What you need to know before buying investment property in Puerto Vallarta.
Updated: Jun 12, 2019
Photo: Suite 501 of CondoCR1275
Puerto Vallarta, Mexico – There are a number of reasons why people purchase homes in this little corner of the world. Some purchase with the idea of living (often a relocation) in the Bay of Banderas (be that Mismaloya, Puerto Vallarta, Nuevo Vallarta, Bucerias, La Cruz de Huanacaxtle, or Punta de Mita, etc.)
Others purchase for the purpose of investing in real estate – with an eye toward a resale at a higher value a few years from now. Still, others purchase with the idea of renting out their home either 100% or a solid portion of the year.
Owning a rental in a vacation city such as Puerto Vallarta is a bit different from owning a rental in a city such as Chicago.
While some rentals in the Puerto Vallarta area are long-term, with the advent of Airbnb and Booking.com most people rent on a much shorter term (and higher $/day) basis; most are daily or weekly rentals, with a heavy concentration (with higher rates) over the peak months (October – May). With renters being such a diverse group, we typically see separate monthly/weekly/daily rates and even longer term half year and yearly rates. There are numerous local management companies available to help ensure that tenants are checked in/checked out, and that any issues are addressed during their stay.
If you are thinking about buying or selling an investment property in Puerto Vallarta or the Banderas Bay area, contact me for more detailed information.
Many investors are concerned about the return on investment. In calculating the return, consider the following:
• Revenue – Expenses • Annual expected appreciation of my real estate • Value of owning/using a rental home (if you are planning to do so)
That second item (annual expected appreciation) should not be left out of your calculations. After all, it’s great to have a property that’s cash-positive… but factoring in an increase (or decrease if our market was falling – it’s not…) in the value of the property over a period of time can make a difference in the calculation. It’s often an overlooked positive.
Revenue is easy to calculate, but not always quite as easy to predict. One can assume an average price per night (with a lower price during the summer months – PV does have tourists during those months, just fewer than during the high season although this year summer occupancy rates were in the 80% range), multiplied by the number of nights and a percentage of occupancy. Discount that by whatever management fee you’re paying a company to manage your rental (if you are) – say, 10%, for example.
With that said, PV tourism has increased substantially year over year. PVR airport has had an increase in the number of flights, a significant increase in the number of cruise ships (often an individual’s first exposure to our beautiful area). Later this year cruise lines will start using PV as the origination point for cruises, this is a first! A new highway from Guadalajara has dramatically cut the transit time (leading to more tourists).
As anywhere, some areas rent better (particularly short-term) than others, many older areas are undergoing a huge renaissance, and there is a plethora of new construction in previously uninhabited areas. It is critically important to have a real estate team that lives here, knows the recent construction trends and can advise on which areas rent best. Also, note that past rental revenue may not be an accurate predictor of future rental revenue for a variety of reasons. Some owners market their properties much better than others, some focus on daily/weekly vs. annual rentals (daily/weekly generally yields a higher charge per day), some owners stay in their units a portion of the busiest season for rentals (meaning there would be no income for those weeks), some don’t price their rentals competitively, etc. With regards to expenses, there are a number of items to consider, including:
• Maid service
• Annual taxes
• HOA fees
• Any applicable taxes associated with rental income (very low in Mexico)
Maintenance of a short-term rental does have some associated costs (fixing small items that may be damaged, replacing light bulbs, etc.), painting, etc., but isn’t generally the largest line item. Keep in mind that labor rates here are MUCH lower than those in the US and Canada.
Annual taxes in the area are amazingly low. If a condo costs $300,000 USD, you can expect that your annual taxes will be somewhere around $300 USD range PER YEAR. I bet you only wish that your investments in the US had such low taxes – what a difference that would make! Again, another great reason to look at investing here.
Maid service isn’t generally very expensive – perhaps as much as $20/day for a typical condo. If you just have maid service in between arrivals (or once a week), that number remains rather low. Most rental agencies can help you obtain maid service, or provide it as needed.
HOA fees can be a significant number, depending on the building. Those HOA fees often (but don’t always) include water, gas, building administration, security, etc. They often do NOT include electricity. Water and gas bills here in Puerto Vallarta are generally not overly significant expenses. Electricity can be (especially during the warmer summer months) – IF your tenants are utilizing air conditioning frequently. Be sure to know what’s covered, and make some assumptions for those that are not (note that your assumptions will be seasonal – higher electricity during the summer). Another bill to consider is for cable and internet (or phone and internet – they generally come as a package deal). Compared to many US cities this is an incredible deal! You can get cable and high-speed internet for about $35 USD per month.
That covers some of the basics of calculating revenue minus expenses, as well as a nod toward the inclusion of including the assumed annual increase in the value of your investment. There’s another point that really should be considered (and is often overlooked), though – the value of having a vacation home.
The value of having a vacation home? Yes. Now, this is entirely subjective, but something that really should be considered (and indeed should be a factor behind your purchase). Knowing that you have a vacation home to go to has a very real (and challenging to calculate) value.
It’s that escape that you can look forward to while working long hours in your home city. It’s that knowledge that you have a “home” to go to whenever you’d like. It’s the thought that all it costs is a plane ticket (not a hotel) to travel back to your other home. It’s the ability to have a place to offer loved ones (if you so desire) a place to vacation.
It’s something to look forward to on a regular basis as the long winter months seem to drag on (or even those other times of the year when you simply want a wonderful change of scenery). These days the trend is to not work out of an office and more folks are becoming “digital nomads”. If you could do your job from your own home in Mexico for a month or more, well that’s kind of an attractive option! There is comfort in that. That has a value!
It’s a great time to buy in the Bay of Banderas area. Our team has a large number of listings for you to chose from and we are working with one developer, in particular, that is focused on sustainable development. They carefully select existing buildings in the historic sections of Puerto Vallarta for prime location, structural integrity, and adaptability to modern design, and then perform comprehensive renovation using the best materials and design, to create an affordable, sustainable, modern residences. Sustainability efforts include the use of traditional materials and styling choices, use of the latest most energy efficient appliances throughout, including all led lighting and inverter air conditioners. Click here for more information.
If you are thinking about buying or selling an investment property in Puerto Vallarta or the Banderas Bay area, contact me or my Real Estate associate Ryan Donner firstname.lastname@example.org for detailed information.