Beach area north of Tulum! Worth investing?

Question

Hi all! Newbie here, and first time looking into investing in Tulum! To be used as short-term vacation rental and personal vacation spot for a couple of times a year. Understand Tulum has been a “thing” for the past few years and growing insanely although the investing ship probably sailed already. Beach area full of hotels and súper pricey and the downtown and Aldea Zama packed with new construction by the minute, too much competition. That’s why I came across the beach area north of the Archeological site, 6 miles from Tulum City and probably about 8-10 miles from the beach hotel strip. It is a new construction to be finished in 2022. Studio probably around $330k investment. (Plus probably about $25k in lawyer fees, bank trust, etc.) . It’s on the beach, literally steps from the ocean, and the Unit has ocean view. Pool overlooking the ocean too.
There are a few boutique hotels in the area, and it seems more exclusive expensive boutique hotels are opening up nearby. Would you consider this a good investment? Thinking oceanfront will always retain it’s value even though it ain’t cheap! It’s my first buy... so nervous and excited! Any advise would be much appreciated!
Thank you!
@Mike Lambert

Arvin Poole · Answer

@Mike Lambert This is great advice. My sweetheart and I just got back from her 1st trip to MX (many more for me) and we are considering investing in a condo in the area. We visited PDC, Tulum, Akumal and Puerto Morelos. I would say out of all of those cities, PM is our favorite place to look at investing first. But of course we need to research the areas more for property values, rent rates, new development, etc.

Mike Lambert · Answer

@Ori Skloot

Bacalar and Holbox are beautiful places to visit but, personally, I'd get bored very quickly. One of the things that made the Riviera Maya one of the world's biggest tourism juggernauts is the ability to flight directly into Cancun and then drive to Playa del Carmen in less than an hour, and to Tulum in 2 hours. Getting to Bacalar or Holbox is much lengthier and more complicated. Unlike the Riviera Maya, North Americans can't go there for a long weekend. The rental pools are very small. And as much as Bacalar lake is incredibly beautiful, most people prefer to be by the ocean and do a 1-day trip to Bacalar. Similarly, a 1-day trip to Holbox would just be fine for most people.

Mike Lambert · Answer

@Heidy Fu

You think that, because of the competition in short-term rentals in Tulum itself, you'd get a better occupancy in that studio outside of town by the beach. Even if that's true, you could end up making a less profitable investment because a condo in Tulum itself could still give you a higher ROI with a lower occupancy because the price tag is much lower. And you'll have spend much less money. And then, again, if the competition short-term rentals in Tulum itself is strong, it means that a renter can get a great deal there. So how likely is it that that renter will pay more to be in your studio outside of town and away from everything? And make your investment profitable? By trying to avoid the competition risk, you're considering going into a deal in which that risk is (indirectly) even bigger and your price tag will be much higher.

Yes, properties by the beach have a higher intrinsic value so you could expect higher capital gains. However, when you pay a very expensive price, it's gonna take long before you can make any capital gains. Also capital gains are speculative while rental income isn't. And, on the rental income / cash flow side, beach properties are generally the worst because of the high price tag.

@Ori Skloot

Many people want to buy in Tulum because of Instagram and the Hollywood stars vacationing there. This has pushed the prices up. Tulum is years behind Playa del Carmen along the path of progress and yet condos are more expensive in Tulum. That makes no economical sense.

Personally, I prefer Playa del Carmen as a place to stay and invest for the following reasons:

1. Playa is by the beach whereas Tulum isn't. You can buy walking distance from the beach in Playa while you can't in Tulum.

2. Playa has the world-famous 5th Avenue with the shopping and world-class restaurants while Tulum has nothing like that, not even close and won't anything like that anytime soon.

3. Playa again has the luxury shops on the 5th Avenue but it also has the US big box retailers, including WalMart. Tulum doesn't.

4. Tulum doesn't have anything close the the nightlife that Playa has.

5. Playa (downtown) is already built out while Tulum still has a huge amount of land available so the risk of overbuilding and higher competition for short-term rentals is much higher in Tulum.

6. Even though Playa has nice beaches and the famous Mamitas beach club, it can be argued that Tulum's beach clubs are nicer. But then, even if you're in Tulum, you'd have to drive to go to the beach and Playa is just a short drive away from Tulum's beaches so you can easily stay in Playa and go to Tulum's beach clubs during the day if you like that.

And yet I invested in a group of  1- and mostly 2-bedroom condos in the best upcoming development in Playa, which is literally 400 meters (1,312 feet) from the beach and just one block from the famous 5th Avenue. I couldn't get anything close for the same price in Tulum by far, not even the small studio @Heidy Fu is looking at.

You also have Akumal, Puerto Morelos and Puerto Aventuras and you have places that are between cities too but you won't have a rental pool that's anything close to that of Playa or Tulum.

Ori Skloot · Answer

Great info @Mike Lambert!
Heidy, I am also looking for opportunities in the area but personally I have ruled out Tulum. Have you considered other nearby areas that are perhaps just as nice but don’t carry the Tulum price tag?

Mike Lambert · Answer

Heidi, I'm going to respond to your about the specifics but, since you posted and tagged me here, I'm gonna reply here first, for everyone's benefit.

I almost fell of my chair. $330,000 for a studio! Are you serious? This is Mexico, not Miami or New York City! Granted, it's by the beach but it's not in Tulum. Personally, I want to be in Tulum. If close to the beach, I'd rather be on the other site, not 6 miles North. If it was for my own use only, maybe, except for the price tag. But who's gonna rent a studio there? You could maybe rent a villa there for a group of friends who stay together and go out on the town from time to time but a studio? If I rent a studio, I want to spend most of my time outside of the studio so I have to be in Tulum. Imagine having to do the commute for everything and anything! Moreover, people who go to the beach in Tulum want to be in a beach club, not in a deserted beach in a condo development.

I have been offered 2-bed condos in Tulum itself for $200,000 or less from developers I know personally. While these are deals retail clients don't have direct access to, you can imagine my reaction when learning about a $330,000 studio in what I think is a wrong location for a studio.

Even with the competition in places like Aldea Zama, an investment there would be much more profitable I think.

That's my two cents. Obviously you'd need to do your own due diligence.

Ori Skloot · Answer

@Heidy Fu I love Bacalar.  We stayed at the Me Querido Tulum Houses a few times. I know someone is building a house nearby and that it will be for sale (the guard told me).  I love Puerto Morelos and the area around there.  Holbox is amazing (no cars!).

Mike Lambert · Answer

@Arvin Poole

They are building a high speed train network through the Yucatan peninsula that will link the Riviera Maya to Cancun International Airport. There will be only two stops in the Riviera Maya. The closest will be Playa del Carmen and then you'll have Tulum.

Condos sold in pesos are targeting a Mexican clientele. I'm not sure whether foreigners would rent those.

Heidy Fu · Answer

That’s a very good point Mike! I didn’t think about the square footage breakdown and how that would be much expensive. I know for $330k I could even get a 3 bedroom in Zama or Tulum 101 which is development closest to the beach. But I’m afraid of too much competition over there. There are really no beachfront short term rentals in Tulum unless in this Northen Bay Area and I checked into the boutique hotels and Airbnb’s and they seem to be occupied. Anyways, you have brought up many good points and I will certainly investigate and compare more once I’m there in person this weekend. I truly appreciate your time and thoughts. Thank you!

Mike Lambert · Answer

Heidi, great job about finding more about the developer.

If you're from LA, I get that you'll find that the property is inexpensive but the outskirts of Tulum isn't LA and won't be any time soon. More importantly, for an income property, it's the profitability that counts, not whether it looks expensive to you or not. The profitability of your property in Tulum will be the same whether you live in LA or anywhere else in the world.

I travel regularly to the Riviera Maya to look at properties. When I'm buy myself, I'm out and about most of the time and so I'm not too fancy about the short-term rental I'm staying in. Yet, I refuse to cramp myself in a studio, especially if I can just pay $20 extra and get a nice 1-bedroom condo. People who go there on holiday want to enjoy a nice vacation and will pay $20 a night extra to be in a condo rather than a studio because they want to make the most of their vacation. Moreover, tourists vacationing in Tulum are rather well-to-do so they can afford to get a condo.

In my humble opinion, studios don't fit into Tulum's property mix. They have been "artificially" created by the developers so they can sell to those that don't have the money to buy a condo. The studios are actually a boon for the developer rather than the buyer. The buyers think they gets a good deal because of the "lower" price tag but oftentimes they don't realize that the developers make them so small that the price per square foot is much higher than that of a condo.

The decision is yours and I can always be wrong but you asked for my advice so I'm giving it to you.

Benjamin Canyon · Answer

Hi @Heidy Fu! Just curious if you ended up buying anything in the Rivera Maya? I own a few vacation rentals in Tulum and would be happy to share any insights or advice if helpful.

Beach area north of Tulum! Worth investing?

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