I first went to Playa del Carmen in Mexico for birth tourism and spent a few months there. Thanks to my time there, I understood why so many people are moving there long-term.
Sure, the place lacks culture, but it’s a booming town that is somehow relaxed, walkable, fun, and easy to get to.
I started sniffing around, and told my realtor Luigi that I am keen on investing there in light of:
- People permanently leaving North America and Europe to places such as Playa del Carmen
- Large infrastructure projects such as the Maya Train and Tulum International Airport which will see its first direct US flights on March 28th (Delta, Spirit, American, United, and Jetblue are all in on it)
- The nearshoring boom happening in Mexico which should support the Mexican real estate market
So one day Luigi called and told me he found a great deal but that he wanted to go 50/50.
I quickly flew to Playa del Carmen from Medellin in Colombia ($110 on way, direct flight) and said yes after our first viewing. Luigi negotiated the price and we ended up doing the deal.
Why the long-term rental market?
Playa del Carmen is a market that is quite volatile in terms of short term rentals, so we preferred the stability of long-term rentals as we don’t plan on staying in these units.
Most people investing in Playa del Carmen want a nice condo that they can use for a few weeks/months of the year and then rent out on Airbnb. Doing so covers your expenses and produces a bit of income.
Our goal was pure cash-flow and potential for capital gains.
Therefore, we bought in an area that is still a bit rough around the edges but close to the beach. It is inevitable that future development will come to this area, so we expect very decent capital gains down the line.
I made a video on something similar last year
We explained the thesis for investing in multifamily units in Playa del Carmen last year. Luigi told me a few of his clients wanted to view such units.
However, coming from their nice condos with rooftop pools in the center of Playa del Carmen and then being driven to an area where there are chickens, stray dogs and random tattooed shirtless Mexicans with beer bottles listening to loud music proved to be too much for them.
The reality is that “rough around the edges” is just a normal Mexican neighborhood, and this is where the opportunities are for people who are a bit adventurous and are willing to look beyond the cosmetics.
Of course nothing is risk-free. Mexico will have its presidential elections later this year with two rather uninspiring lead candidates, and the country has ongoing security concerns.
Full analysis of the Playa del Carmen real estate market
Here is a full analysis of the Playa del Carmen real estate market.
Feel free to get in touch with my Playa del Carmen, Tulum and Cancun realtor Luigi.
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Available services in Mexico:
Articles on Mexico:
- Making a Real Estate investment in Playa del Carmen – decent diversification in Mexico
- Full Analysis of the Tulum Real Estate Investment Boom
- 6 reasons against a Real Estate Investment in Cancun
- Investing in Multifamily Housing in Playa del Carmen
- Full Guide to Making a Real Estate Investment in Puerto Vallarta
- Puerto Vallarta Investment Case Study with Numbers
- 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
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Transcript of “We bought a house in Playa del Carmen, Mexico!”
LADISLAS MAURICE: Hello, everyone. Ladislas Maurice from thewanderinginvestor.com. Today is really exciting. Together with Luigi, we bought a house that is a pure investment here in Playa del Carmen, and nine-minute walk away from the beach. And we’re going to go there, and we’re going to do all of the numbers in detail in terms of how much the house cost us, how much rental income we’re expecting, as well as all of the expenses to get to a net capitalization rate. Luigi, are you happy?
LUIGI: I’m so happy. You can’t put a price. Listen, we’re going to do numbers, but you can’t put a price on this, being this close to the beach. And anybody who’s renting in that building is going to be extremely happy to come to this just a few minutes away.
Why invest in Playa del Carmen?
LADISLAS MAURICE: Luigi, why Playa del Carmen?
LUIGI: Playa del Carmen is not just a tourist destination anymore. It’s growing very quickly. It’s becoming a place that people want to live here all year round, or at least six months of the year. It’s got everything. We have the beach, we have the sun, we have all the amenities. It’s a lot cheaper to live here than in a lot of other North American cities, so it’s got a lot going for it.
LADISLAS MAURICE: Yeah, there’s a big, big boom in people moving here. Retirees, digital nomads, people who are just sick generally of politics back in the West, who just want to live free.
LUIGI: Exactly.
LADISLAS MAURICE: There’s a ton of people moving to Playa del Carmen.
LUIGI: Yeah.
LADISLAS MAURICE: I mean, in the last video we did together, when you first came here 15 years ago, how many people lived here in Playa del Carmen?
LUIGI: Yeah, it was about 18 years ago, and it was 20,000 to 22,000 people here. Now there’s 349,000 is the last stat that I saw. And we talked about digital nomads, Bali, Thailand, and Playa del Carmen, Tulum are the top places that digital nomads and remote workers are going to, so it really is a spectacular growth that we’re seeing here. And you understand why, I mean, it really is a peaceful lifestyle.
LADISLAS MAURICE: Yeah.
LUIGI: Yeah.
LADISLAS MAURICE: All right, fantastic. Now we’re going to go check out the house and do all of the numbers.
LUIGI: Okay. We just got off 5th Avenue. The next block is 10th Avenue. And there’s a lot of new buildings on 10th Avenue. And these are three new buildings. And there’s a couple of units left in that building on the left, and it’s going between, there’s one for $170,000 and the other one is for $200,000. And it’s got–
LADISLAS MAURICE: For what, studios or one-bedrooms?
LUIGI: No, they’re-one bedrooms, and they’ve got balconies. One of them has a wraparound balcony, and they have beautiful views from the rooftop.
Investment house viewing in Playa del Carmen
LADISLAS MAURICE: Cool. This is the house. Two, three months ago, Luigi called me when I was in Colombia. He’s like, “Ladislas, you have to come here. Come check out this house.” I took a flight for–
LUIGI: 36 hours.
LADISLAS MAURICE: Yeah, 36 hours or something, or 72 hours, I don’t remember, really short trip.
LUIGI: It was one day, one half-day.
LADISLAS MAURICE: Yeah. And then this is it. We ended up buying it, together, 50/50.
LUIGI: Yeah. Actually, it looks like a house but actually has five apartments.
LADISLAS MAURICE: Cool. This apartment is actually the best one but we don’t have access to it, right?
LUIGI: Not today.
LADISLAS MAURICE: Cool.
LUIGI: Not today. I mean, we might. Maybe we’ll sneak in.
LADISLAS MAURICE: [laughs] Yeah.
LUIGI: And then there’s a two-bedroom downstairs, and then there’s three more apartments in the back.
LADISLAS MAURICE: Cool. It’s four one-bedroom apartments and one two-bedroom apartment.
LUIGI: That’s right.
LADISLAS MAURICE: We got the keys last week.
LUIGI: Yeah, a few days ago, actually.
LADISLAS MAURICE: Yeah.
LUIGI: Really exciting.
LADISLAS MAURICE: And two of the units are vacant right now, so we’re going to go check them out.
LUIGI: Cool.
LADISLAS MAURICE: Luigi, I wanted to ask you, what have you been growing here?
LUIGI: [laughs]
LADISLAS MAURICE: What are you up to?
LUIGI: [laughs] I swear that that wasn’t me. That, it grows naturally here.
LADISLAS MAURICE: [laughs]
LUIGI: Naturally fell into a pot and just started growing.
LADISLAS MAURICE: [laughs]
LUIGI: Wasn’t me.
LADISLAS MAURICE: Cool.
LUIGI: Yeah, this is the courtyard. We’re going to convert this into like a common area, people can sit, chill out here, put some furniture out here, going to put some nice plants, going to remodel the whole thing.
LADISLAS MAURICE: And the lighting as well?
LUIGI: Lighting and really make it a spot where people can actually enjoy. Right now it’s being underused. This is our mascot. That’s Francisco “Pancho”.
LADISLAS MAURICE: [laughs]
LUIGI: He lives upstairs. [laughs] And this property comes with a coconut tree. Maybe it’s a palm tree. It’s got a million coconuts up there, so you get fresh coconuts. This is one of the apartments that will be completely, we’re going to renovate it. It’s a one-bedroom, it’s a full one-bedroom.
LADISLAS MAURICE: And so we paid $210,000 for this whole building, so four one-bedrooms and one two-bedroom.
LUIGI: Yeah. Obviously, all this is going to be gone. We’re getting a full reno, new kitchen, new floor, curtains, everything, paint job, new furniture, everything is going to be– This fridge is old, so–
LADISLAS MAURICE: So come check out the fridge.
LUIGI: [laughs]
LADISLAS MAURICE: There were some, apparently, lovely Argentinian tenants before and they left this. So beautiful.
LUIGI: Yeah, it’s some moldy food. Yeah, so the kitchen’s full kitchen. Imagine with cabinets. We’re going to put new couch. The TV will be there. New lighting. The floor is this ugly tile floor, we’re going to get rid of that. We’re going to do a more modern, more Tulum-style, more Caribbean-style. Just make yourself at home. And then in here, this bedroom is really big. You can actually have a workstation here. We’re probably going to put a work desk so people can work. We’re going to open this up, have bigger windows so a lot more light comes in. Really cool feature, I really love the barn door. It’s really nice. But those with vision watching this, you can just imagine what this is going to look like.
Renovation costs in Playa del Carmen
LUIGI: The most important thing is the bones, the structure is good, and there’s space. Having that and the location, we’re a few minutes from the beach, so we already talked about that. But as long as the structure is good and the space is good, the rest, labor, we didn’t talk about that, but labor is not that expensive here. When we think, coming from North America, from kind of the United States, even Europe, you think reno, right away you’re thinking thousands of dollars, new kitchen, new this. Here–
LADISLAS MAURICE: In our numbers, how much do we put for reno?
LUIGI: $32,000.
LADISLAS MAURICE: Cool.
LUIGI: $32,000 for five units.
LADISLAS MAURICE: Yeah.
LUIGI: That just gives you a perspective of what it cost to do some of the renos here. A lot of it is just cement work, which lasts forever, and that’s what we’re doing, and then just some little touches, some furniture. So it really doesn’t cost that much.
ROI figures and cap rate for house in Playa del Carmen
LADISLAS MAURICE: Adding the closing costs of about 7%, so about a bit over $14,000, the total investment we’re expecting is about $256,000.
LUIGI: That’s right.
LADISLAS MAURICE: For this building, five units completely redone.
LUIGI: Yeah. Ugly. I mean, I think this is Versace. I’m pretty sure.
LADISLAS MAURICE: [laughs]
LUIGI: Or, maybe it’s Giorgio Armani, I don’t know. But.
LADISLAS MAURICE: In the numbers, Luigi, this unit redone, the one-bedroom, how much rent in USD do you expect us to get, conservatively?
LUIGI: Conservatively, a one-bedroom in this area, about $550 a month.
LADISLAS MAURICE: Cool.
LUIGI: Now, we might even be able to bump that a little bit more if we offer laundry and all the other amenities as we improve the building, but I think right now, just going into it after we renovate, $550. Yeah. We went up one floor, the breeze is amazing.
LADISLAS MAURICE: Yeah.
LUIGI: It really does change. A little area, landing area for people can sit outside if they want, but we’re going to also renovate this unit. We’re going to put a bigger window in there. The color, I mean, what do you think? [laughs] It must go? I don’t know what they were thinking.
LADISLAS MAURICE: Yeah, it has to go.
LUIGI: Has to go. The floors are going to go, furniture is going to go. Kitchen, again, cabinets, going to get a little remodeled. This fridge, we might keep it, I’m not sure. I guess they were going with the Caribbean blue ocean look here but I don’t really like this blue. The bathroom, again, reno. But they’re a big space. Again, the important thing is the space, and this is easily you can put a queen-size bed in here, and we’re going to finish the cabinets for the closet.
LADISLAS MAURICE: Cool.
LUIGI: Yeah. This unit, again, same thing, it’s the exact same, similar floor plan as the one downstairs, similar space. Again, this one about $550 a month.
LADISLAS MAURICE: Can you tell us about the target market?
LUIGI: Yeah. The target here is typically we’re looking for people who are on a salary, that work a good job, have a good salary, and even the digital nomad that wants to come down here, have a little workspace, they make good money every month, they’re able to live in a nice one-bedroom, nicely renovated, and still be close to the beach and close to downtown. I think that’s what we’re looking for, that kind of local market, so people living here, but that have a pretty good salary.
LADISLAS MAURICE: Yeah, so we’re absolutely not going for Airbnb. We’re doing the kind of mid to long-term market here.
LUIGI: Mid to long-term, yeah. Six months to a year contracts.
LADISLAS MAURICE: Okay, so that’s another one-bedroom. The two-bedroom is downstairs.
LUIGI: Two-bedroom is downstairs.
LADISLAS MAURICE: How much do you expect rental? How much rental income do you expect from the two-bedroom?
LUIGI: Minimum? I’m just going to go here, minimum, $700 a month minimum, and we can even get a little bit more. But again, over time we’ll improve the building, we’ll get more, but $700 right off the bat.
LADISLAS MAURICE: Cool. What about property management? Because essentially, Luigi is a realtor, real estate agent here on the Riviera Maya, so he helps people find investment properties, lifestyle properties, or properties where people want to spend one or two months per year in Playa del Carmen or in Tulum, and then rent out the rest of the year. That’s his specialty. But you’re also doing property management now.
LUIGI: That’s right.
LADISLAS MAURICE: How much could people, on average, expect to pay for property management services for the long-term market like this?
LUIGI: For long-term, looking at between 10% to 15%.
LADISLAS MAURICE: Yeah.
LUIGI: Yeah, probably 15% is probably pretty good.
LADISLAS MAURICE: Because there’s the property management part and then there’s the finding tenants part.
LUIGI: Right. There’s managing the tenants, make sure the contracts are signed, marketing so you never have a downtime, so you always have next tenant ready when the contract expires, so you never really have any low occupancy, you’re always full. That, you have to pay for that. And you want to make sure that the building is taken care of, so yeah, about 15% on the high end. Very different from vacation rental. Vacation rental is a percentage for administering the property and then, on top of that, they’re going to have 25% of the vacation rental. You don’t need to worry about that here.
LADISLAS MAURICE: Yeah. Generally, I’m very conservative with my occupancy numbers in all of my analysis. Here, we put an occupancy estimate of 98% because there’s just so much demand for such properties, especially once they’re remodeled. Walking distance away from 5th Avenue and the beach that, I mean, you’ll be able to find tenants in, like, a heartbeat.
LUIGI: Yeah, it’s pretty easy. A lot of it is referrals, so when someone leaves a nice place, they’ll say, “Hey, I have this really cool place. I’ve got to leave. Why don’t you take over my lease, take over the apartment?” Referrals are good. And then also, on Facebook Marketplace, as soon as you know that this place is going to be empty in two months, you put it on Facebook Marketplace, nice pictures, and you’ve got a lineup of people waiting to take it. Especially if you offer amenities, like, some laundry and things like that, which is not always common in Playa, and you give people a nice place to live, you’re not going to have a problem finding people.
LADISLAS MAURICE: Because people are going to be still paying, so this unit redone, $550 per month, but it includes water.
LUIGI: It includes their water.
LADISLAS MAURICE: How much per year will that cost us, roughly?
LUIGI: It’s about $100 a month.
LADISLAS MAURICE: Okay, so $1,200 a year?
LUIGI: $1,200 a year, yeah.
LADISLAS MAURICE: What about internet?
LUIGI: The Internet is included. There’s two lines, one downstairs, one upstairs, so it’s about $30 per line. It’s about $60 a month.
LADISLAS MAURICE: And what about the property tax?
LUIGI: [laughs] Property tax, sit down if you’re watching this video.
LADISLAS MAURICE: [laughs]
LUIGI: It’s about $200 a year.
LADISLAS MAURICE: Yeah.
LUIGI: A year, not a month.
LADISLAS MAURICE: Yeah.
LUIGI: Yeah, $200 a year. So it’s pretty cheap. That’s pretty much the standard in a lot of the area here in the Mayan Riviera.
LADISLAS MAURICE: What about maintenance? Once everything has been redone, how much of a budget would you just set aside on a yearly basis for maintenance, for electric and this and that?
LUIGI: Something happens, plumbing, whatever, it’s good to run with about a $2,000 budget. That should be enough to cover your maintenance for the year. Maybe the hot water tank might leak, something like that but, otherwise, that should be enough.
LADISLAS MAURICE: And cleaning?
LUIGI: Cleaning staff. We do things a little differently here. We’re going to have cleaning staff that’s going to come here two times a week. They’re going to sweep the common areas, pick up the leaves, take the garbage out, make sure everything is clean on the exterior and part of the common areas, the hallways, the walkways, the stairs. And then we have the cleaning staff that comes in and cleans the apartment once a month. It’s part of a clause in our rental agreement. They come in, they clean the units once a month. It’s also a way for us to make sure that our apartments are being cleaned properly every month.
LADISLAS MAURICE: And that people don’t grow this. [laughs]
LUIGI: Yeah. Yeah. [laughs] Good point. You know, it is legal now here. That’s about $4,000 a year to have that type of service. And it’s a good thing to do because then we can keep control of the– Some people don’t clean for an entire year, and when they give you back the key–
LADISLAS MAURICE: I mean, this apartment downstairs is horrific.
LUIGI: Right. They give you back the key and it’s a surprise, so we want to make sure we don’t get any surprises at the end of the stay.
LADISLAS MAURICE: The numbers, we’re expecting about $20,000 of net rental income per year before income tax. That is a net cap rate of a bit over 8%.
LUIGI: 8%, yeah.
Adding a floor to a building in Playa del Carmen
LADISLAS MAURICE: But I think what’s really interesting about this place is not just the numbers, the fact that we’re paying very cheap per square meter, and the fact that we have all these units and that the cap rate is decent, but it’s the up side. Literally, let’s go up there.
LUIGI: Yeah, let’s go take a look.
LADISLAS MAURICE: This is core to the thesis, to the investment thesis.
LUIGI: Right. The idea here is always to look for properties that have the potential to grow and, obviously, not just by increasing rents, but also by increasing the amount of units. Up here, we could definitely build another three units. We would have two more one-bedrooms, and then another two-bedroom, and potentially go one more floor. We’re going to check with the engineer. The engineer who built this says we can go two more floors, but I just want to double-check but we can actually potentially go three more units, and then another three more units. So it’s another six units, which is phenomenal.
LADISLAS MAURICE: The investment thesis was based on one additional floor.
LUIGI: That’s right.
LADISLAS MAURICE: If we can get two, amazing, if we don’t, it’s fine. And then the rooftop, we would add, we would make sure that it looks good as well, so we’d have like a barbecue, some tables, maybe a little plunge pool.
LUIGI: Lounge chair. Yeah, plunge pool would be nice. And then we’d bring the Wi-Fi. We’d get another line of Wi-Fi, which would be another $30 a month, we would add that, so that people can go upstairs and just work. Work by the plunge pool, work outside, and have good Wi-Fi.
LADISLAS MAURICE: And here, there’s, like, space that hasn’t been utilized.
LUIGI: No.
LADISLAS MAURICE: So we’ll actually turn this one-bedroom apartment into a two-bedroom apartment here as well.
LUIGI: A two-bedroom, yeah.
LADISLAS MAURICE: Essentially, we bought four one-bedroom apartments and one two-bedroom apartment, and then eventually we’ll have at least three two-bedroom apartments, and then six one-bedroom apartments, and potentially, we don’t know, an extra floor.
LUIGI: Yeah. I’m pretty sure we can do it, but–
LADISLAS MAURICE: We’ll see.
LUIGI: We didn’t want to include that just now. We have a lot of potential. And if you take a look around, too, take a look at all the buildings that are being built, this is where all the growth is coming. It’s coming north, that’s where we’re heading, and so it’s quite profitable. We’re seeing a good exit in the future as well.
LADISLAS MAURICE: Yes, this is an exciting project. In terms of construction costs, roughly, if we were going to add an additional floor, roughly, about $100,000, where we’d be looking at gross rental yields of 20% if we manage to add an extra floor, which is very decent, to say the least.
LUIGI: Yeah, absolutely. And that $100,000 to build those extra units, that’s not just construction costs, that’s also with the appliances, with the kitchen done, and some furniture, so it’s very, very affordable.
LADISLAS MAURICE: We immediately have some capital gains on this as well.
LUIGI: Yeah.
LADISLAS MAURICE: Luigi, are there other similar deals in this whole area of Playa del Carmen, which is still developing? I mean, the reason we’re getting a deal like this is, I mean, you saw, it’s not particularly beautiful for now, but it will be.
LUIGI: Well, that’s where the growth is going. As we zoomed out, there’s all these new buildings. But I have a couple in mind. There is a couple of buildings that are similar, that have already four or five units, and then have the potential to add more units, and it’s in this area, and they’re very accessible in terms of price.
LADISLAS MAURICE: Yeah, we’re looking for deals we’re looking to potentially buy more together actually.
LUIGI: Absolutely. I don’t know if it’s comparable but some people will say once they get one tattoo, right away, they want to get another one and another one.
LADISLAS MAURICE: [laughs]
LUIGI: For us, it’s real estate. Once you buy one, two, you just want to get more and more and more. So it’s exciting.
LADISLAS MAURICE: Cool.
LUIGI: It’s exciting, yeah.
LADISLAS MAURICE: Fantastic. I wrote a whole analysis on the real estate investment market here in Playa del Carmen. There’s a link below, which neighborhoods are interesting, which neighborhoods are not interesting. And also if you want to get in touch with Luigi, there’s a link below. He can help you with all of your real estate needs here in Playa del Carmen, in Cancun, and in Tulum, and the whole Riviera Maya, whether it’s investment, or lifestyle, or a mix of the two.
LUIGI: Right. Absolutely.
LADISLAS MAURICE: All right.
LUIGI: Well, thank you. Congratulations.
LADISLAS MAURICE: Luigi, I’m looking forward to the next video here, I don’t know, in, like, one year, two years once we’ve moved forward with this project.
LUIGI: Let’s do a year. Let’s do less than a year, actually. Even the before-and-after with what we already have, it’s going to be pretty exciting. You’re going to see a nice difference, yeah.
LADISLAS MAURICE: All right, fantastic.
LUIGI: Cool.
LADISLAS MAURICE: Cool.
LUIGI: Thank you.
LADISLAS MAURICE: Cheers.
LUIGI: Ciao.
