Total newbie - Vacation rental in Mexico. Thoughts?

Question

BLUF: Mother-in-law has spent many years vacationing in Mexico regularly, wants to buy a beach front condo in Puerto Penasco as a VRBO. Wants to know if wife and I would like to "go in" on it with her.

Hello all! Thank you so much for he opportunities you all provide with this huge collaboration of expertise, and in particular thank you to Brandon Turner for the awesome books that gave me the avenue to this!

I am determined to have a cautious, well-calculated approach to my rental investing. However, a somewhat hot opportunity sprang up recently, and I'm wondering if it's something I should go for. My mother-in-law has been in property management for ages, and has spent the past few years vacationing in Mexico pretty regularly. She now is pretty sure about wanting to buy a beach front condo there, probably in Rocky Point, and rent it out as a VRBO. She has come to my wife and I directly to see if we'd be interested in going in on it with her.

Does this seem like an opportunity I shouldn't pass up? Or would i be rushing my own rental ambitions and generating too much risk with too little understanding?

Mike Lambert · Answer

Hi @Trent Warner

I don't know much about your situation and that of your mother in law so I'm going to talk facts and figures rather than advice. When I'm the one getting the advice, I'm trying to make sure that people know who give the advice know what they're talking about.

@Nathan G. has a point about doing business with family but that's your decision. There are pros and cons. Some people do it and others don't.

As to the substance of things, is your mother-in-law going to present you with a specific opportunity with facts and figures or is she asking you for a blank cheque?

If you want to make yourself an opinion on how profitable that beachfront condo could be, you "just" need to find about prices, rental and occupancy rates and costs and you'll find out whether that qualifies as a profitable investment or not.

I've been investing in Mexico for years and replied to hundreds of posts on the topic. I often repeat that people who invest in Mexico should make sure they know what you're doing. Yet, I disagree with the advice that @Andrea Lane got. If you buy property in Mexico, you need to get yourself a good lawyer. A good lawyer will tell/teach you what you need to know about the local real estate laws. As to the zoning laws, you need to know about them if you're going to build (which I assume isn't your mother-in-law idea). Otherwise, your lawyer will have to make sure that the zoning of the property is in accordance with the local rules. But knowing which property to buy in which location and paying the right price for it could make a big difference in your investment returns.

Buying property in Mexico, especially vacation rentals partially used as second homes is way more mainstream and easy than many people think. Many people ignore that private American (and Canadian) citizens own a colossal amount of real estate in Mexico as a group. I have met countless fellow owners and I still have to bump into an owner who regrets his/her decision.

Finally, many buyers in Puerto Penasco are from Arizona for obvious reasons. I don't know if your family is from there but the closest alternative for a beachfront condo for them would be California / San Diego. You might want to compare the price of a like-for-like beachfront condo in both places. Chances are that the price of the condo in Puerto Penasco will be less than your downpayment for a similar condo in California. When comparing costs, you might find out that the total cost of ownership in Puerto Penasco including taxes is lower than just the property taxes in California.

I hope this helps but, ultimately, you might want to get the facts and figures and make your own decision.

Davartay Miller · Answer

Trent,

My grandmother once taught me: "warning comes before destruction."

First Rental + Outside United States + Family Involved = 'ERROR'

Best of Luck,

Nathan Gesner · Answer

I agree with @Andrea Lane that buying your first vacation rental in another country when you have no experience there is a pretty risky situation. Adding family to the mix makes it only worse. When you do business with family and things go south, it can ruin your financial investment and your relationship.

Tell her you're not ready at this time, but maybe next time when she's proven the concept.

Tak Ogihara · Answer

Hi @Trent Warner, just wanted to add my 2 cents here. Although I do not have my investment property in Mexico yet, I plan to (buy one this year), and am committed to figuring this out. Like yourself, I am a beginner (to real estate investing) and found the same sort of ....basic.... advice, about being careful, and how I should first invest in the US first.
But from my perspective, if I am new and inexperienced (and willing to learn) what difference does location make, in assessing risk? I try to take the dreamy-picturesque vacation-location out of my mind (or out of the equation) and stick to the numbers, as @Mike Lambert pointed out, it's best to get the facts and data first.

I would even bring actual numbers (how much is the unit your mother-in-law is looking at?) and how much in rentals do they go for? If she is a property manager she should be asking the same questions. And pose the actual numbers on this forum, we would all love to dive into it. From there, the other experts should be able to ask more specific questions and help you (and I) learn how to analyze the property/deal.

Last I want to add; Ultimately, it's up to you, who and where you get your information. I would just be wary of "general" advice for safety. It reminds me of my grandma telling me to "be careful out there", every time I left the house. Like, we all know to be careful already....that's why we're here asking for advice, researching. We love grandmas but where would be if we never left the house?

I just don't like general, "be careful" warnings. It doesn't add anything to the discussion or help in seeing the deal. And it's discouraging. Just my 2 cents.

Trent Warner · Answer

This was absolutely awesome! I had heard BP community was supportive, but I wasn't expecting this! Thank you so much, got plenty to think about on this one!

Andrea Lane · Answer

Trent,

Unless you understand the real estate laws and zoning in Mexico, I would try out my first rental in the states.

FYI, I only invest in the US, and was thinking about Mexico and that was the advice I was given.

Total newbie - Vacation rental in Mexico. Thoughts?

Total newbie - Vacation rental in Mexico. Thoughts?

Most Popular Reply

6 Replies