Anyone with experience in vacation rentals? After searching for a vacation rental for a trip, I relized most of these places are charging at least twice the monthly rent for a furnished house on a weekly rate. This has me looking at coastal property that can cash flow only as vacation rentals. What are the pros and cons?
I’ve looked at numerous properties that were potnetial vacation rentals (mtns and beaches) and always found them to be mega money loosers from a cash flow standpoint for the following reasons:
high operating cost—especially most agencies take 25-40% cut of gross rents; always you always have to have the place in very top condition (lots of repairs, refurishing, etc)
low occupancy over the course of the entire year; high season may only be 16 weeks (at best) and then you hope to fill in from there with whatever people will give you from there.
For the most part, you are banking on making money from strictly appreciation.
The vacation rental I’m considering is in Mexico. Here are the pros:
- Super low property taxes (0.1%)
- High Season is 40 weeks long
- Since it’s a condo, I only need to take care of the interior.
- Furnishing is included with the sale
- Labor costs are low
- With $30k down, monthly payments with taxes are $700/mo, weekly rentals avg. $600 a week (hi season).
With 30 weeks of occupany a year at $600 and a very conservative operting expense of 25% the ROC is 17%.
40 weeks would be 32% :o
Fire away with the CONS…I appreciate it.
Sounds good on the face of it but there may be other concerns to consider. I am an agent in San Diego and have many friends in Mexico (Tijuana - just 15 miles south of here). Those Mexicans who can afford to invest want to purchase property in the U.S. because of the laws here - they are laws that can and will be enforced. They (the Mexicans) do not feel that property laws in Mexico are all that solid. Maybe these are just a few but they do represent the richer people there. I noted this morning that the Mexican federal army and police moved into Tijuana and took all of the weapons away from the Tijuana city police. To me this indicates that the Mexican political problems are not getting better. As an investor I would tend to shy away from that country until such time as they have a more solid political atmosphere and laws that one can rely on. I do have American friends in the Los Cabos area who seem to be Ok with owning property there. I would caution you to remember that you would be an alien landowner and the courts may not always be on your side.
I’m also a realtor in San Diego. I just read the article in the Union about TJ, pretty crazy stuff. The area I’m considering is Los Cabos. Baja Sur seems to have less drug/cartel violence then Norte and border towns. I too have friends in Cabo and it seems safe and there’s a lot of opportunity. I’ll have a better idea after my trip in a couple of weeks.
I still don’t see a NET income number. Your gross is $600. What about placement fee/agency fee? Condo assoc. fee? Cleaning each week?
Your occpancy is too high (IHMO). Are these numbers come from a sales rep or the actual owner of the condo???
You’re telling me that the entire complex will be sold out 32 or even 40 weeks a year??? My point being that let’s say there is 32 weeks of high season and the condo average 75% occupancy over those 32. That means on average, you will be rented out 24 weeks a year.
Also, i heard recently that tourist is off a good bit this year in Mexico in part due to reports of political unrest. Your investment is dependant on foreign (American) dollars flowing into Mexico.
Just playing devil’s advocate here…
Real risky business investing in a foreign country, heck I won’t even go out of state. What’s the problem, nothing worth investing in closer to home?
Hey big sb,
I just answered your question re early out in Mi.
The Mexico property is my dream as well but we are aways away from retirement yet.
We are looking in the next five years to purchase somwhere near Tulum ( East side) A couple years back the feds took over Cancun for a few days. Everyone freaked. Someone somewhere realized that it is not profitable for the feds or the police to do anything to turn off turists. The riots then difused very quickly. I think in places like Cabo, Puerto V. Anywhere south of Cancun…Cancun itself I personally would avoid but if I myself would be purchasing in Mexico if I had the money right now.
Look into land trusts vs. land ownership.
In a trust the government owns your property and leases it out to you for (usually) 30 yrs. at which point you may be able to renew. I believe these trusts are inheritable so your heirs could renew should you expire before your lease. ( I have never heard of this being a problem but I personally would not trust the Mex. Gov. with my intrests.
In ownership, your corporation buys the property, so it must be used for business. Any business. Your business can even lay dormat for a long period of time. (not sure how long).
Technically you can rent your property out one week of the year while you are vacationing elswhere…this is what we plan to do.
Double check all this info because its just what I’ve picked up over the last few years of research. When we are actually ready to buy I will hire a lawyer to better explain to me the pros and cons.
Rich in ct,
Where’s your sense of adventurism? Okay I’m not sure that’s a word. But if one plans to retire in Mex., as many do, what would stop that person from buying first and renting out for awhile ?
I am all for calculated risk to earn a buck but investing outside of the country is well beyond my comfortable level of risk.
Some of the opportunity in Mexico is based on the public opinion that Mexico is not a safe place. As more Americans continue to buy there and reap the financial rewards while enjoying the lifestyle, demand will be on the rise. A lot of the appreciation that’s taking place there is because of:
- Americans realizing that they can buy property in Mexico
- Ability to purchase title insurance from an American Title company
- Financing readily available
The financing is huge. In the past you would have to pay cash or have the seller carry the loan usually at 15-20% interest.