What is the best area to invest in Mexico?

[Artur A.]

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? 

[Mike Lambert]

@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.