# Buying real estate in Cancun/Playa del Carmen/Tulum area



## Webb48626 (Jun 22, 2021)

I’m interested in doing some real estate investing in the Cancun/Playa del Carmen/Tulum area, but I’m unsure if the expat market is as valuable or popping as a lot of these real estate websites makes it seem in terms of what the potential return on investment would be? Is there a specific area in the Cancun/Playa del Carmen/Tulum region that one should be considering or is anywhere in the area good?


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## LoggedIn (Nov 21, 2017)

Webb48626 said:


> I’m interested in doing some real estate investing in the Cancun/Playa del Carmen/Tulum area, but I’m unsure if the expat market is as valuable or popping as a lot of these real estate websites makes it seem in terms of what the potential return on investment would be? Is there a specific area in the Cancun/Playa del Carmen/Tulum region that one should be considering or is anywhere in the area good?


Are you talking about the potential income stream from expat rents? Or the overall sale values (projected) which can be determined by net profits (capitalizing/discounting it)?

Regardless, the Tulum area is significantly different from the Cancun/Playa in terms of overall vacationer traffic.


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## eastwind (Jun 18, 2016)

I wouldn't recommend it unless you live here and speak spanish and can manage the apartment yourself.

Real estate is taxed differently here than in the US. The yearly rates are lower, but there is a 39% capital gains tax on gains when you sell. If you live in the place yourself that's possible to avoid, but for investment properties its not.

Now consider the effect of inflation - which was running 6% a year in Mexico before covid and hasn't slowed down. Your price in pesos will go up 6%+ a year just because of that - that's the appreciation the realtors highlight - but you'll pay 39% of that 6% in taxes. And in dollar terms the inflation makes the peso get constantly weaker vs the dollar, so in dollar terms you aren't getting that 6% sales price inflation, but you're still paying the 39% tax. So you can sell for more pesos and end up losing dollars.

Also games are played with reporting real estate sales, because the yearly taxes are calculated on the sales value. Sellers pressure buyers to report a lower sales price than the actual (with an under-the-table payment for the difference). Buyers sometimes are willing to do that because it lowers their yearly property tax - but then when they sell they have to either pay a big capital gains step-up in value or persuade their buyer to do another under-the-table mis-reported type deal. 

On high-end property in this area there has been a lot of price appreciation, and so a lot of the properties you look at will have this problem of misreported price history. If you don't want to get stuck with someone else's capital gains liability you'll have trouble making a deal. I was lucky that I found someone selling who had lived in the place as his primary residence, so he had the tax deduction and could use it to cover the taxes, so we reported the correct sales price - and my annual property taxes are about 3x vs what he'd been paying.

But even if the financials make sense on paper, I'd still not advise a remote-control rental in Mexico.

The apartment manager that ran the apartment I rented for the owner was a bit crooked. I suspect that's common. She was taking 10% of the rent plus whatever extras that she could get away with, some of which I only suspect. I didn't need the parking space that came with the apartment, she asked if she could use it, so I said sure (she was only going to use it when visiting the building). Later on it seems it got rented to someone full time, without the owner knowing about that side deal.

She always had the same guys doing repairs. Whether that was because they were the ones she had on her contacts or because she was getting kickbacks I don't know. But they weren't always very competent, and the same things would get repaired multiple times. When it came time to move out, she was going to keep the security deposit (2 months rent), telling the owner she'd given it back to me and telling me the owner refused to give it back. She tried to prevent direct communication between me and the owner, but I got around her via a lawyer.

I have heard stories about apartment mangers of short-term rentals that rented the apartment for a few more weeks a year than they reported to the owner, keeping the extra rents.

In general repairs here are needed more frequently than in the US. I lived in that old apartment 4 years and it seems there was always something going wrong. The living room ceiling fell in twice due to condensation. The first time the manager got insurance to pay for it, without telling the owners anything. But the repairs didn't fix the problem, they just replaced the falling drywall, so in two years it happened again, and the manager was going to do the same thing again, this time charging the owners and giving the work to the same guy as before. Then when it happened in another 2 years I'm sure she would have claimed insurance again, back and forth, every 2 years without ever fixing the problem.

One day I'm sitting in my living room and heard a huge crack sound. One of the plate glass windows (4'x8' panel) suddenly had a hole in it the size of a dime. I never did figure out whether it was a meteor or bullet or just the sun on the bottom half of the glass but not the top. The blind was pulled and there was no hole in it. Never found any projectile. 

It's just my feeling, but it seems to me here stuff falls apart faster than the US, partly because of not being done right in the first place, partly because of poor maintenance, and maybe partly because of being on the ocean vs inland.


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## AlanMexicali (Jun 1, 2011)

Capital gains in Mexico on property is 32 to 35 percent, not 39 for commercial rentals. We just checked with our accountant. No way to avoid it. They take the sale price minus the buy price minus "facturas" for maintenance which we do not have as we paid cash over the years and you will pay capital gains on that amount. Not worth selling a 30 year old duplex to buy a new house to rent to avoid more maintenance in the future. Alan


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## eastwind (Jun 18, 2016)

And facturas are hard to get, and may cost you. I did a big renovation of my apartment after buying it, and the contractor added 16% for sales tax, but then didn't provide a factura after the work was complete. I had to go to a lawyer to get him to do it, and then he started coughing up individual facturas for each payment I'd made, with long delays in between, because what he had to do was earn new income from other new clients to get money to use to pay the taxes that he hadn't paid before on my reno, so he could get a factura to give me. In other words, he was keeping that 16% he added for sales tax and not reporting the income, which was why he didn't give me the factura I had in effect paid for by paying the 16%. 

I've gotten 6 out of 8 facturas now, and the remaining two are for 10 and 15k pesos, and I may not get those at all, but they're the smallest payments of the 8, so he may just drag his heels enough to get me to give up on those.

And I have no guarantee that the facturas I've nagged so hard to get will actually be of use when I sell, since they're kind of generic and post-dated. 

Because of the high cost of selling properties, many more landlords in Mexico (vs the US) are willing to let their properties sit idle hoping for a renter to come along. Also in Mexico financing is much harder to get, and more expensive, so I think there's a low percentage of properties that are mortgaged, again making it easy for landlords to just accept no return on their investment for a long time until a renter comes along. The advantage seems to be stickier published asking rents, but then if you show a real interest many landlords will negotiate the rent down to capture the renter.

Finally, another barrier to landlords: Mexican law has renter-protection provisions. One provision caps the annual rent increase for continuing tenants, while another gives tenants the right to renew leases. You can write waivers to these renter-rights into your lease contract, but then you have to get the renter to agree to those terms. I get the impression a lot of places are leased without a formal lease agreement, under the standard terms provided by law.

When I rented, I wanted a lease agreement. The landlord made me pay for the lawyer to draw it up! And the lawyer said that for a notario to register the contract would cost (me) a month's rent on top of their fee for writing the contract - so I had a contract that I don't think was ever actually registered, but in the end that didn't matter.

The apartment I rented was in a building that didn't allow short-term leases - minimum was 3 months, and I was leasing for a year. That had the effect of depressing rental prices, I was paying for a month what nearby airBnB places were charging for a week. (except the AirBnB's are probably vacant 3 weeks out of 4 on average).

Oh yeah, one final trick my apartment manager played on the owner: Although I lived in the unit for 4 years and renewed the lease 3 times, each year she told the owner she'd found a _new _tenant and charged them a finder's fee for it. I don't believe the owners were making a reasonable return on their investment while I lived there - which was partly why I kept renting way past what I'd originally intended.

Finally I got tired of dealing with the crooked apartment manger and wanted to have my own place that I could control, and another better/bigger unit in the same building came on the market for what I thought was a good price (the seller was under time pressure to sell). I hope I can live here the rest of my life and don't have to to through the sales process.


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## Adi11aQ (8 mo ago)

Thanks for an extended reply, Eastwind. I was looking for this answer on the Internet the whole day today.


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## iskanderpizza (5 mo ago)

It looks like it’s not the best place to invest your money. But what about the Philippines? Is the legislation better there, and is the ex-pat investing easier in this country?


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## eastwind (Jun 18, 2016)

try the appropriate forum for your question. But no.


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## iskanderpizza (5 mo ago)

eastwind said:


> try the appropriate forum for your question. But no.


I just got an offer about a townhouse for sale Philippines, and the price is really good. I thought about buying it and renting the place out to two families. The house looks really nice, and I think I would be able to ask for a good price for the rental. And it looks like a great opportunity to get some passive income every month. 
What do you think about that? Is it relevant now?


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## eastwind (Jun 18, 2016)

Last I heard, the laws in the Phillippines prevented foreigners from owning property 100%. If you haven't seen the property, it's probably a scam, but it's your money, for now.


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