absolutely clear I'm not alluding about what you're doing. Whether it's about investing in real estate in Mexico, the US or Canada or it's about stocks or crypto, some people don't seem to be able to resist a story, whether good or bad. When it comes to Mexican real estate, everyone and their mother seems to have found the next Tulum. Different people follow different strategies and that's all good. Personally, I don't try to reinvent the wheel as I'm not sure I'm smart enough for that. I focus on what's been proven to work and I work hard to do it better. This being said the world need trailblazers and I'm happy to be one if I get the opportunity. The thing is, if I was to do that, I would be uncomfortable to put other people's money at risk and would use my own.

Now, hear me out. I was commenting on some specific points here as I'm hoping that might help you making mistakes that I've seen too many others making. I'm not at all trying to discourage you and I'm not suggesting you can't be successful. I like your approach of trying to do differently and I'm more than happy to help you in whichever way I can if I can.

Just make sure you know what you're doing. Sometimes, things can take more time to build than you wish but there are reasons for that. Based on your profile pic, it seems that you're a pretty young fella, in which case you have time on your side. :)

Finally, I come across all sorts of people in Mexico through my network so, if there are some non-institutionalized private lenders out there that could be interested and are not asking for crazy high interest rates, chances are I might know them or get to know them. So don't hesitate to send me another DM with more details about what you're looking for. You never know!

Mike Lambert · Answer

Account Closed

I saw that you wrote a similar post on another thread as well so I'm going to answer here and copy/paste in that other threads for the benefit of everyone. I have seen too many Canadian and US investors going to Mexico during the pandemic, buying land, trying to invest in a development, not be able to get financing and having to resell the land at a huge loss. With the rise in value and the increasing popularity of Mexican real estate, they thought they could easily strike gold. They went to Mexico thinking that they can apply the same strategies the've learnt in the US and Canada only to find out that nothing could be further from the truth. So, if I can help anybody not to fall into that trap, spending the time writing this reply will have been time well spent.

Finally, before I start, those who follow me know that I hate to be a party pooper and be negative and that I've been trying to help BP members investing in Mexico the smart way for years now. So I'm going to make suggestions to you towards the end of my reply so don't be too discouraged as you read on.

Starting with the land, land prices over there don't normally rise at 17% a year. I'm not sure where that figures come from because 1) there's no MLS and 2) nobody has a crystal bowl when it comes to the future. Yet, I wouldn't be surprised that, over the last few years, land has increase by that percentage or more because of the hype surrounding that train. More on that and the banks' opinion on Progresso further in my reply.

Generally speaking, the right piece of land in the right place in Mexico can appreciate handsomely. However, many of these people, not having much money (you can only buy cash), they bought pieces of cheap(er) land. Having to resell in an illiquid market with plenty of other cheap land is a surefire way to have to take a huge haircut.

You already own the land anyway so you need financing for the construction. The bad news is that you will most likely have to use your own money for that. Indeed, no Mexican bank will normally finance a foreigner's development project like that unless you're a big multinational and can offer loan guarantees. And for good reason because it's very risky for a bank to do that.

And even for Mexicans, it's very hard to get such loan and it's extremely onerous. This is why most Mexican developers are wealthy families using their own money. Case in point, I've been staying at a condo in Cabo in my friend's building. He's a successful Mexican executive and he has a lot of money by Mexican standards. He's completing a large condo development he's been financing with his own money. The building is on a large plot overlooking Cabo San Lucas, Mexico's # 2 tourist destination. He's planning a second building on the same plot of land and has been looking for bank financing. Even though he's a wealthy Mexican with a large successful project under his belt in of Mexico's best and less risky markets, could offer a large building as collateral, he can't get a loan that makes sense from a Mexican bank. More of what my friend is doing further below.

Mind you, there are exceptional situations linked to relationships like mine. I've been involved with Mexico over the last 25 years. I used to be an international banker and, as part of my last job, I was lending tens of millions of dollars to Mexican banks on a regular basis. Needless to say, that made me a lot of friends within the Mexican banking community. As a result of that, I could get financing but only if I meet their very strict criteria.

One of these criteria is the location. I'll be strictly limited to the more established tourist  areas of the country. I checked for Progresso and the answer was a resounding no. And that's what I was expecting, given my own opinion on the place. Indeed, while there are indeed more foreigners buying property there as they're getting priced out of other places in the peninsula and/or they're being sold a nice story, Progresso is essentially the beach town of Merida's elite who flees there during the summer as the temperature and humidity within the city becomes unbearable. This is basically an essentially Mexican affair. Mind you, Merida itself has been doing pretty well and, as it further develops, Progresso will benefit and there is by the way a large condo and marina development project going on there. Yet, I think the potential is limited given the , in my opinion, much better places.

You mention the train. It's not supposed to go through Progresso so I'm not sure how Progresso would benefit. If anything, it might actually make it at a more competitive disadvantage compared to the places where the train will stop. Of course, the train could provide a boost to the whole region. However, after examining that project from closer lately, my idea and that of all my contacts on the ground is that it's a lot of hype and a huge waste of money. The current main road network is already good enough and plenty of visitors want to rent a car at the airport anyway. I still have to meet one single person that would decide to travel to the Yucatan because of the train and wouldn't otherwise. I wish the had spent the money on better secondary roads and cell coverage infrastructure instead.

I saw you mentioning private lending in another post. You'd have two options: a foreign lender (most likely US or Canadian) and a Mexican lender. The problem with a non-Mexican lender is that private lending is based on getting a property as security and no private lender has the necessary infrastructure to take a mortgage in Mexico and go try to seize your property in a Mexican court of law should push comes to shove. Also, if they can get high interest rate by lending in the US or Canada, think about how much more they'd have to charge you in interest rates to justify the additional risk. When it comes to a Mexican lender, you'd have to find one and then make sure he's legit. And then, you'd probably have to pay a sky-high interest rate (I've heard of 40%).

Before looking at what your options are, let's see what my friend is doing. I'm helping him finding other options but this is his plan at the moment. Originally, he was going to keep the condos in his first project as a passive income source. His plan is to actually selling (some of) them a condos to finance his new project. He'll do it bit by bit with his own money, as the majority of the people do in Mexico.

Finally, to finish on a positive note, this is what I would do if I was in your position, considering the limited amount of information I have about your situation:

1. I'd ask myself if Progresso is the right place for your project. Of course both the bank and me could be wrong about how risky it is and the potential there. So, don't take my word for it and make your own informed decisions.

2. Do you really need to build 150 units as a first project? I love people who think big and I do too but, at the end of the day, being realistic is important here. Even though I've been investing in the area for the last 6 years and have a large amount of knowledge and connections, it wouldn't cross my mind to do something that big at this stage. With whomever you'll have to deal with, make sure you don't come across as a dreamer as they have seen too many of those.

3. What about you're a bit patient and wait for your oceanside condo to get built and try to get financing on it. Although, while you could get a mortgage on it, it isn't that easy to qualify and the conditions could be very onerous.

4. Have you thought about friends & family financing? People who love you, want to support and trust you and will be happy to invest and help you regardless of the merits of the projects?

5. Any financing you can get in Canada from a HELOC or an RRSP of yours?

Hope this helps, even though it mightn't be what you were looking for. I'm the kind of guy to say things as they are and I thing that will better serve you on your way towards a solution that works.

Account Closed · Answer

@Mike Lambert thank you so much for your input here I was hoping you specifically would give your opinion on this. First off it seems there is some confusion on which property is being discussed.. 1 piece of land (a 30 acre parcel) I own outright, that is the one close to the train that's *allegedly* coming through lol, the site plans for that 150 unit development are already drafted in 6 stages and there are already a number of private investors (mostly people interested in sustainable development, off grid living and permaculture food forests so banks are out of the question for this development) lined up for it as it's a very unique project in and of itself using a building technique I discovered and got approval for on my own home here that ended up saving us about 60% on construction costs for the same square footage versus a conventional build, I wont get too much into that here. The land I'm seeking $80k funding for is just under 1 acre and will include a café and 10-12 rental units built using the same unique building technique I mentioned above to keep our costs way down, paid for by the income from a scooter rental company I own here (currently cashflowing around $3-5k per month), this 1 acre parcel is technically not IN Progeso but is instead on the main coastal road in between the nearby towns of Chuburna and Chelem (now termed "Little Canada" by locals because of how many Canadians have moved here in the last year). Just for your own knowledge I will let you know what you're being told by your Mexican connections about Progreso and what is actually occurring here have some disparities:1. Merida's Elite technically do not go to Progreso during the hot summer months, they go to the east of Progreso in the towns of Chicxulub, Telchac puerto and San Crisanto. Among themselves they joke about the peasants to the West of Chicxulub.2. Progreso itself is a Mexican affair for Merida's middle class and only during the summer months, the rest of the year it's inundated with American and Canadian tourists from cruise ships that flock to the deep sea port, and then flood out into the other smaller bordering coastal towns in a deluge of Hawaiian teashirts and spf30 sunscreen, looking for *mostly* deals on real estate.3. The marina project you are talking about is actually in Yucalpetan just west of Progreso but I would not buy or invest there as its full of pueblos and reeks of flamingo poop pretty much year round, but like you say, people get sold a nice story so I don't doubt it will sell out as it's the first large development of its kind in the general area.As you've mentioned, foreigners are getting priced out of most coastal territories and especially in the last year, expats have begun gobbling up property to the west of Progreso where the 1 acre land parcel in question is located. I don't really have a network of family or friends with enough capital to help finance anything, I come from the mean greasy streets of East Vancouver and have managed to scrape my way up to where I am by building out lean businesses (mostly online). Although I am definitely a dreamer, my dreams have been coming true with hard work and an eye for frontrunning patterns ahead of the crowd using my own cash. I don't have any RRSPs or HELOC in Canada, I brought all my equity with me to Mexico. (around $450k USD) Money is looking very expensive right now and listening to you just confirms what I already suspected with the banks, so more and more it's looking like I have to practice patience and just build up liquidity through my cashflow, or bring on partners to make the coastal development a reality before someone else buys up the land in question.Thank you again for your input Mike I truly appreciate it and value your candid opinion.

Henry Clark · Answer

I really like REI because of all the angles.  Here are some examples whether they fit you or not, or you spin off them.

Some of this will seem of little value or an inside joke, but what I have learned investing overseas.

A.  You- speak english, embedded in that community, already understand business, have made the leap off the cliff into investing, aren’t moving back, have your feet on the ground,

B. Trust- this is definitely a “ist” or “ism” statement. You’re like me (expat) I feel I can trust you. So you can bridge the gap into this foreign country. You have your feet on the ground. Without going through your story, I know you have been burned. So you have started to develop your team there.

Here is an angle you might try. You’re already going to be there. Already going to let time go by.

I would start to develop investment packages.  Make sure you’re legal.

In Belize we invest with the following criteria. Teak related land. Pre existing or we plant. Long term investment. Our market is China and India. Not Belize. They don’t have enough money. Second we look for secondary value. Hill views, nearby electric or water, streams, solid roads, close to highways, etc. This is added value for potential sale in 10 to 20 years.

In your instance I woul look at the following. Growth patterns, future or strategic road intersections, poor neighborhoods that will get gentrified due to location, low wet areas and high hills close to town, strategic properties next to future large development sites, land around trash dumps, other nasty aspects.

All of these are cheap and have different compounding growth angles to them. Everyone is looking for the Sandy beach property. You will get greater returns on these other properties with less risk.

But you’re back to the same problem. You need money.   You just ask people for money.

Let’s go back to Trust.  You ask for. $1, $100 I’ll give it to you.  Ask for $1,000 I will ask you about the Reward.  I know my risk $1,000.

Start building your Trust story on BP, Facebook groups, etc.

Start small and build your track record.

Our first REI investment was two acres of swamp/wet ground or $10,000.  Today my hard sale number would be $100,000.

Look at the layout of your surrounding city geography.  Make an attack plan.

You see that wet ground over there.   Make an offer.   See the closest hill to town, all rock and soil.  Make an offer.  Even if it is solid rock.

Start small and keep building your TRUST. Then ask for higher dollar figures.  I would go for 50/50 ownership deals.  With the investor putting up 100% of the funds.

Have fun.   Takes a while for the snowball to build and start rolling.

Account Closed · Answer

@Mike Lambert 2. Yeah I would tend to agree with you on the economic effect of the train being overhyped.5. I just went back and looked for it and couldn't find the specific article, granted I remember it was from a realty company so obviously they have a tendency to be biased but they pulled data from a number of private and government sources and I remember they used this article as one of their references: https://www.bnamericas.com/en/... more about government infrastructure spending than anything. 6. I totally understand what you're saying although I am not going off what is, but what will likely be over the next 5-10 years: for instance I was about to move to Cabo before moving here but got priced out within a 3 month period after Covid travel restrictions ended and a number of famous Youtubers did specials on the area (search volume exploded after that and listings trippled and quadrupled in front of my eyes while I sat waiting to move from Vancouver lol) so where attention goes, money flows, and Merida is getting more and more attention as Tulum and Playa del Carmen become more expensive. That being said you're absolutely right, Progreso currently gets very little Google search volume compared to other beach towns in the Yucatan Peninsula or even compared to Merida itself, but over time I am bullish on both Merida and the coastal towns for a number of reasons.7. I agree about being a trailblazer in this respect, although there are already successful STR plays here, which is why I'm already using my own money to invest here (the oceanfront condo is planned for STR) and after seeing the trends around me, am willing to pitch to others on it, I watch them fill up frequently with both domestic and foreign tourists as there is very little supply of quality rentals here.You have definitely made me more deeply question my position on some things but I also have got to where I'm at, at my age by trusting my gut and I do feel good about my stance and approach to what's happening on the ground around me, in front of my eyes. I'll let you know how it goes though 100%.

Account Closed · Answer

@Henry Clark thats hilarious about the buzzards! I do see what you're saying, there are no hills here though Yucatan is flat as a pancake lol, but the 1 acre land parcel mentioned above is pretty close to the dump. Could you link your Belize post here or in a message? Im definitely interested in reading it.

Account Closed · Answer

@Henry Clark Awesome advice like Mike's thank you for that. Network is Networth as they say, and for the past decade or so I've been fairly introverted mostly because I trained myself on the online solopreneur model but I need to get outside of my bubble and BP is my first foray back into networking really.. I've always wanted to get into hardwoods and even considered it for the 30 acre parcel I've got, but I'm not investing on that sort of timeline yet and this climate is also more suited to lesser known hardwoods without the same value as exotic hardwoods so I figure the return wouldn't be there versus a more hands-on development strategy especially when I've never tried to setup and manage hardwood land myself. So congrats on the teak growth and I may message you at a later date to get more details because I'm still interested in investing in exotic hardwood land in the future!

Account Closed · Answer

@Henry Clark Ok gotcha so you're saying just explain better what nuances there are for specifically investing in Mexico.Well as you may have already discovered for yourself, Mexico is HUGE and is broken up into a bunch of different socioeconomic situations, geographical microclimates and ethnic backgrounds.Veracruz for example where you visited has a huge Lebanese-descendant population and that affects the architecture and cuisine noticeably, it's also Mexico's coffee capitol. Pretty much all the coffee I drink is Organic beans from Veracruz, some of the best coffee I've had in my life honestly.. But Veracruz is not that popular at the moment for expat migration, which is what I've been focusing on mainly: where are the gringos moving and taking their money?Cancun, Playa del Carmen, Tulum are very popular spots for foreign tourists and expats alike, as well as Baja and Puerto Vallarta on the Pacific side.. but most of these places are absolutely inundated with foreign investment and the prices have skyrocketed over the last few years. So instead of following the herd I decided to move to Merida, Yucatan as it's an upcoming hub not just for foreigners but for Mexican families fleeing poverty and violence in other parts of Mexico. Merida is measurably one of the safest cities I've ever been to, I'm from Vancouver Canada originally. This degree of safety is why I'm bullish on the city and on the state in general, "Narcos" are not welcome here and the benefits of that are showing in every facet of life here.Yucatan state is projected to be #1 in Mexico for real estate development volume in 2023, with a heavy emphasis on the city of Merida. Merida gets VERY hot during the summer months though, and the entire state runs for the coastline where it's cooler, creating a viable local tourist market on the oceanside to complement the snowbird season that runs from October to April.. Because of this I've started a scooter rental company here that's doing very well and decided I want to focus most of my attention on the coastal city of Progreso (40 minutes from Merida) before it becomes the next Playa del Carmen or Tulum.If you're ever interested in visiting or investing Merida or the Yucatan, shoot me a message and I'll be happy to help!

Account Closed · Answer

@Henry Clark Yes that's partially correct, all are within the 50km zone but all business is done through an aged Mexican corporation not a "fideicomiso" like most investor's are used to. As mentioned the oceanside condo hasnt been delivered yet so there is no title to offer as collateral through a traditional funding source. And sorry I'm not sure what you mean by "dileanate doing business in Mexico", could you clarify and expand on that?Thank you for your responses!

Henry Clark · Answer

Everything has an angle.  There is always the closest hill.  Towns always need fill dirt.

If no hill, make a hill.  You have to run the numbers.  Cheap ground closer to town the better.   Dig a pond.   Pile and sell the dirt.  Sell the water front property.

Sit back and have a rum and coke. Watch the dirt dump trucks.  Figure out the business angle.  Dirt is the cheap part.  Trucking, thus distance is the expensive part.

Any of the angles I noted will work.  Basically you’re looking for fix flip type of investments to get your cash snowball going.

Your 30 acre spot would it be more or less valuable with a pond on it? Is there a wet area in town that could be filled.

Real Estate Investing in Mexico - Best way to get loans/financing?

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