Investment Strategy for Retirement in Mexico
We get a lot of people emailing us and asking about investing in Playa Del Carmen and many people think about buying something now and retiring in a few years to Playa. While everyone’s situation is different, there is some general advice we give to all people. We wanted to convey some of this information in this article and insert some facts and opinions that might help you make a wise investment for your future.
To buy real estate or not, that is the question!
The first thing that usually comes to mind is, can you really plan that far in the future? What will Playa Del Carmen be like in 5 years or even 10 years? If you think back on how much Playa has changed in the past few years, it would of been hard to predict what Playa was to look like. Some have even decided that Playa has gotten too big or lost it’s small town charm in the past few years (For an interesting look at our predictions of what Playa Del Carmen will look like and how it will change, see our article here). Will Playa be the location you want to live in the future? Will current and future changes make it more or less attractive to you? These are things you will have to ask yourself.
Is a place that you buy now going to appreciate? Will you be able to make money off it to make it a wise investment? Is it better to buy now rather than in a few years? A historical look over the past few years or even more, shows that people have generally done well with there investments and real estate continues to appreciate here. Rental demand is driving the markets currently. If you do intend on living in the property later it should be a question of where to buy, we discuss this next.
Where to invest in Playa Del Carmen
Are you thinking about a house, condo, or a beachfront place? All of these have advantages and disadvantages but the main question is, is this a place to own now and then live in the same property when you move to Playa? Since many people answer yes to this question we do have some advice for you.
If you want to purchase something now and then move into it later, the location is important for you. Having a rental property is one thing and actually living in a rental property is another. Many primetime rental areas are not where many residents would actually choose to live. It may seem attractive at first but the realities of life are something to consider when making such a decision. Here are a few things to consider when thinking about the investment property for living in later.
- Is it near to services like grocery stores?
- Will you have a car when living here? How is parking and if you will not have a car, how walkable is it from things?
- Is the condo building mostly rentals and do you think it will continue to be rentals in the future? This can effect your quality of life because many people prefer to live in a building with other residents. Some condo buildings that are rentals often have people that are here to party for a week and you would end up having loud music next door or have other issues that the actually owners may not address for you because they are more concerned about making the money off the rental. It also gives you more a sense of community to live in a place with other residents that you can establish a relationship with rather than strangers you see each week.
- What is the size of the building? Condos range from about 20 units to 80 units. Smaller buildings lend themselves to more private rooftops and less residents to deal with. Larger buildings tend to have more rental units but may also provide more services and have lower operating cost.
- Do you really want an ocean view? Many people love the idea of living oceanfront but the realities are the cost of the places are much higher and the return on investment lends it to just being a rental in the future. You may look at nice new condos and think about the view more than the destructive salt air and the many monthly repairs you have to do. Many residents like to live in the center of Playa but only a few live oceanfront. It many be that you can invest in a property that is with an ocean view and rent it out for a couple of years to make a good dent in paying it off or banking some money to replenish your bank account. The good news is that Playa is allowed to build a little taller now and some building a few blocks from the beach have amazing views.
- Will the property fit your needs in a few years? Are you looking at a one bedroom now but might want a two bedroom for family to come visit in the future? Is there an elevator or will you be able to manage living in the property with limited mobility in the advent of such?
- How is the overall cost? Will it be affordable after you stop renting it out and start living in it? Are maintenance cost high? Is the electric costly? Electric can cost a lot depending on the condo or house and how it is designed and located. Also if the property is 100% electric and no gas is used for cooking or heating water it will cost more in electric. Most people have renters pay this, but will it come as a shock to your budget to start paying hundreds of dollars in electricity when you move in?
- What will the neighborhood look like in the future? This is a hard question to answer but in general you are pretty safe being in the center of Playa because it is all improving and developing. You just might want to think about your view and will you loose it to a new building. If you are thinking about a fraccionamiento (a planned development of houses or townhomes, usually on the other side of the highway) it is good to see how some of the areas have changes since being built. Some of these look nice when new but often go downhill as people open storefronts in their houses and the paint fades. Some however improve with trees growing larger and people adding additions to their homes making it feel more like a neighborhood.
Playing the currency game in Mexico
Paper money is constantly changing in value and whether you like it or not you can loose or gain thousands in just a few days. The world is increasingly tied together financially and what happens in one country effects your bank account. Since you will be buying in Mexico the peso and US dollar are going to come into play. We mention the US dollar because most real estate is priced in US dollars in the center of Playa. This has been a custom because many international buyers use dollars and it is traditional in certain cities in Mexico to price in dollars due to fluctuations in the peso.
Since the US dollar has been strong against the peso some think about investing now but this is limited in advantage since many prices have always been in USD. There is some negotiating power but developers and sellers take the advantage in this, especially developers.
Where you can benefit from a lower pesos is more local areas out of the center. There are some houses in developments that are targeted to Mexican nationals where the prices have changed due to the floatation of the US dollar and peso. Here you can save upwards of $20,000 USD off the price of a house from just the previous year. This may sound like a good opportunity but it also has to be the option you are looking for. Are you looking for a townhome, or stand alone house? Are you willing to rent more long term to locals? Is this what you are looking for as far as a place to retire to? These too are important things to consider.
Poor Canadians that are looking to invest
Canadians on the other hand have had to deal with a lower Canadian dollar. They have experienced the same loss of buying power as Mexicans outside of their country. So the best bet might be to buy locally in Mexico (meaning look for property priced in pesos). Unfortunately buying in Mexico when prices are based in USD is hard and it becomes a bet against the bank. Should you wait to see if the Canadian dollar goes back up and that means you have better buying power or should you go ahead and buy now so you are not possibly paying more for the same condo in six months or a year from now? This is where passion comes into it, the other part of buying real estate. Buying can be part logical, financial, and part passion. Do you love a place here? Do you want to start on your dream or hold off for a better deal? It can be hard to make those decisions.
We will note that real estate prices have been stable and rising. Where is the top of the market? and when will it get saturated? We do not know, but it appears that we are not there and there is an appetite to buy up what is on the market. As we have said previously, the rental demand is driving the market and it seems like people just keep moving to Playa, both nationals and internationals.
Since most sales are cash sales it means you would have the money to invest in a property here. Interest rates are very low so you can consider your money is not making much in the bank. You also have to consider the alternatives for your investments. You can compare that to rental income here and see what may make the most sense for you. We will mention that most new condo developments say or suggest that return on investment can be anywhere from 5%-13%. It is up to you to examine this and count cost such as taxes and fees. It would also be advisable to talk to other owners to see what they are actually making. Of course some of these new developments are pre-sale and there is no historical standards to go by.
Rental income from an investment
Rent is another factor in the currency game. If you are buying a place for an investment and are planning on renting it out, who is your target market? Are you buying in the center of Playa Del Carmen and hope to do short term rentals? Then pricing your rental in US dollars now is a good thing.
If you are buying on the other side of the highway you might find it hard to rent to tourist and have to rent in pesos to expats or locals. If you are bringing the rental income (in pesos) into your home country then it might not seem as much since the peso is at historical lows. On the other hand you have to consider the fact that more rentals that are priced in pesos usually means that it is more likely a longer term renter and more stable income. You do not have to worry as much for management cost and the low season when there are less tourist renting.
Calculating the return on your investment is key and understanding the market is important. We will say that it is getting increasingly hard to get affordable longer term rentals in the center of Playa because more are becoming short term rentals. Airbnb has turned owners into entrepreneurs and makes it easier for people to rent their places out for short and long terms. We also hear from many people looking for rentals and demand is keeping up with or surpassing the supply. That means good things for property owners.
Get a good realtor
Not all realtors are the same. Some can be nice and you like them personally but they are not detailed on how to set up your investment as a rental and the additional questions you have before, during, and after a sale. Some are much more helpful and have good customer care. They should know the local market well and be able to give you examples of what rental income is like and give you hard information that you can make a sound investment on.
If you have questions about a certain building or would like for us to investigate and write a story on it, you can contact us under the About tab at the top or here in our Contact form. We are do not sell real estate but if you would like suggestions on who might be best for your needs, feel free to contact us for that as well. We try to answer all questions and help our readers make good decisions.
We hope this article has helped you with some of the questions to ask yourself and it helps you move to an investment decision.
If you enjoyed reading this article then you might also like to read our article on “Where is the Real Estate Market Now?” It talks about what areas are hot and possible predictions.