Anyone Invested Internationally? Mexico?

Question

All, I am looking for some advice from anyone who has had experience investing in short term vacation rentals internationally. I have a lot I have purchased in Cancun and am needing to submit plans for the construction of the home itself fairly soon and am like a fish out of water. I live in the US and some of the questions I have involve lending options to help me out with the construction loan and approaches to managing the property as a short-term vacation rental. I would love to hear any advice or suggestions on how to proceed...

Mike Lambert · Answer

Hi Hannah, I hate to be a party pooper but you won't get any construction loan or any other type of loan in Mexico to finance the construction of a house there.

If you don't have cash, your only options would be to borrow in the US. Since lenders will not lend cross-border, you'll have to provide US collateral, like taking a HELOC if the collateral is real estate, or you'll have to use love money or pay cash.

But maybe it's not that a bad thing if your land has increased in value in case you'd want to sell it you can't get the funding. Indeed, I'm not sure why you'd want to own a short-term rental home in Cancun to start with.

People who land in Cancun (mostly tourists) generally either stay in a hotel / all-inclusive resort there or in the neighbouring Riviera Maya or they stay in a short-term rental in the Riviera Maya. Short-term renters generally don't like to stay in Cancun because there's not much to do there and the beaches are mainly occupied by the resorts, against which it's hard to compete and there are much nicer areas in the Riviera Maya.

Even though I've owned property in the Riviera Maya for many years and have landed in Cancun many times, I've never been to the city and I've never had the desire to go there. I've stayed in Cancun at the Club Med when going there with a group of friends but we never left the resort and I think most visitors (the many I've met at least) are in the same boat. In any case, you can always check the numbers by doing a market study if you haven't done so already.

To conclude, Mexico is a great place to invest but it's important to buy the right property at the right place at the right time and to have a plan in place for the financing, if needed. So, you're doing the right thing checking things out before submitting your construction plans.

Hope this helps

James Carlson · Answer

We just closed on a place in Puerto Vallarta. We've only ever owned in the cities we've lived -- Denver and Colorado Springs. We just skipped over the out-of-state investing part and went straight to out-of-country.

Not going to be of any help for you about submitting plans; we bought a new build condo. But I'm interested in any answers.

Mike Lambert · Answer

@Camilo Restrepo, I don't have any opinion and, to be clear, I'm neither arguing with you nor trying to convince of anything. There are many opinions but there's only one set of facts. If you want to make a comparison, you can check Airdna. IMHO, your problem was not Mexico, it was Cancun. As I wrote in my first reply here, I'd never invest there in an STR. It makes no sense. I'm actually surprised you managed to get a 9% ROI but I guess that's thanks to you being a good operator and getting 95% occupancy as a result. You can't compete against the all-inclusives unless you offer complimentary food and booze or you're cheap, as you seem to be confirming.

This being said:

1) Properties in Mexico/Cancun trade in USD so you have no foreign exchange risk in Mexico while properties in Colombia are traded in COP, the Colombian peso, which has been tanking over the years, eliminating any hope for capital gains for American investors.

2) You can get a mortgage in Mexico but you can't in Colombia so even with lower revenue, Cancun would likely still be more profitable, even if you don't take capital gains into account.

3) The political risk is much higher in Colombia, especially at this present time.

Is Cartagena a bad investment? I don't think so if you're ok with the currency and political risks. But, like most people, I prefer Mexico. For the reasons I mentioned, there's no contest far as I'm concerned.

Anyway, the most important is that you seem to be doing well and be happy about it. Let's hope the COP stops to fall, in which case I'd be keen to invest more in Colombia.

Mike Lambert · Answer

@Alex Scattareggia, the withholding tax, as you suggested, doesn't have to be an issue providing that your property is profitable enough. As you mentioned, you can get overall higher profitability than in the US or Canada but, like in those market, long gone are the days when you could buy any property and make a killing as an STR.

Too many people go to Mexico and buy any property because it looks good. That can work for a lifestyle buyer but isn't ideal for an investor. Investor needs to do their home work.

So, @Hannah Tate, great job asking the community for help. You're on the right path.

Camilo Restrepo · Answer

@Mike Lambert, For us, investments in Colombia have been more lucrative than in Mexico. With the price of one property in Mexico costing US$140,000, I can buy two in Colombia and still charge more per night than in Cancun. While Cancun consistently had 95% occupancy, I get 80% to 85% in Cartagena. However, when comparing which property generates more revenue, Colombia and the Dominican Republic come out ahead. Plus, in Mexico, I have to pay extra fees every year, like the fideicomiso, which is part of doing business there. In Colombia, there are no extra charges. Also, operating expenses like cleaning, or purchasing sheets, and towels are much cheaper. You might have different opinions, but from my experience, Colombia and the Dominican Republic generate more revenue.

Camilo Restrepo · Answer

Hi Hannah, I used to have a short-term rental in Cancun with a 9% ROI. One of the reasons I sold the property was because of the tax regulations. To operate an Airbnb in Cancun, you need a CURP and RFC, and Airbnb withholds taxes on your behalf and submits them to the SAT. Mike is correct, as a foreign you wont get any loan from any Bank.

Alex Scattareggia · Answer

@Hannah Tate There is a lot of good information in here already. Mexico is my home market and Mike knows what he is talking about.

The thing that is very overstated here is the operating cost liability.  You can't get around the auto withholding of taxes from the OTA´s as a foreigner in this country, but A. these are operating costs that exist wherever you invest and B.  you more than make up for any loss of revenue by having operating expenses that are 50%+ less than what you would expect from a STR in the states or Canada.

The last point I would make is that people sometimes think of Mexico as the wild west, because information is much harder to come by, especially online in English. Just because the information is not as readily available online doesn't mean there aren´t people (agents, builders, notaries, accountants etc)  and resources that can prove to be invaluable. I can give you some more specific advice on permitting processes and building.  We built our personal home from dirt up and while it definitely can be more challenging, you will capture additional value vs buying new if it is done correctly.

Mike Lambert · Answer

Sure. Happy to help if I can.

Hannah Tate · Answer

@Mike Lambert - Thanks for providing this perspective. In truth, that is really what I came here for. I would love to pick your brain on some things. As you might imagine, there is some additional context to my situation and if anything would love to learn about some of the challenges you have faced and the reason why you chose to invest in Mexico and went in that direction. Can I send you a DM?

Hannah Tate · Answer

@Camilo Restrepo - I really appreciate the insight and the truth is that I am not fully invested in having an airbnb there. I am looking at options. One option is to build and sell the home at a profit, another is to sell the lot and the last option is to build and ABNB. I am Mexican American and the truth is I haven't done any paperwork towards getting dual citizenship. That said, I'd love to have a conversation with you about some of those lessons you learned not just with investing in Mexico but also in other places in Latin America. Could I send you a DM on the subject?

Anyone Invested Internationally? Mexico?

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