Hi guys I've been diving deep into potential real estate investment opportunities in Mexico, and I wanted to share some of the data I've gathered. I'm hoping to spark a discussion on where the best areas to invest might be, based on ROI from short-term rentals and annual real estate appreciation. 1. Baja California Sur (Cabo San Lucas): • Short-term Rental ROI: Potential returns of up to 18-20%. • Annual Real Estate Appreciation: Estimated at 10%. Cabo has always been a hotspot for tourists, especially those from North America. The high ROI on short-term rentals suggests it's still an investor's paradise. The annual appreciation rate shows a promising, steady growth potential in property values. 2. Yucatan State (Merida and surrounding areas): • Short-term Rental ROI: Ranging from 8% to 13%. • Annual Real Estate Appreciation: An impressive 15%. Merida is gaining momentum among international tourists and investors. Its rich history, combined with modern amenities, seems to strike a balance. The high appreciation rate suggests a robust and growing market. 3. Riviera Maya (Stretching between Cancun and Tulum): • Short-term Rental ROI: Between 8% to 13%. • Annual Real Estate Appreciation: A more modest 4-7%. While the appreciation is not as high as other regions, the steady ROI from rentals indicates a stable and mature market. I'd love to get feedback from those who have invested or are considering investing in these areas. What are your thoughts on these numbers?

@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.

@Sebastian Papworth You're welcome and thank you for bringing the topic of the SHF indexes. In my reply above, I mentioned that there were no pice statistics in Yucatan and the Riviera Maya while I knew about the SHF national and state/city indexes. I chose to ignore them because they're inaccurate and misleading for the purposes of our discussion but I didn't think about the fact that people might stumble onto them so I should have mentioned them. So why did I just wrote that these indexes are inaccurate and misleading for the purposes of our discussion? Firstly, because thee SHF index only track properties that are financed by a mortgage so they don't represent the whole market (SHF is the Fannie Mae / Freddie Mac equivalent of Mexico). As you know, Mexico has two distinct real estate market: A. The market of Western standard properties, which are traded in USD by foreigners and wealthy and (upper) middle class Mexicans. B. The rest of the market is traded in MXN (pesos) by "average" Mexicans. There are hardly any connections between these markets apart from the fact that they're both in Mexico (different classes of property and different locations). The overall majority of transactions in segment A are 100% in cash and there's no mortgage involved whatsoever. I think you once mentioned in a post that that was the case in 95% of the transactions, which I'd think is an accurate estimate even though there aren't any official figures. So, the SHF indexes essentially pertain to segment B while anybody on BiggerPockets would most likely buy in segment A (and @Artur A. was asking about pre-construction, which is clearly segment A). This is why I ignored the SHF indexes in my analysis but I should have mentioned it for completeness. Aside from completeness, there's actually another reason why I could have mentioned these indexes as well. They show strong price increases at the national and some regional levels in segment B. While the figures are inaccurate for segment A, given the strength of these segment B figures suggest that prices in segment A might have increased as well while prices are stalling in many other parts of the world. So while the numbers themselves are inaccurate and misleading for our purpose (segment A), the upward price trajectory seems clear. Anecdotally, this is what I've been hearing from people on the ground, except in the areas experiencing an oversupply situation of course. I think it's no secret anymore that there's an increased interest in Mexican real estate in general, and for good reasons.

@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.

@Artur A. You don't need to be resident to rent out property in Mexico, short-term rentals or not. What you're finding out is that, unfortunately, there are a lot of people writing about buying/renting/investing in Mexico who don't know what they're talking about and are spreading misinformation, willingly or not. Beware of that because making decisions based on the wrong information can cost you a lot of money. Make sure you listen and talk to the right people. As Bruno mentioned, if you're a non-resident, there is a withholding tax but it's 25%, not 20%. There are legal ways to avoid paying that tax and ending up with a lower tax bill but beware of cookie-cutter advice from the internet. It'll depend on your individual situation, which I assume you don't want to discuss in detail in a public forum so feel free to send me a private message if you want to talk about that.

You can do it without being a resident in Mexico, but Airbnb will retain 20% of your income. This money is sent directly from Airbnb to the SAT (Mexican Tax Administration Service). If you are a resident, Airbnb will retain a lower amount. Depending on your tax regime, you will need to make monthly or yearly (or both) tax declarations. If you do it through a property management company, it will depend on their strategy. Feel free to write to me if you need more details.

@Mike Lambert @Bruno Demarco Quiroz I've heard that in order to legally rent out property on Airbnb, VRBO, etc., in Mexico, I need to be a resident. Can anyone confirm or provide more details on this? Any insights would be greatly appreciated!

I wholeheartedly agree with @Mike Lambert. The SHF index doesn't accurately reflect the reality of the entire real estate market in Tulum. Only a few properties are sold in Tulum with mortgages.

Hello everyone, @Artur A.@Mike Lambert Thank you for sharing your perspectives, and I appreciate the insights provided by experienced investors in Mexico. As a Mexican citizen, investor, and licensed buyer's representative in Quintana Roo, I'd like to contribute to the discussion by expanding on the topic. It's indeed valuable to consider the challenges associated with obtaining accurate capital appreciation statistics in certain regions of Mexico. While tracking real estate prices can be less straightforward compared to some other countries, Mexico has official government bodies that collect and report this data. The housing price index, known as the "Indice SHD de precios de vivienda en Mexico," is one of these initiatives. You can find the Q1 - 2023 price index here: https://www.gob.mx/shf/articulos/indice-shf-de-precios-de-la-vivienda-en-mexico-primer-trimestre-de-2023-333210?idiom=es#:~:text=El%20%C3%8Dndice%20SHF%20de%20Precios,respecto%20al%20mismo%20periodo%202022 (note that the information is in Spanish). This index provides clear figures on an annual basis by state, offering insights into capital appreciation: The highest states are: - Baja California Sur: 17.9%- Quintana Roo: 17.1% You can also find data for specific municipalities: - La Paz (BCS): 18.1%- Los Cabos (BCS): 17.7%- Benito Juarez (Cancun municipality): 17.3%- Solidaridad (Playa del Carmen municipality): 16.8% The housing price index provides an average or generalized view of property prices within a specific area or category. While it offers a valuable starting point for understanding the market trends, it may not capture the full range of price fluctuations within that area. I always suggest doing a CMA of comparable listings which we can help with in Quintana Roo. Additionally, some states have established official MLS (Multiple Listing Service) systems to track property prices systematically. However, it's important to note that these mechanisms may not cover all regions. As developers, we collaborate closely with leading real estate consultancy, valuation experts, and research companies. While their services can be costly, they provide valuable tools and accurate information that aid us and our clients in making informed real estate decisions. It's crucial to acknowledge the role of notaries in calculating capital gains based on the public registry, especially for taxation purposes. Although the availability and accessibility of this data may not be as extensive as in some other countries, efforts are underway to enhance transparency. The information posted by the Federal Mortgage Society (Sociedad Hipotecaria Federal) (SHF) on the Mexican federal official website is a positive step forward, even though it currently focuses on properties with mortgages which according to SOFTEC is 80% of transactions with Mexican buyers.In terms of property classifications, consulting companies in Mexico often categorize properties into several price ranges, such as: - Social: Minimum price: $8,824 USD to maximum price: $24,117 USD- Economic: Minimum: $24,117 USD to maximum: $45,882 USD- Medium: Minimum: $45,882 USD to maximum: $114,706 USD- Residential: Minimum: $114,706 USD to maximum: $247,059 USD- Residential Plus: Minimum: $247,059 USD to maximum: + Most foreign investors tend to focus on the Medium, Residential, and Residential Plus categories, particularly in Class A and B neighborhoods. These are also the markets we specialize in. It's worth noting that the data from the SHF may encompass various property classifications, with potentially more information on the lower-priced segments. I hope this additional information contributes to a better understanding of the topic. It is essential for investors to be well-informed and aware of the available resources for assessing real estate markets in Mexico. Best regards,

@Artur A. I have traveled all over Mexico and one of the places you did not mention was San Miguel de Allende. Large expat community and popular with tourists. I have traveled there and have friends there.

@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.

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Updated 12 months ago on 02/16/2024. Most recent reply

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Posts: 27
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Artur A.Poster

General Real Estate Investing

What is the best area to invest in Mexico?

Artur A.Poster

Posted September 26, 2023 14:19

Hi guys

I've been diving deep into potential real estate investment opportunities in Mexico, and I wanted to share some of the data I've gathered. I'm hoping to spark a discussion on where the best areas to invest might be, based on ROI from short-term rentals and annual real estate appreciation.

1. Baja California Sur (Cabo San Lucas):

Short-term Rental ROI: Potential returns of up to 18-20%.
Annual Real Estate Appreciation: Estimated at 10%.

Cabo has always been a hotspot for tourists, especially those from North America. The high ROI on short-term rentals suggests it's still an investor's paradise. The annual appreciation rate shows a promising, steady growth potential in property values.

2. Yucatan State (Merida and surrounding areas):

Short-term Rental ROI: Ranging from 8% to 13%.
Annual Real Estate Appreciation: An impressive 15%.

Merida is gaining momentum among international tourists and investors. Its rich history, combined with modern amenities, seems to strike a balance. The high appreciation rate suggests a robust and growing market.

3. Riviera Maya (Stretching between Cancun and Tulum):

Short-term Rental ROI: Between 8% to 13%.
Annual Real Estate Appreciation: A more modest 4-7%.

While the appreciation is not as high as other regions, the steady ROI from rentals indicates a stable and mature market.

I'd love to get feedback from those who have invested or are considering investing in these areas. What are your thoughts on these numbers?

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