Puerto Vallarta Real Estate Investment Market Overview & Case Study

As many of you know, I recently invested in real estate in Playa del Carmen. I’m currently busy with remodeling works.

I am bullish Mexico. Reshoring of China-based manufacturing back to North America will be massive for Mexico, and I expect the surge in North Americans moving down South to continue.

Before allocating more funds to Playa del Carmen or Tulum, I absolutely had to check out Puerto Vallarta, Mexico’s top Pacific Coast destination.

I spent two weeks there, rented a car and drove all around, to see if there are any interesting investment opportunities. Below is a case study I prepared with Paul my realtor there, to give investors a realistic idea of what a typical investment in Puerto Vallarta looks like.

Am I investing there?

No. Though there were some compelling investments north of Puerto Vallarta in some small villages, I did not find them compelling enough to justify scattering my investments across two regions in Mexico. It’s more efficient for me to focus on the Riviera Maya.

Overall, I see Puerto Vallarta as more suitable for people who want to spend time there to enjoy the lifestyle, rather than as a pure play investment. This video will make it clear why.

Also, I wrote a full analysis of the real estate investment market in Puerto Vallarta, including a detailed analysis of all the neighbouhoods and villages around.

To a World of Opportunities,

The Wandering Investor.

If you want to read more such articles on other real estate markets in the world, go to the bottom of my International Real Estate Services page.

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Available services in Mexico:

• How to Obtain Residency in Mexico
• My Real Estate Buyer’s Agent in Tulum and Playa del Carmen
• Give Birth in Mexico for Citizenship
• My Favourite Realtor in Puerto Vallarta, Mexico

Articles on Mexico:

• 6 reasons against a Real Estate Investment in Cancun
• Full Guide to Investing in Tulum Real Estate
• Making a Real Estate investment in Playa del Carmen – decent diversification in Mexico
• Investing in Multifamily Housing in Playa del Carmen
• Full Guide to Making a Real Estate Investment in Puerto Vallarta
• What is a Lock Off Condo & Crazy Architecture in Tulum, Mexico
• Is a house in Puerto Vallarta a good investment? Case study with capitalization rates
• We bought a house in Playa del Carmen, Mexico!

Transcript of “Puerto Vallarta Real Estate Investment Market Overview & Case Study”

LADISLAS MAURICE: Hello, Ladislas Maurice from thewanderinginvestor.com. So today, I’m in beautiful Puerto Vallarta on the Pacific Coast of Mexico. And we’re going to go have a look at an investment property. So two-bedroom, two-bathroom apartment in the Zona Romantica of Puerto Vallarta. And with Paul, my agent here, we’re going to do all of the capitalization rate numbers, all the return on investment numbers in terms of how much rental income we can expect, both from a long-term rental point of view and a short-term rental point of view, and then all the costs, etc., etc. to get to net figures.

This is the building, new construction. All right, so we’re going to go have a look at the apartment. But first, we’re going to go check out the rooftop. Cool. Paul, how are you?

PAUL: Good. How are you?

LADISLAS MAURICE: Yeah, fantastic. Cool. So Paul is from New Zealand. And you’ve been here in Puerto Vallarta for how long?

PAUL: Three, three and a half years.

View of rooftop

LADISLAS MAURICE: Okay, great. So why Puerto Vallarta? Why not other parts of Mexico?

PAUL: There was here or Cancun that I could have gone to. And I like the weather here. It’s more consistent in the winter. And yeah, it’s just where I ended up.

LADISLAS MAURICE: Cool. All right, fantastic. So this building was finished in?

PAUL: December last year. So it’s six months.

LADISLAS MAURICE: Okay.

PAUL: Five, six months old.

LADISLAS MAURICE: So brand new building.

PAUL: Yeah.

LADISLAS MAURICE: This is the rooftop. So the reason we’re having a look at the rooftop is because when you’re making an investment here to put on Airbnb, or even a long-term rental, people just want a nice rooftop with a swimming pool, with views, with all of that. So this just gives you an idea of the views. So the mountains. This is what Puerto Vallarta has which Cancun does not, mountains, the ocean down there. For now, there is a view. I don’t know how long that’s going to last, because there’s a fair amount of construction. And there is a nice little swimming pool right here. So essentially, when you have an Airbnb listing, or even a listing for the long-term rental market, this is like the main picture, the pool, the chairs. This is what sells your unit. So very important.

Why invest in Mexico?

LADISLAS MAURICE: Right. So why am I here in Puerto Vallarta? As some of you know, I recently made an investment in Playa del Carmen, because I am bullish Mexico, certain areas of Mexico in terms of population growth and in terms of investment. So what we’re seeing is literally millions of Westerners, so Europeans and North Americans, who can now work remotely, and they’re choosing to not stay back home, and to rather be somewhere a bit more affordable, and enjoy the beach, the food, and just relax. So that’s one.

Two, we’re seeing a lot of people who are fleeing the West because of inflation. They can come to a place like Mexico, which is more affordable. It’s not cheap, to be clear, but it’s certainly more affordable. And they come down here and they try to have a better lifestyle, or even a better retirement, a lot of retired people are moving here. And then you have people who are just leaving because they’re sick of politics back home for whatever reason, people from the left, people from the right, they’re just happy to be in Mexico, minding their own business and not having to deal with the toxicity back home. So this is a huge driver for population growth in these main areas where tourists typically go.

So here we are. We’ll just go through the unit really quickly. Again, this is not a real estate channel where we just do viewings. What we want to do is the numbers. Paul, how much would such a unit be on the open market right now roughly?

PAUL: For sale, would be around the 480,000 US.

LADISLAS MAURICE: Okay, $480,000. I mean the view is up to here is pretty ugly, up there is nicer with the traditional houses from Puerto Vallarta. But this view is not a winner. Cool. All right, walk-in closets. So two-bed, two-bathroom. Bathroom here and a second bedroom. How many square feet?

PAUL: Around 1,200.

LADISLAS MAURICE: Twelve hundred, so that is about $400 per square foot. So what you see now is a destination like Playa del Carmen has a lot of, essentially, yearlong people that are living there full-time. Before it was just a place for tourism and now you have people living there full-time all year long. What I was doing is I was looking at other parts of Mexico where there is similar dynamics. This is why I’m here in Puerto Vallarta, because there are a lot of people moving down here as well, especially from North America, less from Europe, a lot more from North America. And I wanted to check out the place for myself to see if there are any interesting investment opportunities.

So it’s not just people moving here that’s attractive, but also the Mexican economy as a whole. To be fair, the Mexican economy was a story of stagnation for the past 20 years, in spite of having a free trade agreement with the US, it just stagnated and didn’t do great, which is quite pathetic, to be honest. But what is now happening is, because of all the rising tensions with China, a lot of Western companies, American companies have to decouple away from China, or at least do some risk management and reduce their exposure to China. So sure, a lot of them are going to India, to Vietnam, etc., but many of them are coming to Mexico.

So there is a huge boom in foreign direct investment into northern Mexico because of the supply chains being reworked around the world. And a lot of this money is going to trickle into beachfront property, etc., along Mexico, as there’s going to be a growing middle class here in the country. So the whole thesis is that I’m bullish people moving here and, two, I’m bullish the Mexican economy as a whole, mostly because of reshoring, which is going to be huge.

Risks of investing in Mexico

LADISLAS MAURICE: Look, there are also some risks, obviously, in Mexico. Corruption is always an issue. For now, it’s fine. You can live here, you can do whatever, everything’s good. But if it were to increase, or reach really unpalatable levels, it would be a negative, but it really hasn’t. Another risk is always political mismanagement. We saw it with mining. Recently, the government was talking about nationalizing mines, they made it harder for exploration companies to do their work, etc., which is definitely not a positive for the country in terms of exports, and jobs, and tax revenue.

And then, also, the risk of the currency. So the peso has really been strengthening, which, as a foreign investor, is not great. I would have preferred a weak peso when I’m investing here, but my hands are tied. So that’s a risk. And then here, on this coast, on the Pacific Coast, I mean, it’s beautiful, look at this, stunning, the risk of tsunamis, and earthquakes, and all that, I mean, any American on the West Coast understands the risk. It’s pretty much the same here. So this is, obviously, something that people need to take into account. I know some people who decided to invest up in the hills. So behind, in case of this, rather than beachfront property. That’s up to you.

Who is investing in Puerto Vallarta real estate?

LADISLAS MAURICE: Paul, before we dig into the numbers, what’s the market like in Puerto Vallarta these days? Who’s coming here?

PAUL: Okay. I would say that the market’s very good. Over the last two years, we’ve had what would be very hot market. I think things have quieted down to maybe in the direction of a normal market. A year and a half ago, quality property that would come on the market up in the hills here, in this neighborhood would be on the MLS for maybe two hours before it sold. Now, that same property would sit on the market for maybe five, six, seven, eight days. The people that are coming here are– PV was always a retirement destination. Now you’ve got the retirees, you’ve got the digital nomads, you’ve got the anti-vaxxer type people, and you’ve got a wealthy Mexican as well. So people from Guadalajara, which is five hours away, soon to become even shorter with a new highway, they’re coming to get a second home, or a vacation home, or a rental.

So those are the people that are coming, a lot of Americans, a lot of Canadians. I would say, since I’ve been living here, I’m even hearing more European accents on the streets. I’ve had an Australian client, an English client, and I’m seeing that more and more now. But I would say the bulk of buyers that I’m dealing with would be Americans, Canadians, and then there’s also a lot of Mexicans buying here.

LADISLAS MAURICE: Cool, fantastic. And I think what you’re saying is interesting. So it’s mostly a North American market, really, so Mexicans, Americans, Canadians, whilst Cancun and the Riviera Maya is all of those people, and Europeans, and Latinos from other Latin American countries. But here, it’s really tilted towards North America, really.

PAUL: And because of the access, you know, you can be in LA in three hours.

LADISLAS MAURICE: And this is huge.

PAUL: And people, a lot of my clients in the last couple of years who used to go to Hawaii have now sold in Hawaii and they’re coming here.

LADISLAS MAURICE: Really?

PAUL: Yeah. Hawaii has got more expensive, it’s a lot longer to fly there. And you can get more for your money down here. So I’ve noticed that as well.

LADISLAS MAURICE: Like, surfer types?

PAUL: No, no, just middle-aged Americans.

LADISLAS MAURICE: Okay.

PAUL: Yeah.

Puerto Vallarta airport expansion

LADISLAS MAURICE: Interesting. And the airport is undergoing a big revamp as well, right?

PAUL: It is to deal with the growth, the boom, yeah.

LADISLAS MAURICE: Cool. So they’re adding another terminal?

PAUL: Yeah.

LADISLAS MAURICE: Okay. So right now you have flights to pretty much everywhere in North America, the US, Canada?

PAUL: Yeah. And it’s seasonal. There’s certain destinations that they’ll only fly directly there in high season. And that sort of changes around April, May. But it’s pretty well-connected. We are well-connected to US and Canada. There’s even the odd flight, in high season, to Manchester and London.

LADISLAS MAURICE: Really?

PAUL: Yeah.

LADISLAS MAURICE: Interesting. Cool. So yeah, again, very different from Cancun Airport, which is a lot bigger and is connected to the rest of the world. Even like Cancun Airport is more connected to Europe than Mexico City itself. So Puerto Vallarta is more regional/continental in this respect. But yeah, the airport is booming as well. They’re revamping it. Cool. 

New highway between Puerto Vallarta and Guadalajara

LADISLAS MAURICE: And another big catalyst is the new highway, right? Can you tell us a bit more about the new highway that’s being built?

PAUL: Yeah. So they’ve been working on it for about seven years.

LADISLAS MAURICE: [laughs]

PAUL: It’s a highway from Puerto Vallarta to Guadalajara. Guadalajara is the closest bigger city here. It’s one of the biggest cities in Mexico, about five-and-a-half million people. And to travel there now was around five-and-a-half hours. They haven’t finished the highway yet, but when it’s fully finished, the expectation is that it’s going to be around three hours to travel.

LADISLAS MAURICE: Cool. So this is huge. So hopefully, that won’t be in another seven years.

PAUL: Yeah. [laughs]

LADISLAS MAURICE: But I took parts of the highway, actually, on the way to Violeta, so nice highway, brand new. No speed traps, so it was a fun drive.

PAUL: Yeah. It’s impressive, what I’ve seen of it, it looks good.

LADISLAS MAURICE: Yeah, yeah, it’s really good. So essentially, Puerto Vallarta is moving away from just being a holiday destination to potentially, as well, not just a holiday destination, but a weekend destination for Guadalajara, of 5.5 million people, one of the biggest cities in Mexico. Because yeah, five-and-a-half hours and three hours, it’s a big difference. It means that, on Friday afternoon, you can be here in your apartment in Puerto Vallarta driving from Guadalajara. Before that was a bit more complicated, it was more of a commitment. Flying potentially made more sense. But now it will be a quick drive away. So this is a big catalyst.

The new highway, the new airport, there’s infrastructure development that is happening, as well as all of these people moving from the US and from Canada, not just retirees, but digital nomads, people who don’t like the politics back home, etc. Many people are moving here, and the infrastructure is following up as well. This is good.

Now, in terms of the actual numbers, you mentioned $480,000 for such an apartment. That’s about $400 per square foot. I mean, let’s be honest with ourselves, it’s not cheap. It’s far from cheap. Prices have risen quite a bit in the past two years or so. Correct?

PAUL: Yeah.

LADISLAS MAURICE: By how much, roughly?

PAUL: 30%, 35%.

Puerto Vallarta real estate is a cash market

LADISLAS MAURICE: 30%, 35%. Generally, I’d be quite worried about a market like this. But when you look at the actual who’s buying and how they’re buying, it’s a cash market. Pretty much everyone buying here can just afford to buy. There aren’t all these people speculating on real estate here. They’re buying because they want to spend time in Puerto Vallarta. You don’t have too many people that are coming here to just buy to rent out, right?

PAUL: No, I don’t see that myself as much. There’s always a love of Puerto Vallarta for them, for the buyers, I think.

LADISLAS MAURICE: So it’s people who love the place, who generally are quite wealthy because at these prices, almost half a million dollars for a two-bedroom, it’s not cheap, and who are paying, essentially, in cash without the use of mortgages. Because trying to get a mortgage in Mexico for nonresidents is, one, very complicated. It’s not impossible, but it’s very complicated. And when it is possible, it’s very expensive and, objectively, it’s absolutely not worth it.

PAUL: It’s not fun for the buyer.

LADISLAS MAURICE: Yeah, yeah.

PAUL: It’s not a fun experience.

LADISLAS MAURICE: You don’t want to deal with this. So it’s a cash market. What does this mean? It means that upside potential is probably quite limited and that there’s no leverage just propping up the market here. But also, there’s probably less downside in this market, because people buy here because they love it. They’re not looking to speculate, to get in, to get out. So even if there were a crash of the housing market in North America, I doubt that the repercussions here would be massive.

And this is something that a lot of North American expats fail to understand when they invest in places such as Mexico, such as Panama, when they see their own home markets crashing, they just think that it’s going to impact the market here. But often, it doesn’t. Maybe it stops the growth. It doesn’t really lead to price decreases, because, again, there’s no leverage, no one has to sell, apart from the odd person that gets a divorce, or dies, or wants to move somewhere else, etc. But because there isn’t that element of leverage, there’s a lot less potential downside in prices.

Investors coming from countries under, or potentially under, US sanctions

LADISLAS MAURICE: And what we’re seeing is, and I see this a lot in Riviera Maya, we’re seeing a lot of Europeans that are coming to the Riviera Maya that are investing in real estate, because they want their money to be outside of politically-aligned countries. They want their money to be in a country that is neutral, like Mexico, that doesn’t get involved in wars and conflicts with Russia, potentially, with China, etc. So there’s a lot of that sort of money coming here nowadays, as well as money coming from countries that traditionally would have liked to invest in Western markets, but who now do not feel safe investing in Western markets anymore.

So Russians, for example, if you’re Russian, it would be absolutely insane of you to be trying to buy real estate in Western Europe or the US at this point in time, because you don’t know how far the sanctions could go. But at least in Mexico, as things stand, you’re safe. And we’re seeing a lot of Russian money coming to the Riviera Maya, and increasingly, as well, money from Chinese, or from Arabs, or from some Africans, etc., who would be worried about getting caught up in sanctions in the future. And Mexico is a market that allows them to make investments without being political about it.

And same thing with North Americans, a lot of Canadians, so you mentioned you had a lot of Canadian clients, who come here because they don’t necessarily feel that safe anymore with too many assets in Canada, seeing what the government did. So Canadians of various political opinions come down here to secure their assets. Counterintuitively, what we’re seeing is Mexico is becoming a safe haven [laughs] in the midst of the cartels and all the issues. I mean, Mexico is far from perfect, we’re not trying to build a bullish case here. There are a number of risks associated with Mexico. But counterintuitively, it’s a hedge against a lot of the bad things happening in the West, though Mexico has its own set of bad things. You get you get exposure to different set of risks when you invest in Mexico, which is what people are looking for. They’re looking for that diversification.

Case study of cap rates of long-term rental in Puerto Vallarta

LADISLAS MAURICE: Now we’re going to run the numbers for a long-term rental and for a short-term rental. Cool, so we have a price of about $480,000. What about the closing costs?

PAUL: Closing costs normally would sit between 4% and 6%. If you’re buying $100,000 property to renovate and things like that, your closing costs will go into the 7% or 8%, just because it’s a fixed element and variable. But generally, you’re sitting between 4% and 6% here in PV.

LADISLAS MAURICE: A lot of people like to purchase through the use of the trust?

PAUL: Yeah. So I would say most deals I do would be through a bank trust, they buy through a bank trust. Really, to buy in a corporation, the only time we would see that would be if someone was buying, say, a little boutique building that’s in units and there’s tax advantages on the rental income by having it in a corporation. When you come to sell, you can’t go through the steps to exempt your capital gains tax when you have a corporation. So most people buy through a bank trust.

LADISLAS MAURICE: Okay. How much does that cost, roughly, the setup?

PAUL: Around $1,200, $1,300. But, really, the closing attorney here will take care of that. That’s part of your closing costs.

LADISLAS MAURICE: So what would be the price for this apartment on the long-term rental, so a 12-month contract furnished like this?

PAUL: In this neighborhood, you’re looking at around two-and-a-half thousand US.

LADISLAS MAURICE: Cool. So not cheap.

PAUL: Not cheap.

LADISLAS MAURICE: Cool. And the people coming down here? Americans, Canadians?

PAUL: Yeah.

LADISLAS MAURICE: Okay.

PAUL: So for, say, this, a two-bedroom in this neighborhood, close to the beach, everything’s walking distance, the markets, things, this would be an ideal place for, say, a digital nomad. Someone needs to go to Puerto Vallarta and work remotely for a year, this would be the ideal place.

LADISLAS MAURICE: So, as a bit of background, we’re in the Zona Romantica, which is essentially prime Puerto Vallarta.

In which neighbourhoods to invest in Puerto Vallarta

PAUL: It is. PV, and this whole bay, it’s a big bay, and Zona Romantica is just one little area that has very high demand for rentals. But there’s the Hotel Zone, 5 de Diciembre, Bucerías, and la Cruz, and Punta Mita, and Sayulita, and San Pancho, so a lot of areas. But yeah, this is particularly a strong rental demand area for tourists.

LADISLAS MAURICE: Cool. Because at these prices, like, $400 a square meter for there’s no view in the apartment, I mean, it’s like not necessarily that nice, the view from the living room, it’s quite expensive. So if I were to hope for capital gains, personally, I don’t quite see the capital gains here specifically. Are there neighborhoods in Puerto Vallarta where you would feel more comfortable directing your clients to?

PAUL: Yeah, there’s up-and-coming neighborhoods, like Versalles is a great neighborhood to be buying into, that has grown a lot in the last year-and-a-half, two years, prices have gone up already. But there’s still more room to go, like it’s a cool neighborhood but it’s going to get even cooler. If you’ve been to Mexico City, you’ve got kind of Roma and Condesa, and those really cool neighborhoods. Versalles is kind of that neighborhood for PV. It’s not there yet, but it’s going in that direction.

And then, in terms of restaurants, if you’re going out for a nice restaurant meal, you would come to the Romantic Zone for the night. Or, if you’re going out for breakfast, you’d probably come to the Romantic Zone. Now, people in the Romantic Zone are going for dinner in Versalles, so the restaurants are getting better. And so that’s a good neighborhood to be buying in.

Right now, you can buy pre-construction, a unit basically like this, maybe around the 1,100 square foot for, say, $300,000 to $350,000. That’s pre-construction, you’ve got to wait for it to be delivered, you’ve got to furnish it. If you don’t want to furnish it yourself, you want an interior designer to do it, that’s not cheap here. The perception is it should be cheap, but to furnish a two-bedroom could be, with an interior designer, $40,000, maybe $35,000, $40,000. So that’s the nature of pre-construction, you’ve got to furnish it. So you can get this sort of unit there for, say, $300,000 plus $50,000 on closing costs and furnishing, for $350,000. So that’s the neighborhood I’d be going to. 5 de Diciembre is a great place to be buying in.

And then it comes down to your vibe, of what you’re looking for. Because you could have a marina lifestyle, you could live in the marina. When you live there, you don’t really have any reason to go anywhere. Everything’s there, it’s clean, it’s tidy, it’s beautiful. It’s an older person there. You can get a house, you can get a condo, an older condo. That suits some people. Other people, like families, like doing it at the Hotel Zone. You can get a condo on the beach 30 stories up, a four-bedroom condo, and you’ve got the big pool where the kids can play with other friends and things. So it’s about what vibe is for you.

LADISLAS MAURICE: I rented a car for a few days and I just drove along the whole coast and checked out all the neighborhoods in detail. And to your point, the vibes are so different from one place to another.

PAUL: Completely different. Sayulita, very hippy, surfy, go-with-the-flow kind of thing. Punta Mita, you’ve got the Four Seasons down there. And once you’re in the gated community, I mean, that’s very high-end, people fly in on their private jets. Every neighborhood has a different thing.

LADISLAS MAURICE: And about an hour-and-a-half north from here you even have these little coastal towns that are super cheap, local market, or Americans, Canadians with very little money. They’re not nice, but they’re very cheap.

PAUL: Yeah.

LADISLAS MAURICE: Cool. Great. Okay. So this gives us a total all-in price of a bit over $500,000. Because the furniture would be included in the sales price.

PAUL: Yeah.

Occupancy rates of rentals in Puerto Vallarta and running costs of a condo

LADISLAS MAURICE: What would be the occupancy rate, roughly, at this at two-and-a-half K a month? What should we build into the numbers?

PAUL: So if you wanted to rent it out long-term, you would be like, maybe a month a year, it wouldn’t be rented out while you’re looking for the next tenant.

LADISLAS MAURICE: Okay, clear. Okay, so we put 90% occupancy in the numbers. What about property management? How much would that cost, roughly?

PAUL: If you’re getting a property manager to find the tenant, and vet them, and show them the property, and do the contract, they’re going to charge you maybe like a month rent for that. If you do it, and you deal with all of that, then you still want a property manager, assuming you’re not living in town, then they would charge you, for something like this, maybe $200 a month, just to pay the bills, kind of check on things and things like that.

LADISLAS MAURICE: Okay, cool. So roughly, about 15%, assuming that we don’t need to find tenants every year. HOA, how much per month?

PAUL: Like, around 320 US.

LADISLAS MAURICE: Okay. And what would this HOA include?

PAUL: HOA, they’re all different, but generally, they’re going to cover water, gas, the common area maintenance, all the garbage disposal, the elevator maintenance, things like that.

LADISLAS MAURICE: In terms of maintenance, how much of a budget would you attribute on a yearly basis?

PAUL: Like, $1,500. We’re talking long-term here, but with short-term rentals, there’s a lot more wear and tear. And depending on who you’ve got in there for the long-term rental, there’s always a little bit of wear and tear, isn’t there?

LADISLAS MAURICE: Yeah, you can see it in the rental cars, all their seats are completely dirty, because people just go swimming, and don’t dry, and just sit in there. [laughs] And when this happens on your couch, it’s not pleasant. It’s one of the downsides of make sure you choose the right type of couch when you invest in beach town properties. Cool. So bank trust fee about $500 a year. What about the property tax?

PAUL: Property tax is cheap in Mexico, or at least here. So generally, it’s, for every $100,000 invested, you’re at sort of $100 to $150. So, say, this property, this particular property is around, I think, like, $500. But when you’re doing the numbers before you buy something, for, say, a $500,000 property, you would budget, like, 750 US.

LADISLAS MAURICE: So we had a total revenue of about $27,000 at 90% occupancy. Then we removed all of the yearly costs, everything. This gives us a net yearly income of about $16,000, which is roughly a 3.2% net rental yield or capitalization rate on a yearly basis. So would I buy an apartment like this just to put it on the long-term market? No. Are any of your clients doing this?

PAUL: Not for the long-term, no. Because they generally buy to be able to use it themselves.

Case study of cap rates of short-term rental / airbnb in Puerto Vallart

LADISLAS MAURICE: Cool. So I think it just shows that you don’t come here to invest in like normal apartments to do long-term rentals. It doesn’t make sense at all. What you do is you target the short-term rental market and, preferably, you come here with a dose of lifestyle. So now we’re going to do the numbers for the short-term market. So price, closing costs, the trust setup, no changes there. What would you say is the high season in terms of rentals?

PAUL: It starts kicking off mid-November, and it would go through to mid, late April.

LADISLAS MAURICE: Okay, cool. What do you think would be the average daily price for such a unit in peak season?

PAUL: So, I would say, on average, you’re looking at around for, say, this, $225 a night.

LADISLAS MAURICE: $225?

PAUL: But it’s about strategy, because for Thanksgiving weekend, Christmas, New Year there’s a lot of sort of holidays and reasons that you can put the price up a lot. So as long as you’re savvy or your property manager or booking agent is savvy on that, you can maximize those particular weekends. But on average, I would go $225 a night.

LADISLAS MAURICE: Cool. And what would be the occupancy rates, on average?

PAUL: 80%, 85%. I think if you were 80%, you’d be pleasantly surprised. I know, there’s people in town in these sorts of buildings that are almost at 100% occupancy in high season. Obviously, again, strategy. So if there’s a couple of days here and there, drop the price a little bit to book it out. But doing the numbers, I’d say around 80%.

LADISLAS MAURICE: Cool. Cool. So we’re being a bit conservative here with some of the numbers. And low season?

PAUL: Low season is different. For example, talking about this neighborhood, Romantic Zone, there’s a pocket, right now, we’re about 10 blocks from the beach. Great neighborhood, just out here, you’ve got the market and some great restaurants. But there’s a pocket of the Romantic Zone up by the beach, maybe within sort of three or four blocks, and the new buildings in that area almost don’t feel the seasonal change, because that’s where everyone’s still going in low season. So for them, there isn’t really a low season. Maybe the price comes down 20%. But, say, we’re a little farther back from the beach, we would feel the low season. And so the occupancy would come, the numbers would be, say, 65% occupancy.

Investing in real estate in the gay / LGBT Zona Romantica neighbourhood

LADISLAS MAURICE: Cool. So this neighborhood is a very gay-friendly neighborhood. When you’re referring to that area, is it specifically kind of the gay area within the neighborhood? Is this one of the factors why there’s less seasonality?

PAUL: Yes. I wouldn’t say it’s only gay. It’s not an only-gay neighborhood. But it’s internationally known as one of the gay destinations, Romantic Zone, that keeps the demand strong all year round. For example, after COVID, I think it was last summer, last low season, it was a bad low season here. Everyone noticed. But that was the first summer that Europe opened up. So everyone was going to Europe. During COVID, the demand was huge in low season here, that people wanted out of whatever and they came here. So over the last couple of years, it’s been different.

You definitely want to be in certain neighborhoods if you’re investing here to maximize the low season. There’s some other neighborhoods, maybe inland a bit, that would do well in high season, you’d get the Canadians coming for, say, six months and rent for five months at a reasonably good rate. But then it would be hard to fill those properties in low season. This neighborhood, and 5 de Diciembre, and Versalles, and the Marina, and Hotel Zone, there’s always going to be enough demand that you would have your 65% occupancy rate and not a bad price. Yeah, you’d have to bring the price down a little bit, but not significantly.

LADISLAS MAURICE: And what you mentioned about gay tourism is interesting because, again, it’s not just a bifurcation between East and West, generally, in the world, we’re seeing bifurcation, like, within countries, like, in the US and in Canada. So on the one hand, you have gay tourism, which is very strong here. I mean, just look at the facts, what, like 5% of, just rough numbers, 5% of boomers identified as LGBTQ. And now zoomers, some of the numbers you see it’s like 20%. So clearly, that’s a growing market. And statistically, they have less children, they have more income to spend, and they like to spend. So this is a growth segment.

And then another growth segment is the complete opposite crowd of a lot of Canadians, for example, more conservative Canadians who don’t like that the government is, they feel, imposing LGBTQ and gender discussions at schools, etc. And they’re moving to places like Puerto Vallarta and other places in Mexico and in Latin America to be doing homeschooling or schooling online, so that their children don’t get exposed to this.

So in the one, in a single destination, such as Puerto Vallarta, depending on the neighborhood, you can get, essentially, people from the same city back in Canada, or the US that are here in Mexico for completely different reasons, and both of them are growth segments. What do you think the average rate would be in the low season?

PAUL: I think, year-around, $130 a night. That would be conservative. But yeah, year-around that.

LADISLAS MAURICE: And occupancy rate?

PAUL: Sixty-five percent.

LADISLAS MAURICE: Okay, cool. So here, we get to a yearly gross revenue of a bit above $44,000 a year. 

Property management in Puerto Vallarta

LADISLAS MAURICE: Property management, though, is more expensive, though, for short term, right?

PAUL: It is. You’re still paying that monthly $200 for them to manage the unit. But then you’re paying them, if they’re finding the bookings, which they generally would be on Airbnb and those platforms, they’re charging about 20% commission. It’s always good to interview a handful of different people and try and negotiate, and so that can be tweaked. It may not have to be 20%, but in this neighborhood, the big players that do a great job, they charge 20% on the income plus a fixed rate.

LADISLAS MAURICE: From experience, trying to cut costs in terms of Airbnb management is not always the right decision because having a very competent Airbnb manager that can maximize your income is often worth a lot more than the three percentage points that you’re trying to save on fees. So just always bear this in mind. Doesn’t mean that more expensive is better, but just bear in mind that you want to go for quality, essentially, no matter what the price is. Cool. So HOA, we can leave the same numbers, etc., bank trust, property tax. Internet, roughly how much does it cost?

PAUL: About $30 a month.

LADISLAS MAURICE: Okay. Electricity?

PAUL: About $150 a month, keeping in mind that, in the winter, I would never use it in the winter. In the summer, you use it a lot. So when I was living in a place like this, the winter and summer electricity bills were significantly different. However, if you’re renting it out on a short-term basis, people, they just like to have the air conditioning on, even though you don’t really need it. So you’re still probably at around 150 US a month in electricity.

LADISLAS MAURICE: Cool. I mean, people in Europe always make fun of North Americans who come to Europe and complaining about the lack of aircon, and they put aircon like whenever. So I’m not surprised. Cool. Great. So yearly costs, obviously, a bit higher. But we get to a net yearly income of a bit over $24,000. So net cap rate of just under 5%. So these numbers are pretax. I don’t want to discuss taxes, because it’s a bit, it really depends on your own personal situation, if you buy through a trust, if you buy through a corporation, what your tax situation is back home. You don’t really need to worry about that in the sense that you can manage it. It’s okay, there are a lot of experts here in town who can file your taxes and deal with all this. But we don’t want to go into this topic.

So essentially, people come here, so your typical buyer comes and stays for, what, a few weeks, a year, a few months, and then they put on Airbnb the rest of the time?

PAUL: Yeah, it would be a mixture of people coming for five months over the winter, high season, and then people that are coming maybe twice a year for three weeks at a time.

LADISLAS MAURICE: Okay. So essentially, the investment thesis for Puerto Vallarta is, and correct me if you feel I’m wrong, you don’t come here to speculate and make fantastic rental returns. Would you agree with me?

PAUL: Yeah. I think here there is more administration to buy a property and run a property as a rental. And when you’re living up in the US, it’s not fun. I manage an Airbnb in New Zealand, and it’s not as easy as you think. There’s a lot of administration involved, especially when you’re not there. So I think it’s better to have a reason to come to Puerto Vallarta, to love it for the food, the people, the beach, the mountains, whatever the reason is, and then purchase because you want to put your money in Mexico, you want your own place here. Yes, you’re going to rent it out, yes, you’re going to cover costs, yes, might even pay for your vacation every year. But personally, I think it needs to be a mixture of investment but also a love of this place or something along those lines.

Otherwise, why not just buy a rental property around the corner from where you live, or put your money into the S&P 500. But if you love the place, and people do love coming here. It is a fantastic lifestyle. I come from a great country. But when, after six months of living here, I said, “This is it. This is fantastic.” So for those people that love it here, then I think buying is a great thing to do. People have done well, especially through the last three years. I mean, I was selling real estate in this neighborhood for $170,000, a two-bedroom, just up back here, $170,000 for a two-bedroom in the Romantic Zone. And those days are long gone. So people have done really well. I don’t know if that’s going to keep going. And, I think for a very long time that $170,000 place was probably $170,000 for at least five years before it.

The other thing that a lot of my sales now would be, maybe 60% or 70% of my sales are pre-construction. And it’s like that because there’s been such a short amount of inventory for a while, these resells up here, they haven’t been available. So people have had to go and buy pre-construction. And with pre-construction, although there’s a risk involved, naturally, you do get better prices, then you’ve got to wait for it to be finished, and then you’ve got to furnish it, and things. From an investment point of view, there, like the unit in Versalles, I just sold one for $300,000. And they’re going to furnish it. It’s like this, they’re going to furnish. Again, not a great view, but once it’s finished and furnished at, say, $350,000, I would say that would sell on the market for, say, $420,000.

Now, does that mean you go and sell it, where you’re going to pay real estate commissions, and you’re going to have a bit of capital gains tax to pay? So I wouldn’t say invest this way and then flip it. But if you buy pre-construction safely, buy pre-construction and go through the steps you need to go through, that’s probably a better way to invest. So although this place, I can’t remember what my clients paid, but, say, this place would sell today at $480,000, they might have only paid $300,000 for this two years ago. So for them, that was quite a good investment. Will it keep going like that? I don’t know. But that sort of preconstruction can make buying here, like, that’s probably where the upside is.

LADISLAS MAURICE: Cool, clear. That’s what I liked about Paul, because I talked to a bunch of realtors here in Puerto Vallarta, and all of them were trying to come up with fantastical numbers in terms of returns, and this, I’m going to get rich. And Paul was the only one who was just honest about the situation and managing my expectations and all that. So it’s always a pleasure to meet a realtor who doesn’t just talk nonsense.

I wrote a whole article on the real estate market here in Puerto Vallarta and the region in terms of which neighborhoods to invest in, which neighborhoods to avoid, etc., the towns that are developing, all that. So there is a link below. Feel free to have a look at it. Also, if you want to get in touch with Paul, there’s a link below with information on his services. There’s also his email. And lastly, if you’re interested in this unit, there’s also the Airbnb link. So that was the condition for your clients to accept that we film here, because it’s actually quite hard to find units because a lot of them are rented out.

All right, fantastic. Paul, thank you very much for your time, really appreciate it.

PAUL: It’s been a pleasure.