All Forum Posts by: Carlos Ancona

@Mike Lambert

Oh! For sure then. You are right. 

You are talking about markets such as Riviera Maya and the luxury market in big cities and CBDs. 

Greetings Mike!

Mike, actually, most people mortgage their houses. Average Mexican cannot pay cash for a home. 

@Bonnie Griffin Kaake

Hello Bonnie! 

60% + down payments make the numbers work. All cash could get you around 6% caps on single-family homes since rents are around 0.7 percent of the property's total value and most expenses are covered by the tenant. 

Also, owners protect themselves a lot through security deposits that usually do cover all property damages after tenants leave, and with the right strategies vacancy is usually kept at a minimum.

Now it's important to notice that in all my financial projections I "paid" full market value for the properties. There is also a negotiation amount that could be discounted, making returns more attractive. Foreclosures could be another good one.

There are also ways such as buying homes in friends and family and pre-sale stages.

These strategies are used in Mexico by developers to fundraise money and finance the development's construction from potential buyers offering properties at a discount before they are built. It's actually really common and 100% legal (Not legal in the USA for example).

I actually live in Mérida. A couple of hours away from Campeche. I know the market really well.

I would be glad to help you with anything you need. You can mail me at carlosanconama(@)gmail.com 

@Trinity Carrick

There is a similar financial instrument called "Liquidity Credits". But most families and investors here do not use them due to cultural risk aversion, especially on assets such as houses. 

My family owns 20+ Single-family properties and 2 small mixed-use buildings bought all cash through the years (mostly by my grandparents - Safe to say there were no financial analyses involved in these transactions since they had almost 0 financial education that many years ago) most have had more than 10x appreciation. 

I'm thinking of getting using this type of instrument to build new assets (since I'm an architect) and transition part of the family portfolio to CRE slowly.

@Mike Lambert

Hello Mike. In effect that is a USA strategy. But still, rental income investments in single-family homes are still widely popular around wealthy people here, mostly relying on a "safety investment", meaning putting their money where it will not devaluate with inflation and maybe get some appreciation over time.

I was able to get 4% Caprates with 50% down payments. No counting on annual rent increases.

That breaks even in terms of mortgage payments and covers expenses, but $0 cash flow. Still, at the end of the mortgage, you have a good asset that most likely appreciated over time (If your neighborhood selection strategy is good, which is pretty easy in some parts of Mexico due to high contrast economic differences).

As you say in fact I analyzed Short-term rentals and did yield higher returns.

Hi! @Thomas Stevens!
Where are you looking at properties?
Positive cashflow is hard to achieve in México due to high mortgage rates (Up to 11%)

What areas/states and neighborhoods of México are you looking at?

I forgot! Thanks in advance to anyone that can help me!

Hello BiggerPockets community.

Let me first introduce myself. 

My name is Carlos, im a 30 y/o architect from México, from the city of Mérida in the Yucatán Peninsula. 

Ive been passionate about real estate, investing, development, architecture and cities all my life. Since young my family invested in rental properties because the good "fame" it has in our culture. Although they never really analyzed property, they have around 40 units as of now.

A few years back I found biggerPockets and got really interested in investment analysis. Since then Ive been trying to analyze different properties here to see if the investment is feseable or not.

Since we dont have a culture for investment analysis in SFR Homes, there is not much precendet on the matter.

The problem.

When starting to analyze property, i realized some major discrepancies on how the market dynamics are different:

• 1. Mortage interest rates: Mortage interest rates in México are about 9% on average. Drastically more than the 2.5% / 3% average in the US.
• 2.Rental prices to property prices ratio: Ive found that in the US, this ratio is usually about 1-2% the property price annually. In Mexico the average percentage comes to about 0.7% to 1%.

Now, if I run a property on a basic SFR Analysis calculator, I will always get negative cashflow, firstly because monthly debt service is always way above rent price.

Here is an Example:

A property priced at $1,500,000.00 mexican pesos.

A rent equal to 0.8% of the property price would come out at $10,000.00 (I verified this analyzing existing similar properties on the market)

If I purchase the property with a 20% down payment on a 15 year term (Average term for mortages) number will go:

$300,000 down payment.

$1,200,000 financed loan at 9% which comes to a 12,171.20 monthly payment. 

So Im -$2171 in negative cashflow. (Supposing no other expenses are needed for the sake of being practical).

Here I attach a analysis spreadsheet:

This numbers would get worst even if vacancy, maintenance and management is added.

Finally my question Are:

Im I doing anything wrong? or Why is this happening? Are interest rates too high?

Are rental properties in Mexico bad investment? Or do they just take longer to generate return?

If this results are the case for MOST PROPERTIES should I run analyses on my purchases or doesn't even matter?