Short-Term & Vacation Rental Discussions
Market News & Data
General Info
Real Estate Strategies
Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal
Real Estate Classifieds
Reviews & Feedback
Anyone Invested Internationally? Mexico?
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...
#2 Short-Term & Vacation Rental Discussions Contributor
- Olympia, WA
- 6,106
- Votes |
- 7,598
- Posts
#2 Short-Term & Vacation Rental Discussions Contributor
- Olympia, WA
Hey @Hannah Tate, I will give a shout out to @Mike Lambert. He knows a lot about investing in Mexico.
- Real Estate Agent
- Denver CO | Colorado Springs, CO
- 2,556
- Votes |
- 2,334
- Posts
Quote from @Hannah Tate:
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...
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.
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
yes - many of our clients are invested internationally with us (we are STRLocator), specifically in Tulum and Cancun.
I’m happy to try answering your specific questions.
Quote from @Hannah Tate:
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...
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.
I'm not sure why you'd have sold because of Mexico's tax regulations for Americans because they're not bad. While I'm Canadian and no US tax professional, I know a thing or two about it since I've had Americans invest with me in Mexico (don't just take my word for it and do the necessary checks though).
If you invest in your own name or through a fideicomiso, Mexico will withhold 25% of your gross income, as you indicated, but that will be all you pay. Granted, it's applied to the gross income but, for the typical Mexican STR, the difference between gross and net income is much lower than in the US given the lower expenses in Mexico. Moreover, you can credit what you paid to Mexico against your US taxes so, depending on your US tax rate, what you pay to Mexico might end up making no difference to you because you'd have to pay to the US what Mexico doesn't charge you. Still, if you want to be able to deduct your expenses before paying taxes in Mexico, you can always do so by investing through a Mexican corporation instead of a fideicomiso.
Seen from my side and as I mentioned earlier, the issue would be that the ROI in Cancun specifically is too low, although 9% would be considered great by many people. You can do much better than that elsewhere in Mexico, and, the more you make, the less bothersome taxation is given that your net ROI ends up still being high and I suspect most of the time higher than what you'd get in the US.
Finally and, most importantly, we're only talking income tax here. The property tax in Mexico is almost 0, even for very expensive properties.
So high income, low expenses and reasonable overall taxes. You could do much worse elsewhere IMHO and that might partly explain why so many Americans buy real estate in Mexico these days.
I see your point, @Mike Lambert. In my case, I pay 25% to SAT, 14% to Airbnb, 15% to Booking.com, plus the percentage from Stripe and the person who looks after the property. I was already paying too much. In my experience, operating short-term rentals in Mexico is far more expensive compared to other properties I manage in countries like Colombia, Ecuador, and the Dominican Republic.
I see your point too, but you have to pay Airbnb, Booking.com and a property manager anywhere in the world you invest. That's not specific to Mexico. Also, regarding the 15% you pay to Airbnb replaces the commission your guests used to have to pay to Airbnb so you should be able to charge it through your guests through your pricing.
And, yes, operating short-term rentals in Mexico, while cheap compared to developed countries, is somewhat more expensive than in Colombia, Ecuador and the Dominican Republic because Mexico is more developed. This being said, in those other countries, you don't have the mass tourism that Mexico gets, which means you'll get lower occupancy which, alongside with a lower ADR, will give you much less income. Moreover, you won't get any capital appreciation close to what you can get in Mexico in those countries and you can't borrow in those countries like you can in Mexico.
So, personally, I rather pay SAT. As I always say when it comes to taxes, if I pay more taxes, it generally means I get more income and higher capital gains so I'm fine with that.
@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, 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.
I'm not trying to sell you on or argue about Mexico; I just want to share my experience investing there and explain why I've chosen to explore other markets as well. While AirDNA provides useful data about pricing and potential returns, it's important to remember that data alone doesn't always give the full picture. There are many factors beyond what AirDNA tracks that can significantly impact profitability, and that's what I’ve tried to account for in my own decisions.
From my experience, Cancun is indeed more expensive in terms of operational costs. The electricity, administrative fees, water, and gas are significantly higher compared to Colombia. Additionally, the cost of hiring someone to manage and oversee the property is also more expensive in Cancun. There are extra expenses in Mexico, like the fideicomiso (a trust required for foreign property ownership), which isn’t necessary in Colombia.
Every market has its clientele—some families prefer all-inclusive resorts, while others are specifically looking for alternatives. I was able to achieve a 9% ROI in Cancun by going beyond just renting the property. I offered tickets to XCARET and received commissions for arranging rental cars for my clients. These additional streams of revenue were not part of the 9% ROI. I aimed to provide more value than other Airbnbs in the area, but that also meant higher expenses on my part.
One of the reasons I sold my Cancun property was the lack of room for increasing nightly rates. The market is saturated with short-term rentals, and many owners are lowering their prices to stay competitive. To maintain my rates, I had to offer more than the competition, which also increased my costs. I wasn’t aiming to be cheap, but rather to stay in business without undercutting my prices.
In Colombia, things are different. Expenses are lower, and during high season, you can raise your prices, and people are willing to pay. The competition isn’t as fierce as in Cancun. I was also able to secure a loan in Colombia to purchase a property. Interestingly, you can list the property in U.S. dollars and receive payments in U.S. funds, which means I don't really use COP except to cover utility costs like internet, water, and electricity. These can be paid by credit card or bank transfer. Also, unlike Mexico, where it was tough to open a bank account, getting one in Colombia was straightforward, and I found a bank that doesn't charge for transactions.
So, my conclusion from experience, Cancun still for me more expensive.
@Hannah Tate, as per you original question, I’d be happy to share some advice based on what I've learned. First off, you should know that getting a loan as a foreigner in Mexico is quite difficult—most traditional lending options aren’t available, so you’ll likely have to explore alternative financing or fund the construction yourself.
When it comes to managing the property as a short-term rental, you'll need to decide whether you want to open a small company in Mexico. This allows you to get an RFC (tax ID) and report your income on platforms like Airbnb or others, reducing the tax rate to 8%. Otherwise, if you prefer not to go through that process, you'll be hit with a 25% tax on your rental income, which can eat into your profits.
I also recommend investing in a couple of cameras and a good smart lock for security and monitoring. These tools help you keep an eye on the property remotely. As for the guest experience, a lot of Airbnb hosts in Cancun don’t offer complimentary streaming services like Netflix, Prime Video, or Disney+. Instead, they load the apps on the TV and let the guests log in with their own credentials. I suggest going the extra mile by providing access to these services yourself, and you could even advertise features like $5 movie rentals on Prime Video to create additional value for your guests.
Hope that helps, and good luck with your investment in Cancun!
Quote from @Camilo Restrepo:
@Hannah Tate, as per you original question, I’d be happy to share some advice based on what I've learned. First off, you should know that getting a loan as a foreigner in Mexico is quite difficult—most traditional lending options aren’t available, so you’ll likely have to explore alternative financing or fund the construction yourself.
When it comes to managing the property as a short-term rental, you'll need to decide whether you want to open a small company in Mexico. This allows you to get an RFC (tax ID) and report your income on platforms like Airbnb or others, reducing the tax rate to 8%. Otherwise, if you prefer not to go through that process, you'll be hit with a 25% tax on your rental income, which can eat into your profits.
I also recommend investing in a couple of cameras and a good smart lock for security and monitoring. These tools help you keep an eye on the property remotely. As for the guest experience, a lot of Airbnb hosts in Cancun don’t offer complimentary streaming services like Netflix, Prime Video, or Disney+. Instead, they load the apps on the TV and let the guests log in with their own credentials. I suggest going the extra mile by providing access to these services yourself, and you could even advertise features like $5 movie rentals on Prime Video to create additional value for your guests.
Hope that helps, and good luck with your investment in Cancun!
@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?
Quote from @Mike Lambert:
@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 - 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?
Quote from @Hannah Tate:
Quote from @Mike Lambert:
@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 - 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?
Sure. Happy to help if I can.