Investing in Tulum?

[Arwin Nassiri]

Hi all, newbie here with a few questions regarding investing in STRs in Tulum. I’ve been evaluating a few different recommended markets for STRs (Florida panhandle, Smoky Mountains etc) and I’ve found that from a numbers perspective, Tulum has the most potential for returns, here’s why:

1. You can buy a pre-sale hotel-condominium with resort like services and property management features for 100-150k. These have potential to easily go for $100+ a night. I don't know much about management fees, but from what I've found is that they rival HOAs in popular STR markets

2. Tulum is growing very quickly and it’s easy to find developers who are building new condo-hotels left and right. I know that supply must meet demand but it seems like the growth in Tulum has a ton of potential to aid in appreciation

3. Real-estate in Tulum has been heavily impacted by Covid thus slashing prices.

I’d love for someone to point out what I’m missing in my current analysis and let me know what the risks are

[Mike Lambert]

@Nick C.

You bring some interesting points.

The sargassum has been an issue for a while now but it's mostly seasonal and so its impact hasn't been what I initially feared, as you can read from this very recent article: https://www.riviera-maya-news..... Mind you, if its was to become a more serious problem, it would be a disaster for your state of Florida, which is being hit as well (in particular the Atlantic side).

The potential oversupply issue is a serious problem for Tulum. The path of progress has been moving from Cancun to Tulum through Playa del Carmen. When I decided to invest in the Riviera Maya a few weeks back, Playa del Carmen was pretty much "done" and Tulum was supposed to be the next best thing. Yet, I went first for Playa del Carmen. Part of it was for lifestyle reasons but I thought it was a better investment.

Like in the US and everywhere else for that matter, real estate investment is about location, location, location. And there is no more land available in Playa del Carmen proper. I had the opportunity to invest in the last plot of land available and we'll be almost right by the beach and 5th Avenue. This is absolute prime location. Even, if, for any reason, the overall occupancy rate for short-term in Playa del Carmen would drop (for example as a result of an increased supply), we'll probably still get rented. And new construction occurs further and further from downtown, which is much less short-term rental friendly.

In Tulum, there is no 5th Avenue and there aren't any condos or villas close to the beach. So, unlike Playa del Carmen where it's about being close to the beach and the 5th Avenue, it's about being in the jungle in Tulum. The problem is that there's already a huge amount of condos under construction in Tulum and there's a huge amount of jungle left to be built out. So, yes, there is a potential oversupply problem there. Moreover, what people liked about Tulum was its hippie bohemian chic character that is fast disappearing with the huge developments taking place there. As Tulum becomes more like Playa del Carmen, it will lose its attractiveness to these people. But it will never be as Playa del Carmen because of the building restrictions so it won't be a viable alternative to the Playa del Carmen-style people like me either.

Many people have been discovering Tulum recently but it's nothing new. The best time to invest there was a few years ago. When buying a new property today, I'd definitely be conservative when it comes to rental income projections.