All Forum Posts by: Mike Lambert

@Camilo Restrepo, I don't have any opinion and, to be clear, I'm neither arguing with you nor trying to convince of anything. There are many opinions but there's only one set of facts. If you want to make a comparison, you can check Airdna. IMHO, your problem was not Mexico, it was Cancun. As I wrote in my first reply here, I'd never invest there in an STR. It makes no sense. I'm actually surprised you managed to get a 9% ROI but I guess that's thanks to you being a good operator and getting 95% occupancy as a result. You can't compete against the all-inclusives unless you offer complimentary food and booze or you're cheap, as you seem to be confirming.

This being said:

1) Properties in Mexico/Cancun trade in USD so you have no foreign exchange risk in Mexico while properties in Colombia are traded in COP, the Colombian peso, which has been tanking over the years, eliminating any hope for capital gains for American investors.

2) You can get a mortgage in Mexico but you can't in Colombia so even with lower revenue, Cancun would likely still be more profitable, even if you don't take capital gains into account.

3) The political risk is much higher in Colombia, especially at this present time.

Is Cartagena a bad investment? I don't think so if you're ok with the currency and political risks. But, like most people, I prefer Mexico. For the reasons I mentioned, there's no contest far as I'm concerned.

Anyway, the most important is that you seem to be doing well and be happy about it. Let's hope the COP stops to fall, in which case I'd be keen to invest more in Colombia.

@Camilo Restrepo

I see your point too, but you have to pay Airbnb, Booking.com and a property manager anywhere in the world you invest. That's not specific to Mexico. Also, regarding the 15% you pay to Airbnb replaces the commission your guests used to have to pay to Airbnb so you should be able to charge it through your guests through your pricing.

And, yes, operating short-term rentals in Mexico, while cheap compared to developed countries, is somewhat more expensive than in Colombia, Ecuador and the Dominican Republic because Mexico is more developed. This being said, in those other countries, you don't have the mass tourism that Mexico gets, which means you'll get lower occupancy which, alongside with a lower ADR, will give you much less income. Moreover, you won't get any capital appreciation close to what you can get in Mexico in those countries and you can't borrow in those countries like you can in Mexico.

So, personally, I rather pay SAT. As I always say when it comes to taxes, if I pay more taxes, it generally means I get more income and higher capital gains so I'm fine with that.

@Camilo Restrepo

I'm not sure why you'd have sold because of Mexico's tax regulations for Americans because they're not bad. While I'm Canadian and no US tax professional, I know a thing or two about it since I've had Americans invest with me in Mexico (don't just take my word for it and do the necessary checks though).

If you invest in your own name or through a fideicomiso, Mexico will withhold 25% of your gross income, as you indicated, but that will be all you pay. Granted, it's applied to the gross income but, for the typical Mexican STR, the difference between gross and net income is much lower than in the US given the lower expenses in Mexico. Moreover, you can credit what you paid to Mexico against your US taxes so, depending on your US tax rate, what you pay to Mexico might end up making no difference to you because you'd have to pay to the US what Mexico doesn't charge you. Still, if you want to be able to deduct your expenses before paying taxes in Mexico, you can always do so by investing through a Mexican corporation instead of a fideicomiso.

Seen from my side and as I mentioned earlier, the issue would be that the ROI in Cancun specifically is too low, although 9% would be considered great by many people. You can do much better than that elsewhere in Mexico, and, the more you make, the less bothersome taxation is given that your net ROI ends up still being high and I suspect most of the time higher than what you'd get in the US.

Finally and, most importantly, we're only talking income tax here. The property tax in Mexico is almost 0, even for very expensive properties.

So high income, low expenses and reasonable overall taxes. You could do much worse elsewhere IMHO and that might partly explain why so many Americans buy real estate in Mexico these days.

Hi Hannah, I hate to be a party pooper but you won't get any construction loan or any other type of loan in Mexico to finance the construction of a house there.

If you don't have cash, your only options would be to borrow in the US. Since lenders will not lend cross-border, you'll have to provide US collateral, like taking a HELOC if the collateral is real estate, or you'll have to use love money or pay cash.

But maybe it's not that a bad thing if your land has increased in value in case you'd want to sell it you can't get the funding. Indeed, I'm not sure why you'd want to own a short-term rental home in Cancun to start with.

People who land in Cancun (mostly tourists) generally either stay in a hotel / all-inclusive resort there or in the neighbouring Riviera Maya or they stay in a short-term rental in the Riviera Maya. Short-term renters generally don't like to stay in Cancun because there's not much to do there and the beaches are mainly occupied by the resorts, against which it's hard to compete and there are much nicer areas in the Riviera Maya.

Even though I've owned property in the Riviera Maya for many years and have landed in Cancun many times, I've never been to the city and I've never had the desire to go there. I've stayed in Cancun at the Club Med when going there with a group of friends but we never left the resort and I think most visitors (the many I've met at least) are in the same boat. In any case, you can always check the numbers by doing a market study if you haven't done so already.

To conclude, Mexico is a great place to invest but it's important to buy the right property at the right place at the right time and to have a plan in place for the financing, if needed. So, you're doing the right thing checking things out before submitting your construction plans.

Hope this helps

Hi Lisa,

Do you mean out of the ordinary compared to the US or compared to (the rest of Mexico)?

Compared to the US, the financing is different (if you need any), the legal system is different (you need to vet the parties), pre-construction works differently (if that's what you want to buy), the buyer/seller psychology is different, ...

It's important that you get the needed knowledge or work with people who have it and have their interests aligned with yours.

I have replied to hundreds of posts about investing in Mexico over the years so you might find some what you look for there. Otherwise, feel free to send me a direct message.

@Maria Murphy my # 1 idea for this is the Costa del Sol but it's not the only area. Did you have any specific area in mind? 

@Basit Siddiqi

@Joaquin Camarasa

@Bruce Lynn

A few observations/opinions on the topics discussed from a resident of the 51th state of the US (Canada - LOL) and investing in Spain:

1. I think most successful investors would tell you that, while you need to take tax into account in your decisions, you shouldn't make a decision based on that alone. Also, don't forget that, if you pay taxes, it means you're making a profit.

2. Like most countries, Spain will tax you on your worldwide income if you're a resident, as does the US in most countries (so maybe it's not a bad thing that Canada isn't the 51st state - LOL again). Yes, Spain has a wealth tax but it's above €2 million taxable income and the rate is low so it's not going to kill you.

3. Along with Eritrea, the US is the sole country in the world that taxes its citizens on their worldwide income based on residency and citizenship. So, if you're a US citizen and you move to Spain, you'll have to pay taxes in both countries. Thankfully, you'll be able to get deductions based on the bilateral treaty for the avoidance of double taxation but that means that you'll always pay the maximum of the tax rates between the two countries for each category and some items might not be deductible.

4. Yes, Spain is one of the countries in which banks will lend to non-residents (they generally don't) but Spanish banks are much more conservative than US banks so it's more difficult to qualify, especially if you don't earn W2 income. Also, banks normally only lend for holiday homes, not for rental properties but a holiday home can mostly be a short-term rental or become one later.

5. This last bank limitation isn't a bad thing in my opinion because the long-term rental yields are low and what are you going to do if a tenant doesn't pay? Go to court in Spain as a foreign owner? I invest almost exclusively internationally but I would generally never invest in long-term rentals, unless the rentability is very high, which it almost never is.

6. The withholding tax (on gross income) a problem if you:

a) The wealth creation part of that real estate investing is capital appreciation, not cash flow. So, yes, you'll get a lower percentage of the cash flow (which isn't that high anyway for long-term rentals like pretty much anywhere in the world, including the US) but you'll get appreciation and loan amortization.

b) You successfully invest in STRs and make enough money that you don't care that much about the higher taxes.

To conclusion, as a foreigner investing in Spain, with a few exceptions of specialized niches, I focus on areas that have (high) capital appreciation and short-term rental potential.

Hope this helps.

@Ella Volney

Typically, you can only find a lender in the country where the property is located and, if you're not a resident there, it will be more difficult if not impossible, depending on the country.

When it comes to investors, they need to be open to the idea and then you need to have opportunities that fit within their right risk/return profile. Not easy, especially given where you're investing and, if you can't do that, love money might be the solution.

Hi Angelo, I do but Europe is huge and very differentiated you need to understand the current local laws and regulations and appraise the risk of them changing (getting worse). Choosing the right location is the most important, as well as understanding its risk/return profile and decide if you're ok with it. Have a plan B if you're in an area in which ST rentals could get banned.

@Kumar R.

There is undeniably more red tape bureaucracy to deal with in Latin America than in the US. That's an inconvenience but there are many advantages, as you'd have probably figured out. So the question is how to get the advantages without the inconveniences? You let other people deal with the inconveniences. This is another application of the "Who Not How" book. If you couldn't find the right people, it made sense for you to give up indeed.