Looking for financing in a major touristic town in Mexico?

Question

Hello all,

I'm looking to purchase a house in a very touristic location in Mexico and wonder if there are any lenders that finance properties there. I would like to list house in Airbnb and similar sites, and title under my LLC if need be. Any suggestions on where to start? Thanks!

Mike Lambert · Answer

@Angie Lopez

You're welcome. Indeed, there are very few people here and elsewhere and that's why I've been trying to help and have ended up answering to hundreds of posts on the topic. This is one of the ways I fill the contribution garden of my life and it's always rewarding to read that it helps people like you so let me know if I can further help you with your location search! :-)

When it comes to lending, it's the residency that matters, not the nationality. If you reside in the US and have no credit history, assets or income generated in Mexico, you won't have access to the mortgages Mexican residents have access to. Yet, there are loans for Mexican citizens residing in the US but I don't know how easy or difficult to qualify. With these loans, you can borrow up to 90% indeed, which is great to take advantage of maximum leverage. However, make sure you get yourself a great deal because, with an interest rate above 10%, your mortgage payments will be significant. Thankfully, the other costs (operations, taxes, ...) are generally very low in Mexico.

Mike Lambert · Answer

@Angie Lopez

There are lenders that finance properties there but the conditions aren't nearly as attractive as in the US (think higher interest rates and lower LTVs). This isn't necessarily a problem as the right short-term rental in the right location in Mexico can be (much) more profitable than in the US, sometimes even if you pay 100% in cash. Feel free to reach out if you need more details.

If you buy in Mexico in the so-called forbidden/restricted zone (31 miles or less from the coastline or 62 miles or less from the international borders) you have to invest through either a fideicomiso (bank trust) or a Mexican corporation. Given the costs associated to the later, the trust option is best if you only buy one property.

Mike Lambert · Answer

@Angie Lopez

There is no lender I'd specifically recommend. I've never borrower from a Mexican bank as I've used much cheaper developer financing. Just go for the one that offers the best conditions but don't expect a lower interest rate.

These high interest rates explain why most foreigners pay cash or use a HELOC (which comes down to the same thing) when buying a property in Mexico. Yet, if you don't have the money, it's not crazy to take a mortgage on your property in Mexico, even at such high interest rates. Indeed, if you do a full comparison with the US, you'll find out the following:

1. If you compare like for like, the same property in Mexico will be way way cheaper than in the US. In some cases, the price of the property in Mexico could be less than your downpayment in the US.

2. Your rental income could be (much) higher than in the US for several reasons: a) Unlike in the US, the weather is warm all year long in Mexico and therefore there is demand all year long. Even Florida has winters and that corresponds to the highest season in Mexico; b) People will generally pay as much if not more to rent a property overseas than domestically; c) you now have the additional demand from the work from anywhere crowd who is going to Mexico to benefit from better weather, less stress and a much lower overall cost of living, which supports demand.

3. Short-term rentals are more and more regulated if not downright forbidden in the US and other developed countries and this isn't going to improve with the increase in house prices and rents. Mexico will most likely never regulate short-term rentals because it's in nobody's interest to do it there.

As a result, if you buy the right kind of property in the right place in Mexico, you could get a much more profitable investment if you take a mortgage or pay cash to buy a short-term rental in Mexico than if you take a mortgage and buy a short-term rental in the US.

Notice I mention buying in the right place. I'm not sure that downtown Cancun is the right place for this and I'm not sure what you'd buy there. Most people who go to Cancun go to stay in an all-inclusive and I'm not sure how you'd compete against those. And those who'd want to stay in a short-term rental instead would want to stay in the Hotel Zone, not downtown. Most people who land in Cancun and stay in short-term rentals do so in the Riviera Maya, not Cancun itself.

Angie Ruiz · Answer

Thanks for your assessment. I’m glad I can find people knowledgeable in this forum. For a moment I thought it would make sense but now that you mention, is true. I don’t see lots of people looking for short term rentals in the city of Cancun, and buying in the hotel zone is way out of my budget. I will do some more research and find something in the riviera Maya and perhaps even in other places since I think Cancun is getting over crowded and there are plenty of beautiful cities around the cost that can be cheaper.  Being Mexican is giving me the option of obtaining financing from a Mexican bank up to 90% so I think this sounds like the best way to go, I just have to find the right place that will def make the most of my investment. Again, thanks for you feedback

Angie Ruiz · Answer

Thank you for your reply. I’m looking to buy in Cancun city, single family. Do you have any lenders you can recommend? Yes, I spoke with a Mexican bank yesterday and the interest rate is 10% wow! Lol compared to the 3.8 or 4% you can get here in the US but I don’t see that as a problem if the house will be rented (hopefully) most of the year.

Looking for financing in a major touristic town in Mexico?

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