Investing out of the country?

Question

Hi guys, had anyone invested outside the county specifically Mexico? I was wondering of a rental home there would be a good investment. Has any one does this, if so what factors has an important role in the process. Thank you!

Matt Ayoub · Answer

@Jennifer Velez @Michael Baum Hi there. Yes i do have a vacation rental in Mexico (San Jose del Cabo). A few comments that might be helpful.

1. Financing is hard to get in mexico although you will find sellers willing to finance

2. The market (at least mine) is not very fluid so days on market are much higher than a hot market in the USA. Something to be conscious of if you think you may need to exit quickly.

3. If you are a cash buyer, you can score some amazing properties. Our place would be 10-20x more expensive in San Diego. It would be considered a magnificent home + guest house with beautiful beaches below, yet it’s valued under $1m. HOAs are about $3,000 per year and include excellent gated security. This is low HOA compared to golfing communities like Palmilla which is just next door.

4. Obviously you need a PM on the ground. We give ours 10 percent of revenue to greet guests and manage the staff, manage turns, bills, taxes, guest concerns, etc. We handle all sales and marketing ourselves on Airbnb and HomeAway and hand over to the PM once the booking is made.

5. You will see some seasonality. We are running at 80 percent plus occupancy Nov to May at more than $500 / night. Lots of snowbirds and Canadians. I recommend somewhere with direct flights from major cities. Los Cabos is less than 2 hours from LAX and has a major international airport.

6. I wouldn’t say we have a lot of party crews, our place sleeps 10 and tend to attract multigenerational families or groups of friends. They are comfortable renting a car and love the private pool and spa, gardens, views, grilling and chilling, etc. I have been raising our weekend rate with a 3 day minimum to at least extract more cash from the long weekenders.

7. Utilities on a larger property can be super high (we installed solar and it’s payback appears to be less than 4 years)

8. Staffing costs are low, pool, gardener, maid, handyman very reasonable. Maid does an amazing job.

9. While our community is STR friendly the government is becoming more active and the expectation is you pay taxes (not the case a few years back)

10. You need to be conscious of potential weather events. We installed aluminum hurricane shutters to protect our investment. In fact we bought our place super cheaply from a divorcing couple who saw major damage from hurricane odile. We managed the turnkey renovation (sweat equity) remotely and it worked out great.

11. I’m not really a financial whiz so hard to say exactly what returns are but we generated 115k in top line revenue last year and with around 50 5 star reviews across both channels are starting to tweak pricing and profitability up.

I would love to post a link to the property but not sure that is allowed.

Matt

Mike Lambert · Answer

@Lance Bloggs

Premium properties in touristic areas, the type which we're buying and most foreign investors buy are traded in dollars, not in pesos. Since they are in short term rentals, the income is in dollars too. They only thing in pesos are some of the costs. So, if the peso depreciates further, it's a positive. If the peso appreciates, the costs are so low compared to the revenue that it doesn't matter. So no FX issues for Americans.

As to the tax returns, it's not that complicated to file in two countries. We're on BiggerPockets here. Are we going to stop at that kind of complication? :) As Canadians, we are also taxed on our worldwide income. So we have to file in Mexico and then we deduct what we pay courtesy of the treaty for avoidance of double taxation. So we end up paying the same as if the property was in Canada and it will be the same for you because taxes are much lower in Mexico.

@Matt Ayoub

The security situation is not that bad, especially for foreigners. Did you know that the Institute for Economics & Peace recently ranked countries by order of safety. The United States came out at number 114, right behind Rwanda! Granted, Mexico is lower. But did you know that the murder rate in NYC and LA is higher than in Cancun? Do you not invest in NYC or LA because of crime? I don't think so. You just avoid certain areas. Same in Mexico. If you don't look for trouble, you won't get it. I guarantee you you have more chances being shot by somebody mentally ill doing your groceries anywhere in the US than being shot by a narco doing your groceries in downtown Playa del Carmen. In spite of the media attention on the way too many murders in Mexico, tourists keep coming in ever bigger numbers because they're almost never affected.

I'm happy to let you know about these units with great financials. Talking about what I do (international real estate investing) is my passion. So feel free to send me a private message if you have specific or other questions.

Of course I agree, investing overseas, in Mexico or elsewhere, demands specialized knowledge and connections. If you don't have them no worries. Investors invest with me so that they don't need to have or acquire those themselves as I can share mine with them. And you know the irony is that, even though I'm doing the heavy lifting for them, they end up making more money and taking less risks than if they were investing by themselves.

Matt Ayoub · Answer

Thanks @Jim Chuong ! I was initially looking in Huatulco, which is beautiful, but a 7-10 hour flight through Mexico City. I liked the geographic isolation of los  Cabos, the rugged Pacific coast and the marine life in the sea of Cortez. It’s a great golfing and fishing destination, with easy proximity to Cali, very low population density / pollution, and massive growth in resorts and tourist volumes past few years. The plan was always to Airbnb what could be a longer term retirement home, so I went down for a long weekend and identified 3-4 viable properties. While a renovation, this one came with a priceless forever view, a great lot with guest house, and lower HOAs, rising to the top. It was totally battered by hurricane odile, so I sent an extreme low ball offer which was rejected. Tried again a little higher - rejected. Third try they agreed to sell. I then toured the property with 4 contractors (taking scrupulous notes on what they thought needed to be done). Great concrete bones, brick ceilings, and tile but a lot of work to be done otherwise. I asked teach for a turnkey bid and compared materials and pricing. Lowest to highest bid was a 4x differential and I went with the lowest. Renovation took about 6 months (lots of lessons learned but we made it happen). In parallel I furnished it head to toe through amazon, Costco, and a few other online stores, shipping down to cabo through a freight forwarder in San Diego. Then hired a great photographer, struck the PM deal with my realtor and off we went. If you search Airbnb for a 4 bed with 10 guests, in Rancho Cerro Colorado, and look for the stunning sunrise over pool profile pic, you will find our listing. We feel very positive about our traction renting it and feel grateful to own such a beautiful property ... clearly a home like this would be totally out of our range in the more developed world.

Matt Ayoub · Answer

@Michael Baum what’s interesting is that the homes in the prestigious Palmilla, just one hillside over, with far higher HOAS but essentially the same location and views, and arguably not quite as good beaches below, sell for 5-10m.

Matt Ayoub · Answer

@Mike Lambert It is fair to say I’m in the camp of enjoying owning a beautiful home vs chasing a particular return. For me it’s a potential retirement option as well and is generating way in excess of its cost. I’m also enjoying the process of running a small business.

What’s interesting is how rapidly the Cabo corridor has developed and how few oceanfront SFH there are now. I think the capital appreciation will be very good longer term while condos will see excess supply and more volatility.

Would love to learn more about units selling for 200k that yield 60k per year. Riviera Maya is beautiful and those are impressive financials.

I agree that Mexico is not that complicated and language not a major issue. Also some properties, eg in Cabo, sell in dollars not pesos. Taxes aren’t super complicated but you likely have to file in both jurisdictions and US citizens are taxed on worldwide income.

With regard to crime, it is a serious issue. We saw a spike in Cabo when they took out el chapo. This was rapidly addressed, but some areas of Mexico really are quite dangerous and may not improve anytime soon.

Mike Lambert · Answer

@Jennifer Velez @Michael Baum @Matt Ayoub

Yes, investing in real estate in Mexico can be very lucrative. I've been investing over the last two years in the Riviera Maya with investors. The area has been booming and we have been buying pre-construction condos over the last two years at wholesale prices with financing from the developer. But even if you can't do that, I know people who have bought condos there for less than 200 k and they make more than 60 k, while still using the condos themselves for part of the year. I have access to similar deals in Los Cabos as well but haven't pulled the trigger yet since they have a lower return, being more expensive.

While Matt's return is nice, this is almost 3 times more! Generally speaking, the more expensive the property, the lower the return. If I invest in Mexico, I want to get returns higher than I can get at home or I don't see the point. Unless, of course, I just want to own a nice house that I can use and rent it to cover my costs or make a small profit.

Account Closed

Yes Mexico is a great place to invest! The issues are not as bad as your post seem to suggest but you're right you have to know what you're doing or know something who does.

Account Closed · Answer

Have you been to Mexico? Do you live in Mexico? Do you speak Spanish? Do you understand how business works in Mexico? Are you aware of the corruption? Are you aware of the cartels?

I know people who do it, specifically in Mexico, it can be a good investment, like any other, if you know what you're doing.

Good luck!

Casey Rolland · Answer

@Matt Ayoub

I am currently vacationing in Cabos San Lucas in Pedregal area (in a condo, not a luxurious estate like yours). I see absolutely amazing houses over here all built on cliffs of Scree ($10-$20M properties)! I am looking for a place in Cabos San Jose area where it has a tennis court (my passion). I don't think I am going to buy anything for 12 months seeing as the property value is so high everywhere.

Do you feel it's necessary to live in a gated community in Cabos San Jose area?  It looks like I have to pick a gated community anyway if I want a tennis court. Do you have recommendation for communities in Cabos San Jose? We hope to occupy during the winter 2-3 months and then STR the rest. Thanks for your posts, very educational!

Michael Baum · Answer

Ok, that makes sense I guess! Who knows! That is a really nice area. Not many homes for sale there and those that are, are over 1m USD

Matt Ayoub · Answer

@Michael Baum thanks. I honestly don’t rent it for less than about $500 / night. What I’ve noticed is Airbnb sends extremely low price tips for nights that are already booked which I have accepted as it doesn’t impact me. I don’t really understand why they do that (or if there is any marketing benefit to accepting those tips) but that is what you are seeing. If you try to make a booking the price range is about 500-1000 / night depending on seasonality.

Investing out of the country?

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