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Updated 8 months ago, 04/01/2024
Buying pre-construction properties in Tulum and Mexico in general
Hi everyone,
Over the last few years, I've responded to almost 700 posts on buying and investing in international real estate yet I haven't written any single post. In order to best help all of you who want to buy or invest overseas, I figured out it made more sense to answer your questions rather than trying to guess what you'd like to know.
So, this is my first post. Those of you who've read my replies to posts know that my answers can be long because I try to put in as much useful information as I can. Obviously, since this is my own post, I had to follow the same standards or higher so you might want to get yourself a nice cup of coffee and sit comfortably ;-).
Why did I decide to finally write a post now and write specifically about buying and investing in pre-construction properties in Tulum and Mexico in general? On the one hand, many of you have been asking about that subject, whether through the forums or through contacting myself directly (which is understandable since buying a pre-construction condo in Tulum or Mexico in general can be a very attractive investment opportunity if you buy the right property at the right price in the right location from the right developer). On the other hand, I just started working on my own development in Tulum so there’s a lot I can share on the topic.
Many of you have thanked me for helping you buy a property in the area thanks to the informative content I have published on the forums or I have shared in our private communications but I know that there are many more people I've helped who haven't pulled the trigger even though they wanted to. The three reasons that come up the most are: 1) they’re not comfortable with handing over their money to a developer without knowing if he’s trustworthy and capable of delivering the property as agreed, 2) they feel they’re priced out of the market and 3) they don’t have either enough cash or access to financing. Sadly, in those cases, sharing my knowledge and experience might not be enough indeed. By wondering if there was any other way I could help these people, I decided to do my own development project in Tulum that would address these three issues of risk, price and financing, in order to meet the needs of the savvy buyers and investors.
To this end, I spent almost the entire month of May on the field. With the help of my local partners, I found solutions to these three issues that I’m going to use in my own development. I’m now going to share them with you to help you assess and compare the offerings from the different developers.
1. Risks
Unlike what many people think, the main risks of buying a property in Mexico pre-construction have little to do with corruption or drug cartels. They have most to do with the developer and the fact that you have to advance a significant amount of money against just a piece of paper without any guarantee that you’ll get either your property or your money back.
There are actually two distinct risks here. The first is that the developer is dishonest by either scamming you or using your money for other purposes than the construction so you’d need to find out whether the developer is trustworthy. I realize that it’s easy for me to do thanks to my network on the ground but it’s probably much harder for you. Yet, you can do online searches and, most importantly, use your common sense.
A few days ago, one of you asked me what I thought about a particular development in Tulum he was thinking of buying into. I looked at the website and I saw these beautiful renderings. Yet, I didn’t let that distract me and the first thing I wanted to know is who is behind the development to see if I know them or at least can ask my network about them. I was flabbergasted to see that there is no “about us” section and absolutely no information about the developer anywhere. This tells me one of three things: either it’s a scam or the developer has something to hide, has nothing in his background to justify that he could make the project a reality or the developer doesn’t think it’s necessary that he gives any information about himself, which in my book amounts to gross incompetence. Whichever it is, I don’t know about you but I’ll give that project a pass, even if I find the project attractive.
Now, onto the second developer-related risk associated with any pre-construction purchase/investment. Let’s assume that you found a great project with a trustworthy developer. You decide to purchase and you start making payments, alongside with other buyers. The developer cannot wait to make his money as quick as possible and move onto the next project. Therefore, he’s going to start construction as soon as he gets some money. This is a problem because if he can’t sell enough units, he’ll have to halt construction, his project is going to go bust and the buyers will lose their money. This is the main reason why a project would fail and that’s probably what it is when you see idle building frames in the landscape.
There’s another version of that same risk when the developer uses the money from his first buyers for anything other than the construction like personal expenses for example. He thinks it’s ok to do that because he’s going to use the money raised from future sales to complete the construction. By doing so, he’s putting himself and his buyers at great risk of having the project go bust as there’s no guarantee he’ll sell any more units. One of the advantages of being longer than usual on the ground was to catch up with the latest gossip. I was flabbergasted to hear that even some of the largest and most experienced developers are doing that and other shenanigans. By the way, this shouldn’t discourage you from buying in Mexico because the majority of the Mexican developers are honest. It’s the few that aren’t who account for the horror stories you might be hearing or reading about from time to time.
There is a double solution to eliminate or at least significantly decrease these two risks:
a. Instead of having the buyers advance the funds to the developer directly, the buyers will pay into an escrow account under the control of an independent third party. In order to access the money, the developer will have to prove that the project is fully funded, present invoices from his suppliers and/or provide evidence of construction milestones being reached. That’ll make the buyers much more comfortable that the project isn’t a scam and that their money is going to be used for the construction.
b. Having the developer wait for the project to be fully pre-sold before asking the buyers for any non-refundable money. This way, when the time comes for the buyers to put their first dollars on the line, they can be confident that the project is fully sold and therefore fully funded and won’t go bust during construction. Many developers aren’t doing that because selling a project completely first takes time, which obviously is a problem.
So, if you know the developer or have good reasons to think he’s honest and capable, you could consider advancing the money directly to him if you’re comfortable with that. Alternatively, choose a developer who uses the escrow account mechanism.
Also, if you’re one of the first buyers in a project, you’ll pay less but your risk will be higher. If you’re one of the last buyers, your risk will be lower but you’ll pay more. So, if you buy early in a project that you know will go ahead only if it’s fully pre-sold, you have the best of both worlds: a lower price and a lower risk.
2. Prices
As mentioned above, prices in Tulum (and other parts of Mexico for that matter) have risen over the years. This, combined with the necessity to have a sizable amount of cash, has priced many would-be buyers out of the market.
Here, the solution is for the developer to sell properties that are qualitatively as good below market and make up for the lower profit margin by selling quicker and more and having happier clients.
Some of you have asked for my opinion on 2-bedroom condos in Tulum in the upper $300k - $400k range. It would only make sense to me if it’s a lifestyle decision and, even in that case, you could most likely find a much better deal. Such condos are meant to be second residences, not rentals. If you’re looking at an investment, I’m not sure how you’d be planning to make a profitable one. The problem is that you buy by the square footage (and the fanciness) and you rent by the number of bedrooms. As a result, the smallest condos in a given category will generally be the most profitable investments. So, if you absolutely want to spend $350k - $400k, you might as well buy two condos instead of one, which will increase your return and decrease your risk.
Now, a word about the fanciness aspect. Mexico has a lot of great architects and the quality of the construction in the higher-end of the market (in which foreigners and upper middle-class and wealthy Mexicans buy) is very good. The beauty and the quality of many developments in a place like Tulum is impressive and it’s hard to resist the call of the beautiful renderings. While it’ll make you feel great to have an exceptionally beautiful condo, you’ll have to pay a significant premium, which you’ll be unlikely to profitably recoup through your rental income.
On another note, many developers offer a discount if the buyer pays 100% of the purchase price or at least a large part of it at the signing of the contract or at the early stages of the construction. Typically, the more and/or the earlier you pay, the higher your discount will be. However, the higher your risks too (remember the two main risks I outlined above?)! The solution to that, as mentioned above, is for the buyers to pay into a third-party controlled escrow account. As a buyer, I’d have no problem paying 100% of the purchase price at the conclusion of the contract against a substantive discount provided that I can pay into an escrow account.
And for the buyers who are less comfortable with the pre-construction risks, there’s a solution too: buying through resale shortly before delivery. From time to time, I find myself on the selling end of this. When a pre-construction deal is exceptionally good, I might buy more condos than we need knowing that we can resell the surplus shortly before delivery. I actually did one such sale recently. The building was almost done and so the pre-construction risk for the buyer had completely disappeared. Yet, I still gave the buyer a large discount to have him buy from me instead of the developer and I gave him some seller financing that he couldn’t get from the developer.
Let's finish this section with an important distinction. If you buy a property for lifestyle that you might be happy to rent as well to cover your costs or even make a small profit (or not rent at all), by all means buy that more expensive beautiful property, which would still cost you significantly less than a similar property in a comparable US location. If you buy a property mostly as an investor, try to buy at the best possible price, without sacrificing excessively on the quality. This will be the main determinant of your ROI, alongside with the financing if you can get one (see next section).
3. Financing
The other and actually the main solution for buyers priced-out of the market for the lack of available cash is for the developer to offer financing.
For example, the buyer would pay up to say 50% of the purchase price by the time the property is delivered. Then the developer will give the buyer say 5 years to pay the remainder of the price. If the buyers buy the right property, the cash flow should be more than enough to cover all the costs, including that of the financing. Such a situation would result in a much higher ROI.
Beware that some developers are offering what I call fake financing. Fake financing is allowing you to pay in installments but entirely by the delivery of the property as opposed to paying 100% at the signing of the contract! This is no financing from the part of the developer. Real developer financing only exists when you can pay back after the delivery of the property.
Do you have a good deal if the developer offers it to you? All other things being equal, you do of course. However, it isn’t a good thing if the only reason behind the financing is the inability of the seller to sell without it. In the same vein, developer financing doesn’t transform an otherwise bad deal into a good deal. Therefore, developer financing in itself alone isn’t a good reason to buy a property.
On a separate but related note, judging by the questions I’m being asked, it seems like a few people are interested in buying units condo hotels. I can see the main attraction, being that you could make some nice money by having nothing to do. Personally, I’d never consider that option for multiple reasons: 1) you cannot properly dispose of your own property as you can’t rent it by yourself, 2) the price is inflated as they make you pay for the convenience, 3) the performance of your unit is completely dependent on the performance of the building as a whole and the performance of the management, 4) property management is extremely expensive and they’re going to be the ones making most of the money while you take all the risks and 5) you cannot get rid of the property managers if they don’t perform. Also, the revenue estimates are generally widely exaggerated in order to justify the exorbitant property management fees.
Finally, if people are interested, I’m happy to post updates on how my own development project works out.
I hope this helps!
The location is ok in that it is in the area between the Highway and the beach. Yet, within that area, it is not the most attractive part because it's pretty much the furthest from both the beach and downtown.
I've never heard of that development before so I went to have a look at their website. One thing that would make it a no for me is the fact that there is no info whatsoever about the developer and I couldn't find any anywhere else. Apart from, it's a bit difficult to make a judgement given that they haven't put their prices on their brochure.
Quote from @Mike Lambert:
Hi everyone,
Over the last few years, I've responded to almost 700 posts on buying and investing in international real estate yet I haven't written any single post. In order to best help all of you who want to buy or invest overseas, I figured out it made more sense to answer your questions rather than trying to guess what you'd like to know.
So, this is my first post. Those of you who've read my replies to posts know that my answers can be long because I try to put in as much useful information as I can. Obviously, since this is my own post, I had to follow the same standards or higher so you might want to get yourself a nice cup of coffee and sit comfortably ;-).
Why did I decide to finally write a post now and write specifically about buying and investing in pre-construction properties in Tulum and Mexico in general? On the one hand, many of you have been asking about that subject, whether through the forums or through contacting myself directly (which is understandable since buying a pre-construction condo in Tulum or Mexico in general can be a very attractive investment opportunity if you buy the right property at the right price in the right location from the right developer). On the other hand, I just started working on my own development in Tulum so there’s a lot I can share on the topic.
Many of you have thanked me for helping you buy a property in the area thanks to the informative content I have published on the forums or I have shared in our private communications but I know that there are many more people I've helped who haven't pulled the trigger even though they wanted to. The three reasons that come up the most are: 1) they’re not comfortable with handing over their money to a developer without knowing if he’s trustworthy and capable of delivering the property as agreed, 2) they feel they’re priced out of the market and 3) they don’t have either enough cash or access to financing. Sadly, in those cases, sharing my knowledge and experience might not be enough indeed. By wondering if there was any other way I could help these people, I decided to do my own development project in Tulum that would address these three issues of risk, price and financing, in order to meet the needs of the savvy buyers and investors.
To this end, I spent almost the entire month of May on the field. With the help of my local partners, I found solutions to these three issues that I’m going to use in my own development. I’m now going to share them with you to help you assess and compare the offerings from the different developers.
1. Risks
Unlike what many people think, the main risks of buying a property in Mexico pre-construction have little to do with corruption or drug cartels. They have most to do with the developer and the fact that you have to advance a significant amount of money against just a piece of paper without any guarantee that you’ll get either your property or your money back.
There are actually two distinct risks here. The first is that the developer is dishonest by either scamming you or using your money for other purposes than the construction so you’d need to find out whether the developer is trustworthy. I realize that it’s easy for me to do thanks to my network on the ground but it’s probably much harder for you. Yet, you can do online searches and, most importantly, use your common sense.
A few days ago, one of you asked me what I thought about a particular development in Tulum he was thinking of buying into. I looked at the website and I saw these beautiful renderings. Yet, I didn’t let that distract me and the first thing I wanted to know is who is behind the development to see if I know them or at least can ask my network about them. I was flabbergasted to see that there is no “about us” section and absolutely no information about the developer anywhere. This tells me one of three things: either it’s a scam or the developer has something to hide, has nothing in his background to justify that he could make the project a reality or the developer doesn’t think it’s necessary that he gives any information about himself, which in my book amounts to gross incompetence. Whichever it is, I don’t know about you but I’ll give that project a pass, even if I find the project attractive.
Now, onto the second developer-related risk associated with any pre-construction purchase/investment. Let’s assume that you found a great project with a trustworthy developer. You decide to purchase and you start making payments, alongside with other buyers. The developer cannot wait to make his money as quick as possible and move onto the next project. Therefore, he’s going to start construction as soon as he gets some money. This is a problem because if he can’t sell enough units, he’ll have to halt construction, his project is going to go bust and the buyers will lose their money. This is the main reason why a project would fail and that’s probably what it is when you see idle building frames in the landscape.
There’s another version of that same risk when the developer uses the money from his first buyers for anything other than the construction like personal expenses for example. He thinks it’s ok to do that because he’s going to use the money raised from future sales to complete the construction. By doing so, he’s putting himself and his buyers at great risk of having the project go bust as there’s no guarantee he’ll sell any more units. One of the advantages of being longer than usual on the ground was to catch up with the latest gossip. I was flabbergasted to hear that even some of the largest and most experienced developers are doing that and other shenanigans. By the way, this shouldn’t discourage you from buying in Mexico because the majority of the Mexican developers are honest. It’s the few that aren’t who account for the horror stories you might be hearing or reading about from time to time.
There is a double solution to eliminate or at least significantly decrease these two risks:
a. Instead of having the buyers advance the funds to the developer directly, the buyers will pay into an escrow account under the control of an independent third party. In order to access the money, the developer will have to prove that the project is fully funded, present invoices from his suppliers and/or provide evidence of construction milestones being reached. That’ll make the buyers much more comfortable that the project isn’t a scam and that their money is going to be used for the construction.
b. Having the developer wait for the project to be fully pre-sold before asking the buyers for any non-refundable money. This way, when the time comes for the buyers to put their first dollars on the line, they can be confident that the project is fully sold and therefore fully funded and won’t go bust during construction. Many developers aren’t doing that because selling a project completely first takes time, which obviously is a problem.
So, if you know the developer or have good reasons to think he’s honest and capable, you could consider advancing the money directly to him if you’re comfortable with that. Alternatively, choose a developer who uses the escrow account mechanism.
Also, if you’re one of the first buyers in a project, you’ll pay less but your risk will be higher. If you’re one of the last buyers, your risk will be lower but you’ll pay more. So, if you buy early in a project that you know will go ahead only if it’s fully pre-sold, you have the best of both worlds: a lower price and a lower risk.
2. Prices
As mentioned above, prices in Tulum (and other parts of Mexico for that matter) have risen over the years. This, combined with the necessity to have a sizable amount of cash, has priced many would-be buyers out of the market.
Here, the solution is for the developer to sell properties that are qualitatively as good below market and make up for the lower profit margin by selling quicker and more and having happier clients.
Some of you have asked for my opinion on 2-bedroom condos in Tulum in the upper $300k - $400k range. It would only make sense to me if it’s a lifestyle decision and, even in that case, you could most likely find a much better deal. Such condos are meant to be second residences, not rentals. If you’re looking at an investment, I’m not sure how you’d be planning to make a profitable one. The problem is that you buy by the square footage (and the fanciness) and you rent by the number of bedrooms. As a result, the smallest condos in a given category will generally be the most profitable investments. So, if you absolutely want to spend $350k - $400k, you might as well buy two condos instead of one, which will increase your return and decrease your risk.
Now, a word about the fanciness aspect. Mexico has a lot of great architects and the quality of the construction in the higher-end of the market (in which foreigners and upper middle-class and wealthy Mexicans buy) is very good. The beauty and the quality of many developments in a place like Tulum is impressive and it’s hard to resist the call of the beautiful renderings. While it’ll make you feel great to have an exceptionally beautiful condo, you’ll have to pay a significant premium, which you’ll be unlikely to profitably recoup through your rental income.
On another note, many developers offer a discount if the buyer pays 100% of the purchase price or at least a large part of it at the signing of the contract or at the early stages of the construction. Typically, the more and/or the earlier you pay, the higher your discount will be. However, the higher your risks too (remember the two main risks I outlined above?)! The solution to that, as mentioned above, is for the buyers to pay into a third-party controlled escrow account. As a buyer, I’d have no problem paying 100% of the purchase price at the conclusion of the contract against a substantive discount provided that I can pay into an escrow account.
And for the buyers who are less comfortable with the pre-construction risks, there’s a solution too: buying through resale shortly before delivery. From time to time, I find myself on the selling end of this. When a pre-construction deal is exceptionally good, I might buy more condos than we need knowing that we can resell the surplus shortly before delivery. I actually did one such sale recently. The building was almost done and so the pre-construction risk for the buyer had completely disappeared. Yet, I still gave the buyer a large discount to have him buy from me instead of the developer and I gave him some seller financing that he couldn’t get from the developer.
Let's finish this section with an important distinction. If you buy a property for lifestyle that you might be happy to rent as well to cover your costs or even make a small profit (or not rent at all), by all means buy that more expensive beautiful property, which would still cost you significantly less than a similar property in a comparable US location. If you buy a property mostly as an investor, try to buy at the best possible price, without sacrificing excessively on the quality. This will be the main determinant of your ROI, alongside with the financing if you can get one (see next section).
3. Financing
The other and actually the main solution for buyers priced-out of the market for the lack of available cash is for the developer to offer financing.
For example, the buyer would pay up to say 50% of the purchase price by the time the property is delivered. Then the developer will give the buyer say 5 years to pay the remainder of the price. If the buyers buy the right property, the cash flow should be more than enough to cover all the costs, including that of the financing. Such a situation would result in a much higher ROI.
Beware that some developers are offering what I call fake financing. Fake financing is allowing you to pay in installments but entirely by the delivery of the property as opposed to paying 100% at the signing of the contract! This is no financing from the part of the developer. Real developer financing only exists when you can pay back after the delivery of the property.
Do you have a good deal if the developer offers it to you? All other things being equal, you do of course. However, it isn’t a good thing if the only reason behind the financing is the inability of the seller to sell without it. In the same vein, developer financing doesn’t transform an otherwise bad deal into a good deal. Therefore, developer financing in itself alone isn’t a good reason to buy a property.
On a separate but related note, judging by the questions I’m being asked, it seems like a few people are interested in buying units condo hotels. I can see the main attraction, being that you could make some nice money by having nothing to do. Personally, I’d never consider that option for multiple reasons: 1) you cannot properly dispose of your own property as you can’t rent it by yourself, 2) the price is inflated as they make you pay for the convenience, 3) the performance of your unit is completely dependent on the performance of the building as a whole and the performance of the management, 4) property management is extremely expensive and they’re going to be the ones making most of the money while you take all the risks and 5) you cannot get rid of the property managers if they don’t perform. Also, the revenue estimates are generally widely exaggerated in order to justify the exorbitant property management fees.
Finally, if people are interested, I’m happy to post updates on how my own development project works out.
I hope this helps!
Quote from @Mike Lambert:
Hi everyone,
Over the last few years, I've responded to almost 700 posts on buying and investing in international real estate yet I haven't written any single post. In order to best help all of you who want to buy or invest overseas, I figured out it made more sense to answer your questions rather than trying to guess what you'd like to know.
So, this is my first post. Those of you who've read my replies to posts know that my answers can be long because I try to put in as much useful information as I can. Obviously, since this is my own post, I had to follow the same standards or higher so you might want to get yourself a nice cup of coffee and sit comfortably ;-).
Why did I decide to finally write a post now and write specifically about buying and investing in pre-construction properties in Tulum and Mexico in general? On the one hand, many of you have been asking about that subject, whether through the forums or through contacting myself directly (which is understandable since buying a pre-construction condo in Tulum or Mexico in general can be a very attractive investment opportunity if you buy the right property at the right price in the right location from the right developer). On the other hand, I just started working on my own development in Tulum so there’s a lot I can share on the topic.
Many of you have thanked me for helping you buy a property in the area thanks to the informative content I have published on the forums or I have shared in our private communications but I know that there are many more people I've helped who haven't pulled the trigger even though they wanted to. The three reasons that come up the most are: 1) they’re not comfortable with handing over their money to a developer without knowing if he’s trustworthy and capable of delivering the property as agreed, 2) they feel they’re priced out of the market and 3) they don’t have either enough cash or access to financing. Sadly, in those cases, sharing my knowledge and experience might not be enough indeed. By wondering if there was any other way I could help these people, I decided to do my own development project in Tulum that would address these three issues of risk, price and financing, in order to meet the needs of the savvy buyers and investors.
To this end, I spent almost the entire month of May on the field. With the help of my local partners, I found solutions to these three issues that I’m going to use in my own development. I’m now going to share them with you to help you assess and compare the offerings from the different developers.
1. Risks
Unlike what many people think, the main risks of buying a property in Mexico pre-construction have little to do with corruption or drug cartels. They have most to do with the developer and the fact that you have to advance a significant amount of money against just a piece of paper without any guarantee that you’ll get either your property or your money back.
There are actually two distinct risks here. The first is that the developer is dishonest by either scamming you or using your money for other purposes than the construction so you’d need to find out whether the developer is trustworthy. I realize that it’s easy for me to do thanks to my network on the ground but it’s probably much harder for you. Yet, you can do online searches and, most importantly, use your common sense.
A few days ago, one of you asked me what I thought about a particular development in Tulum he was thinking of buying into. I looked at the website and I saw these beautiful renderings. Yet, I didn’t let that distract me and the first thing I wanted to know is who is behind the development to see if I know them or at least can ask my network about them. I was flabbergasted to see that there is no “about us” section and absolutely no information about the developer anywhere. This tells me one of three things: either it’s a scam or the developer has something to hide, has nothing in his background to justify that he could make the project a reality or the developer doesn’t think it’s necessary that he gives any information about himself, which in my book amounts to gross incompetence. Whichever it is, I don’t know about you but I’ll give that project a pass, even if I find the project attractive.
Now, onto the second developer-related risk associated with any pre-construction purchase/investment. Let’s assume that you found a great project with a trustworthy developer. You decide to purchase and you start making payments, alongside with other buyers. The developer cannot wait to make his money as quick as possible and move onto the next project. Therefore, he’s going to start construction as soon as he gets some money. This is a problem because if he can’t sell enough units, he’ll have to halt construction, his project is going to go bust and the buyers will lose their money. This is the main reason why a project would fail and that’s probably what it is when you see idle building frames in the landscape.
There’s another version of that same risk when the developer uses the money from his first buyers for anything other than the construction like personal expenses for example. He thinks it’s ok to do that because he’s going to use the money raised from future sales to complete the construction. By doing so, he’s putting himself and his buyers at great risk of having the project go bust as there’s no guarantee he’ll sell any more units. One of the advantages of being longer than usual on the ground was to catch up with the latest gossip. I was flabbergasted to hear that even some of the largest and most experienced developers are doing that and other shenanigans. By the way, this shouldn’t discourage you from buying in Mexico because the majority of the Mexican developers are honest. It’s the few that aren’t who account for the horror stories you might be hearing or reading about from time to time.
There is a double solution to eliminate or at least significantly decrease these two risks:
a. Instead of having the buyers advance the funds to the developer directly, the buyers will pay into an escrow account under the control of an independent third party. In order to access the money, the developer will have to prove that the project is fully funded, present invoices from his suppliers and/or provide evidence of construction milestones being reached. That’ll make the buyers much more comfortable that the project isn’t a scam and that their money is going to be used for the construction.
b. Having the developer wait for the project to be fully pre-sold before asking the buyers for any non-refundable money. This way, when the time comes for the buyers to put their first dollars on the line, they can be confident that the project is fully sold and therefore fully funded and won’t go bust during construction. Many developers aren’t doing that because selling a project completely first takes time, which obviously is a problem.
So, if you know the developer or have good reasons to think he’s honest and capable, you could consider advancing the money directly to him if you’re comfortable with that. Alternatively, choose a developer who uses the escrow account mechanism.
Also, if you’re one of the first buyers in a project, you’ll pay less but your risk will be higher. If you’re one of the last buyers, your risk will be lower but you’ll pay more. So, if you buy early in a project that you know will go ahead only if it’s fully pre-sold, you have the best of both worlds: a lower price and a lower risk.
2. Prices
As mentioned above, prices in Tulum (and other parts of Mexico for that matter) have risen over the years. This, combined with the necessity to have a sizable amount of cash, has priced many would-be buyers out of the market.
Here, the solution is for the developer to sell properties that are qualitatively as good below market and make up for the lower profit margin by selling quicker and more and having happier clients.
Some of you have asked for my opinion on 2-bedroom condos in Tulum in the upper $300k - $400k range. It would only make sense to me if it’s a lifestyle decision and, even in that case, you could most likely find a much better deal. Such condos are meant to be second residences, not rentals. If you’re looking at an investment, I’m not sure how you’d be planning to make a profitable one. The problem is that you buy by the square footage (and the fanciness) and you rent by the number of bedrooms. As a result, the smallest condos in a given category will generally be the most profitable investments. So, if you absolutely want to spend $350k - $400k, you might as well buy two condos instead of one, which will increase your return and decrease your risk.
Now, a word about the fanciness aspect. Mexico has a lot of great architects and the quality of the construction in the higher-end of the market (in which foreigners and upper middle-class and wealthy Mexicans buy) is very good. The beauty and the quality of many developments in a place like Tulum is impressive and it’s hard to resist the call of the beautiful renderings. While it’ll make you feel great to have an exceptionally beautiful condo, you’ll have to pay a significant premium, which you’ll be unlikely to profitably recoup through your rental income.
On another note, many developers offer a discount if the buyer pays 100% of the purchase price or at least a large part of it at the signing of the contract or at the early stages of the construction. Typically, the more and/or the earlier you pay, the higher your discount will be. However, the higher your risks too (remember the two main risks I outlined above?)! The solution to that, as mentioned above, is for the buyers to pay into a third-party controlled escrow account. As a buyer, I’d have no problem paying 100% of the purchase price at the conclusion of the contract against a substantive discount provided that I can pay into an escrow account.
And for the buyers who are less comfortable with the pre-construction risks, there’s a solution too: buying through resale shortly before delivery. From time to time, I find myself on the selling end of this. When a pre-construction deal is exceptionally good, I might buy more condos than we need knowing that we can resell the surplus shortly before delivery. I actually did one such sale recently. The building was almost done and so the pre-construction risk for the buyer had completely disappeared. Yet, I still gave the buyer a large discount to have him buy from me instead of the developer and I gave him some seller financing that he couldn’t get from the developer.
Let's finish this section with an important distinction. If you buy a property for lifestyle that you might be happy to rent as well to cover your costs or even make a small profit (or not rent at all), by all means buy that more expensive beautiful property, which would still cost you significantly less than a similar property in a comparable US location. If you buy a property mostly as an investor, try to buy at the best possible price, without sacrificing excessively on the quality. This will be the main determinant of your ROI, alongside with the financing if you can get one (see next section).
3. Financing
The other and actually the main solution for buyers priced-out of the market for the lack of available cash is for the developer to offer financing.
For example, the buyer would pay up to say 50% of the purchase price by the time the property is delivered. Then the developer will give the buyer say 5 years to pay the remainder of the price. If the buyers buy the right property, the cash flow should be more than enough to cover all the costs, including that of the financing. Such a situation would result in a much higher ROI.
Beware that some developers are offering what I call fake financing. Fake financing is allowing you to pay in installments but entirely by the delivery of the property as opposed to paying 100% at the signing of the contract! This is no financing from the part of the developer. Real developer financing only exists when you can pay back after the delivery of the property.
Do you have a good deal if the developer offers it to you? All other things being equal, you do of course. However, it isn’t a good thing if the only reason behind the financing is the inability of the seller to sell without it. In the same vein, developer financing doesn’t transform an otherwise bad deal into a good deal. Therefore, developer financing in itself alone isn’t a good reason to buy a property.
On a separate but related note, judging by the questions I’m being asked, it seems like a few people are interested in buying units condo hotels. I can see the main attraction, being that you could make some nice money by having nothing to do. Personally, I’d never consider that option for multiple reasons: 1) you cannot properly dispose of your own property as you can’t rent it by yourself, 2) the price is inflated as they make you pay for the convenience, 3) the performance of your unit is completely dependent on the performance of the building as a whole and the performance of the management, 4) property management is extremely expensive and they’re going to be the ones making most of the money while you take all the risks and 5) you cannot get rid of the property managers if they don’t perform. Also, the revenue estimates are generally widely exaggerated in order to justify the exorbitant property management fees.
Finally, if people are interested, I’m happy to post updates on how my own development project works out.
I hope this helps!
Mike thank you for all this helpful info! I really appreciate it.
I have worked with a couple of property managers, in my experience, there are always pros and cons about each one, there are multiple options in Tulum. I can share the ones I have used and know they are trustworthy. Will send you a DM.
Thank you @Mike Lambert for all the invaluable information!
Anything you've heard good/bad about the "HOMA" developers in Tulum? I'm currently looking to invest in a 2 BR pre-sale there, expected to be delivered November 2023. Thanks in advance for any information you may have.
I don't think it's appropriate for me to make negative comments about people or companies behind their back in a public forum. Therefore, I replied to you by DM.
Thank you so much for this helpful information! I'm getting closer to deciding on a construction project that will be delivering in June of this year. My only setback is the financing as I don't have all the cash on hand. Would you recommend any specific company for cross-border mortgages? I keep seeing Moxi Global Mortgage and from the reviews I've seen they seem legit, just high interest. Wondering if you have a company/bank you would recommend?
Thank you in advance!
Natalie
You're welcome!
Any bank is obviously legit. Mexican interest rates are high. There's no way around it. Beware of some cross-border companies who have mortgage products they advertise as low interest rate. While the companies are legit, the real de facto interest rate is actually extremely high, as the monthly payment increases over the lifetime of the loan.
I cannot recommend a bank or company because I didn't need to use one, as I used cheaper developer/seller financing. Incidentally, somebody made an offer on one of my pre-construction properties today (I'd have offered financing to the buyer but he decided to pay 100% in cash before I had the time to offer it). That would be the alternative but it's generally not offered to retail buyers in the projects you'd like to buy in so you'd need to have the right connections or that.
Quote from @Mike Lambert:
You could get scammed if you deal with the wrong people. Thankfully, that's probably the minority but you should definitely be careful with who you deal with. Also, you'd want an honest and performing property management. A good property manager can make a huge difference in your investment returns and can make a difference between a good and a bad deal.
I'm going to put boots on the ground in the next few weeks so I should be in a position to give you the best name(s) then.
Every investor in Yucatan or Quintana Roo should understand that there is a weak system for settling disputes. You just don't sue someone and go to Court.
- Bruce D. Kowal
- [email protected]
- 617-704-1194
I'm not sure why you're singling out Yucatan and Quintana Roo specifically and what you mean by "you just don't sue someone and go too court". There is a proper legal system and you can absolutely go to court.
Yet:
1. Irrespective of the "quality" of the Mexican legal system, going to court in any foreign country against a citizen of that country is more "difficult" than going to court in your own country.
2. Speaking of "quality", I'd assume that Mexico's legal system is less efficient than that of the US and it might take you longer to get a resolution.
So, if you want to suggest to potential buyers that they should be careful about who they're dealing with and understand what they're doing, I completely agree. Try to avoid getting into legal disputes, as you'd do anywhere anyway. Understand the importance of doing your due diligence and make sure that you deal with legit and trustworthy people.
The good news is that, after having invested for several years there, I haven't heard of any serious problems with foreigners systematically getting into legal trouble related to real estate purchases (mind you, there must be some statistically speaking, as there would be anywhere). Also, given the huge amount of American and other foreign direct investment in Mexico, much of which being is in the form of real estate investments, it is in the country's vital interest to protect the interests of these investors. This being said, you'll get the bad apples, as you'd get anywhere else.
Quote from @Mike Lambert:
Hi everyone,
Over the last few years, I've responded to almost 700 posts on buying and investing in international real estate yet I haven't written any single post. In order to best help all of you who want to buy or invest overseas, I figured out it made more sense to answer your questions rather than trying to guess what you'd like to know.
So, this is my first post. Those of you who've read my replies to posts know that my answers can be long because I try to put in as much useful information as I can. Obviously, since this is my own post, I had to follow the same standards or higher so you might want to get yourself a nice cup of coffee and sit comfortably ;-).
Why did I decide to finally write a post now and write specifically about buying and investing in pre-construction properties in Tulum and Mexico in general? On the one hand, many of you have been asking about that subject, whether through the forums or through contacting myself directly (which is understandable since buying a pre-construction condo in Tulum or Mexico in general can be a very attractive investment opportunity if you buy the right property at the right price in the right location from the right developer). On the other hand, I just started working on my own development in Tulum so there’s a lot I can share on the topic.
Many of you have thanked me for helping you buy a property in the area thanks to the informative content I have published on the forums or I have shared in our private communications but I know that there are many more people I've helped who haven't pulled the trigger even though they wanted to. The three reasons that come up the most are: 1) they’re not comfortable with handing over their money to a developer without knowing if he’s trustworthy and capable of delivering the property as agreed, 2) they feel they’re priced out of the market and 3) they don’t have either enough cash or access to financing. Sadly, in those cases, sharing my knowledge and experience might not be enough indeed. By wondering if there was any other way I could help these people, I decided to do my own development project in Tulum that would address these three issues of risk, price and financing, in order to meet the needs of the savvy buyers and investors.
To this end, I spent almost the entire month of May on the field. With the help of my local partners, I found solutions to these three issues that I’m going to use in my own development. I’m now going to share them with you to help you assess and compare the offerings from the different developers.
1. Risks
Unlike what many people think, the main risks of buying a property in Mexico pre-construction have little to do with corruption or drug cartels. They have most to do with the developer and the fact that you have to advance a significant amount of money against just a piece of paper without any guarantee that you’ll get either your property or your money back.
There are actually two distinct risks here. The first is that the developer is dishonest by either scamming you or using your money for other purposes than the construction so you’d need to find out whether the developer is trustworthy. I realize that it’s easy for me to do thanks to my network on the ground but it’s probably much harder for you. Yet, you can do online searches and, most importantly, use your common sense.
A few days ago, one of you asked me what I thought about a particular development in Tulum he was thinking of buying into. I looked at the website and I saw these beautiful renderings. Yet, I didn’t let that distract me and the first thing I wanted to know is who is behind the development to see if I know them or at least can ask my network about them. I was flabbergasted to see that there is no “about us” section and absolutely no information about the developer anywhere. This tells me one of three things: either it’s a scam or the developer has something to hide, has nothing in his background to justify that he could make the project a reality or the developer doesn’t think it’s necessary that he gives any information about himself, which in my book amounts to gross incompetence. Whichever it is, I don’t know about you but I’ll give that project a pass, even if I find the project attractive.
Now, onto the second developer-related risk associated with any pre-construction purchase/investment. Let’s assume that you found a great project with a trustworthy developer. You decide to purchase and you start making payments, alongside with other buyers. The developer cannot wait to make his money as quick as possible and move onto the next project. Therefore, he’s going to start construction as soon as he gets some money. This is a problem because if he can’t sell enough units, he’ll have to halt construction, his project is going to go bust and the buyers will lose their money. This is the main reason why a project would fail and that’s probably what it is when you see idle building frames in the landscape.
There’s another version of that same risk when the developer uses the money from his first buyers for anything other than the construction like personal expenses for example. He thinks it’s ok to do that because he’s going to use the money raised from future sales to complete the construction. By doing so, he’s putting himself and his buyers at great risk of having the project go bust as there’s no guarantee he’ll sell any more units. One of the advantages of being longer than usual on the ground was to catch up with the latest gossip. I was flabbergasted to hear that even some of the largest and most experienced developers are doing that and other shenanigans. By the way, this shouldn’t discourage you from buying in Mexico because the majority of the Mexican developers are honest. It’s the few that aren’t who account for the horror stories you might be hearing or reading about from time to time.
There is a double solution to eliminate or at least significantly decrease these two risks:
a. Instead of having the buyers advance the funds to the developer directly, the buyers will pay into an escrow account under the control of an independent third party. In order to access the money, the developer will have to prove that the project is fully funded, present invoices from his suppliers and/or provide evidence of construction milestones being reached. That’ll make the buyers much more comfortable that the project isn’t a scam and that their money is going to be used for the construction.
b. Having the developer wait for the project to be fully pre-sold before asking the buyers for any non-refundable money. This way, when the time comes for the buyers to put their first dollars on the line, they can be confident that the project is fully sold and therefore fully funded and won’t go bust during construction. Many developers aren’t doing that because selling a project completely first takes time, which obviously is a problem.
So, if you know the developer or have good reasons to think he’s honest and capable, you could consider advancing the money directly to him if you’re comfortable with that. Alternatively, choose a developer who uses the escrow account mechanism.
Also, if you’re one of the first buyers in a project, you’ll pay less but your risk will be higher. If you’re one of the last buyers, your risk will be lower but you’ll pay more. So, if you buy early in a project that you know will go ahead only if it’s fully pre-sold, you have the best of both worlds: a lower price and a lower risk.
2. Prices
As mentioned above, prices in Tulum (and other parts of Mexico for that matter) have risen over the years. This, combined with the necessity to have a sizable amount of cash, has priced many would-be buyers out of the market.
Here, the solution is for the developer to sell properties that are qualitatively as good below market and make up for the lower profit margin by selling quicker and more and having happier clients.
Some of you have asked for my opinion on 2-bedroom condos in Tulum in the upper $300k - $400k range. It would only make sense to me if it’s a lifestyle decision and, even in that case, you could most likely find a much better deal. Such condos are meant to be second residences, not rentals. If you’re looking at an investment, I’m not sure how you’d be planning to make a profitable one. The problem is that you buy by the square footage (and the fanciness) and you rent by the number of bedrooms. As a result, the smallest condos in a given category will generally be the most profitable investments. So, if you absolutely want to spend $350k - $400k, you might as well buy two condos instead of one, which will increase your return and decrease your risk.
Now, a word about the fanciness aspect. Mexico has a lot of great architects and the quality of the construction in the higher-end of the market (in which foreigners and upper middle-class and wealthy Mexicans buy) is very good. The beauty and the quality of many developments in a place like Tulum is impressive and it’s hard to resist the call of the beautiful renderings. While it’ll make you feel great to have an exceptionally beautiful condo, you’ll have to pay a significant premium, which you’ll be unlikely to profitably recoup through your rental income.
On another note, many developers offer a discount if the buyer pays 100% of the purchase price or at least a large part of it at the signing of the contract or at the early stages of the construction. Typically, the more and/or the earlier you pay, the higher your discount will be. However, the higher your risks too (remember the two main risks I outlined above?)! The solution to that, as mentioned above, is for the buyers to pay into a third-party controlled escrow account. As a buyer, I’d have no problem paying 100% of the purchase price at the conclusion of the contract against a substantive discount provided that I can pay into an escrow account.
And for the buyers who are less comfortable with the pre-construction risks, there’s a solution too: buying through resale shortly before delivery. From time to time, I find myself on the selling end of this. When a pre-construction deal is exceptionally good, I might buy more condos than we need knowing that we can resell the surplus shortly before delivery. I actually did one such sale recently. The building was almost done and so the pre-construction risk for the buyer had completely disappeared. Yet, I still gave the buyer a large discount to have him buy from me instead of the developer and I gave him some seller financing that he couldn’t get from the developer.
Let's finish this section with an important distinction. If you buy a property for lifestyle that you might be happy to rent as well to cover your costs or even make a small profit (or not rent at all), by all means buy that more expensive beautiful property, which would still cost you significantly less than a similar property in a comparable US location. If you buy a property mostly as an investor, try to buy at the best possible price, without sacrificing excessively on the quality. This will be the main determinant of your ROI, alongside with the financing if you can get one (see next section).
3. Financing
The other and actually the main solution for buyers priced-out of the market for the lack of available cash is for the developer to offer financing.
For example, the buyer would pay up to say 50% of the purchase price by the time the property is delivered. Then the developer will give the buyer say 5 years to pay the remainder of the price. If the buyers buy the right property, the cash flow should be more than enough to cover all the costs, including that of the financing. Such a situation would result in a much higher ROI.
Beware that some developers are offering what I call fake financing. Fake financing is allowing you to pay in installments but entirely by the delivery of the property as opposed to paying 100% at the signing of the contract! This is no financing from the part of the developer. Real developer financing only exists when you can pay back after the delivery of the property.
Do you have a good deal if the developer offers it to you? All other things being equal, you do of course. However, it isn’t a good thing if the only reason behind the financing is the inability of the seller to sell without it. In the same vein, developer financing doesn’t transform an otherwise bad deal into a good deal. Therefore, developer financing in itself alone isn’t a good reason to buy a property.
On a separate but related note, judging by the questions I’m being asked, it seems like a few people are interested in buying units condo hotels. I can see the main attraction, being that you could make some nice money by having nothing to do. Personally, I’d never consider that option for multiple reasons: 1) you cannot properly dispose of your own property as you can’t rent it by yourself, 2) the price is inflated as they make you pay for the convenience, 3) the performance of your unit is completely dependent on the performance of the building as a whole and the performance of the management, 4) property management is extremely expensive and they’re going to be the ones making most of the money while you take all the risks and 5) you cannot get rid of the property managers if they don’t perform. Also, the revenue estimates are generally widely exaggerated in order to justify the exorbitant property management fees.
Finally, if people are interested, I’m happy to post updates on how my own development project works out.
I hope this helps!
Thank you for the most comprehensive infromation about the risks of investing in Tulum. It was really helpful.
I sent you a DM
Quote from @Sebastian Papworth:
I have worked with a couple of property managers, in my experience, there are always pros and cons about each one, there are multiple options in Tulum. I can share the ones I have used and know they are trustworthy. Will send you a DM.
Can you also send me a list of trustworthy property managers in Tulum? It's very hard to find in general.
Any thoughts on Mar y Miel in Aldea Zama? My friend bought a 3 bedroom townhouse there in the first phase for $200k. Now, their second and third phases for the same unit are selling at $410k. Is this normal for developers to discount at 50% of the listing price or double the price of the second phase?
Hello @Kay So
Sure thing ill share the contacts for the property managers in a DM.
Mar y Miel`s first phase was on the market for some time so maybe they had to offer strong incentives to buyers, when did your friend buy? I'm thinking your friend bought at presale maybe at family & friends price list and got a large discount. I am reviewing our internal MLS and the lowest price I see on the first phase was actually in MXN so maybe it has to do with an exchange rate, converting the MXN price to USD in our current exchange rate the starting price for phase one was around 320K USD for a 2BD 2.5 Baths. I am trying to remember when they launched the first phase I'm pretty sure it was 2019 3 years back, congratulations to your friend she got a really good deal! According to our STR market studies villas, houses, and townhouses rent really well, I personally like the architect and the design of the Mar y Miel villas, I don't think paying double is the best way to go right now, we can help you sending you comparable properties so you can decide which is the best way to go and what options you currently have.
To answer your last question: Yes it's normal for developers to raise the prices we call it controlled appreciation (if you invest in the initial stage of the project you will get the highest discount, the risk is also higher during this stage) and also there is a market appreciation over time if your friend bought when they initially launched back in 2019 and now the prices have doubled that means around a 30% yearly appreciation which can happen in Tulum.
It's not normal for developers to give a 50% discount it's actually a huge red flag. Usually, discounts are lower than 10%, If I see something higher than that the prices might be inflated or there is something going on.
Hope this helps!
There is no 50% discount involved in the situation mentioned by @Kay So since, as Sebastian mentioned, we're talking about two different phases with a few years in between. The price difference isn't that surprising given that many properties in Tulum are selling at overinflated prices. And, yes, a 50% discount would be suspicious but I've never seen any and I don't think we'll see any in the current market.
Sebastian, I could follow your reasoning that a 10%+ discount is suspicious if you're thinking is along the lines of "nobody is offering more than 10% so it's not in the developer's interest to offer more so, if they do, there must be something fishy".
Apart from that, I strongly disagree. As you know since you're a realtor, discounts of less than 10% are great deals for the sellers and very bad deals for the buyers. Therefore, I think you'd agree with me that it'd be silly to discard deals in which developers would do the right thing towards their buyers by offering larger discounts.
On another note related to your reply, you've mentioned a few times that you have an "internal MLS" I guess to make up for the lack of an official MLS. Obviously, we understand it's nothing like a real MLS, as MLS stands from multiple listing systems. Yet, we understand that you're likely tracking certain sales, which would be one of the function of an MLS if one existed, hence your use of the acronym. While you'll get only part of the sales that have taken place, you'll still get a certain amount of data, which could appear to be useful at first glance.
However, when seriously thinking about it, I can't see how it'd be useful and I'm even thinking it could potentially be harmful. An MLS is useful in the US and Canada because property are valued in function of comparables as determined by the MLS and lenders also use these values to determine the LTVs for their mortgage loans. Neither of these reasons apply to a market like Tulum hence my question about the usefulness. And then, the database could tell me that I should avoid a property because it's overpriced when, in reality, it's a great deal? We can see the potential issues with Kay's question about Mar y Miel. We'll both agree that, if you could get a 3-bed townhouse in Aldea Zama today for 200k, it'd be a steal but, at 410k, it's another story.
@Kay So would you buy something at 410k today that was selling for 200k just a few years ago? I wouldn't buy everyone is different. Don't forget this is Mexico, not the US.
Buyers in Tulum will be for lifestyle, investment or a combination thereof. If you buy for lifestyle, what matters is that you like the property and it's within your budget. If you buy as an investment, your return will mostly come from your rental yield as long as you hold the property since you won't refinance and since Tulum isn't a market for BRRRing or flipping. Hence, an MLS generally isn't really needed to determine whether a property fits within the buyer's needs.
Hi Mike,
I'm coming late to this discussion but I came across your post and wanted to hear your advise and how things have developed since the original post. I'm interested in investing in Tulum and would love to hear your advise in buying something preconstruction vs resale. On the one hand you lock prices 2 years early and can enjoy the benefits of 2 years of price appreciation. However, that means you tie up your funds an is also 2 years of opportunity cost (lost potential income) when buying resale. Which option (pre vs resale) do you think offers the most benefits to first time investors in Tulum? If we were to use an example of a typical 2 bed / 2 bath unit with nice amenities and perks (assuming a reputable developer and on time delivery) priced around the $300K, why would I prefer to go with preconstruction vs resale (the intent in this scenario is investment mostly, that I'd use a couple of times a year when I'm on vacation, but the main purpose is investment)? Would you say that resale prices are way above $300K hence the reason for preconstruction? Or that what's out there for that price range is older and would t generate as much revenue? Would also love to get info on your development, if it didn't sell out already Thank you in advance and cheers!
It's never too late to be in a conversation and this one isn't that old anyway.
I already answered to you since you sent me a DM and I replied before seeing this reply of yours. So I'm going to reply again here for everyone else's benefit. It's actually gonna be for yours too since, while I answered your question, I didn't concluded with what I'd do so I'm gonna mention it here.
Depending on the buyer's situation, I almost always suggest that buying pre-construction is better as they are normally the best deals by far financially speaking and you get a brand new property, which is more in demand with renters and buyers, as in pretty much any market. The disadvantages of it are that the risks you're taking (and that I outlined in my original post) and the fact that it's gonna take more time until you can earn some rental income.
I don't know about you but, if I can, I like to have my cake and eat it too. What I mean here is that I'd be trying to get the advantages of both. So I'd go for a pre-construction of a boutique project rather than a large one. Why? Because, in the grand scheme of things, I don't really care having to wait for just one year to get my rental income but some large project take years, including the delays. Also, in a recent trip to Tulum, contacts on the ground mentioned to me that many developers don't have the funding to finish their projects, which could generate further (long) delays before you get your condo. That's the main risk I outlined in my original post. That shouldn't deter you to buy pre-construction but do your due-diligence and make sure that the developer is fully funded. And don't assume that the bigger the developer the lower the odds that this happens to them, as I heard that one of the biggest developers is in that situation.
Finally, while I usually will answer any questions, I won't it comes to my own project, I can't respond for the following reasons:
1. Selling rightfully isn't allowed on the BP forums so I don't want to write anything that could be interpreted as selling something, even if it isn't the purpose. There can be a fine line between sharing my experience for everyone's benefit and selling something and I don't want to cross it.
2. I'm not a premium member so I'm not trying to sell anything on BP.
3. Most importantly, so many of you have reached out to me and I've had the privilege of helping many invest in Mexico or in other countries and I can proudly say that I've never made any cent out of it. While some will say I'm a fool for not doing it, I have a reputation to hold. If I was to cross the line, it could potentially taint any advice I might give, which might become biased. I started replying to posts years ago about international investing because hardly anyone was there as a source of unbiased information and advice. I have continued doing that because I'm not sure where people would go if I stopped.
4. Finally, on the business side of things, if I fill my mission to provide a product that is better than the competition or simply not offered by the competition, I shouldn't need to rely on potentially cheap marketing on BP.
I understand it'd be silly to not do business if it can be a win-win for all involved but there is the right way to do things and you actually did by contacting me. Ethics and rules have to be respected.
Hello Mike
This was a very detailed post and answered most of my questions. I have 2 rentals in my home state and am looking for my next investment/vacation Hoke for maybe 3 months out of the year. What prices me out of more than half of them is my budget. Do you think it's best to invest in a 1 bedroom unit that I can get for maybe $125k or a 2 bedroom unit for 200k? Ideally I prefer 2 bedroom for my own vacation reasons but how does that translate to ROI. I don't have 200k to chuck down since financing isn't an option, wondering if I shld save and just work toward obtaining that 200k just go an purchase the 1 bedroom. I am ideally looking for something in pre construction off the beaten path but walking distance to beach and coffee shops. I know everything is still building so a beaten path today could mean a bustling strip 4 years from now. I think with the airport being built I'm scared that by saving for a larger purchase prices will go up.
Do you know of any pre construction that will be ready 2023 that will allow the 10% down 40% more by delivery and 5 year the remainder?
I always try to reply in the threads so everyone can benefit and we have something for people in your situation. However, I want to scrupulously respect BP's forum rules and, anyway, I'm active in the forum to help, not to sell. Therefore, I replied to you by DM this time.
Thank you for taking the time to share your knowledge with all of us.
I recently purchased two lots in Tulum and am looking to two build homes on them.
Finding a bank to give a construction loan or a builder offering financing has been impossible. Do you know of anyone who offers financing?
I live in the US with good credit and am able to put down 35%. Any guidance would be greatly appreciated.
Kind regards,
Bryan
You're welcome. Happy that it's been helpful, although your situation is very different. I hate to be the party pooper here but the general rule is that, sadly, no bank or any other lender whether in or outside of Mexico will give a construction loan to build in Mexico so it's no surprise you didn't get anywhere. They don't offer the product and it doesn't make sense for them to offer it. Builders will never give you financing. It doesn't matter how good your credit is. As a general rule in Mexico, it's always good to make sure you know you can get the financing before you buy anything although I understand it's a bit late for that here.
If you have equity on properties in the US, you could take a HELOC. From an investment point of view, it's the exact same thing as paying cash but that's an option if you'd be ok to pay cash but don't have the cash available.
Of course, I don't know anything about your particular situation so feel free to DM me if you think I can help further.
Finally a straight answer from someone. Thank you.
I'm sure there's a good reason why these builders don't offer financing but what a lost opportunity for them. They can hold the lot as collateral and they would get to keep the deposit too if the owner defaults. Seems like a no brainer.
Well, if you or anyone reading this hears of a developer offering financing, please let me know.
Thank you!
You're welcome. It makes absolutely no sense for a builder to offer financing and I don't think they do that in any country. They need your money to pay their bills and they're in the business of building, not lending. Moreover, the value of the land is low compared to the construction cost so the land would be insufficient anyway and the distressed value would be very low because who would be interested in paying up for land with something partially built on it. Finally, builders have no interest in having to take and go to court to realize collateral. So, it makes no sense for builders to offer financing even if they could and, unsurprisingly, they don't.
True developer financing is something that is rare but exists. It's become even less common lately because of how hot the market has become and because many buyers are flushed with cash and looking for a place to spend it. I know that it still exists just because of fact that I'm going to provide it for my own developments. However, I think you're mixing builder and developer here. A developer owns the land, decides what to build on it builds and sell the units. In your case, you own the land so you're looking to hire a builder (not a developer) to build on spec. That is totally different and builder financing is what you'd need and what doesn't exist.
Excellent post, @Mike Lambert! I lived in the area for 7 years, own several properties in Tulum, and manage a portfolio of vacation rentals there as well. What you're saying about the importance of vetting the developer is essential. We had a LOT of challenges with a developer that turned out fine in the end but created a lot of stress, delays, and challenges along the way, especially in terms of accountability and finish quality.
Another dimension of risk that few people talk about with Tulum is the ecological destruction, particularly of the cenote system. The environment is the #1 driver of tourism to the region and it's not adequately protected. My hope is that all the money invested in Tulum will lead to significant infrastructure upgrades and investments either by the government or private industry if things get really bad. Without Tulum's beautiful beaches, cenotes, and jungle, why would tourists come?
The other risk with Tulum is that, in my analysis, the resale market can be really tricky. With so many presale opportunities, why buy a property that's 3-5 years old? Many existing properties sit on the market for a long time or have to significantly drop their prices in order to sell.
All that said, I think there are some great investment opportunities in the area! Investors just need to look for unique opportunities that can compete in the current market.