Top 3 things to consider when buying a vacation property
Not all Vacation Properties are created equal…
- Location, Location, Location – If it’s not located close to the tourist attractions, it’s hard to get tourist traffic..
- Amenities – The more amenities the better, if you build it, they will come! The milkshake might bring all the boys to the yard, but amenities like a rooftop infinity edge pool with spa, gym and restaurant on location will bring all the girls to the yard..
- Last but not least Property Administration – Keeping your property rented at least 20 days a month on average at a competitive nightly rate, requires marketing and customer management, along with reliable maintenance and cleaning. A good property administrator will manage your property like a hotel room. In fact, the condo boutique hotel and residences are becoming more and more popular. *Take note of branded residences and branded builders.
How do I find the perfect vacation property?
Keeping those top 3 things in mind when searching for a property will guide you when considering your options, but I think it’s most important to remember that your final decision should have a happy balance between the potential ROI and Lifestyle, meaning that you have to like and enjoy your vacation property besides make great money. In fact you may decide to give up a point or two for a certain element of Luxury, so in the end it becomes a balance between ROI and Lifestyle. So the first thing to do here is decide which beach do you want to be closest to, or which restaurants or attractions to you want to be closest to.
How to choose the right Location?
This part is actually easier than you may think, as we focus on a higher return, we need to make sure that we buy within the tourist areas. If we buy within walking distance to the tourist attractions, we can ensure that getting that tourist traffic. Each of the beach cities here in the Riviera Maya all have a very different vibe, so we can decide on the area first. For example if you’re in Playa del Carmen, you may decide that you spend more time visiting a certain beach like Playacar, or Mamitas or maybe on the North side of town closer to the Reef. So the fun part begins, we spend some time discussing your favorite things to do when in town. Playa del Carmen is a bigger city than Tulum, and Cancun bigger than Playa del Carmen so that also brings certain pros and challenges.
How Important are Amenities?
I can remember a time that having amenities at your condo development wasn’t a very big deal for vacationers that visit, mainly because the biggest draw in the Riviera Maya has always been the beach, the ancient Mayan ruins, and the 2nd largest barrier reef in the world that provides the world class snorkeling and cave diving. However as the once small, virgin beach towns continue to grow, and more developments come online, vacationers are being offered more available inventory with more and more amenities. As tourists search the town for things to do when not at the beach, the properties with spas, gyms, rooftop pools and restaurants have a lot more occupancy rates, and can justify a higher nightly rent. Once you have a few developments that you like, that have some good amenities, it’s time to decide whether you want to manage the property yourself or with an administrator.
How to choose a property administrator?
If you are a foreigner that doesn’t speak the language, buying into a development that will be managed by the hotel administration can potentially be the best option. Buying into a development with a pre-established hotel administration comes with both pros and cons, which one looks best for you?
Pros of a Hotel Administration
- Top nightly rent – No competing property administrators, under cutting the nightly rent.
- Uniformity – This helps with reviews and customers having the same experience at any of the units within the development.
- Maintenance – When the property administrator is the same as the building administrator, it gives the administration company more “skin in the game”, and because the have the responsibility of managing both the building and the property. We tend to see a high level of maintenance
Pros of a self Administration
- Make 30% more on average – If you can manage your own property, you save about 30% of the monthly rent on average for not paying an administrator.
- Building your Investment portfolio brand – Make a name for yourself and build your reputation, by either becoming a Superhost on Airbnb, or simply building your trip advisor reviews.
- ***Make more *** – Only if you enjoy the job as a property administrator, but make no mistake, it is a job.
Cons of a Hotel Administration
- Higher monthly fees – Typical hotel operations will have more services to offer, which translates to higher monthly fees. Which is ok, as long as the hotel operation is booking higher nightly rates, with good occupancy rates.
- Backing out of the Administration contract – If you find that your hotel operation has increased your monthly fees to the point that you are no longer happy with your ROI, you may be stuck in a mandatory property administration agreement for years, before you can rent it on your own.
Cons of self Administration
- It’s work – The downside of managing your own property is the customer service work that is required when talking to guests.
- Potential to fail – Without systems and platforms in place to help you manage all of your customer communication and tracking analytics, it can be possible to fail at keeping your property rented at it’s full potential.
- You will have to audit your operation from time to time, and maintain good communication with your handy man and cleaning crew.
Closing Thoughts
The Riviera Maya became famous for Investors owning vacation rental properties. Owners that spoke both Spanish and English, could manage their own properties through an online platform that allows you to communicate with several portals like airbnb, vrbo, bookings.com etc, all in one place. Those people that manage their own properties and do it well, report 30%-40% ROI, and are able to pay off their investment in 3-4 years on average. A foreigner that doesn’t speak the language, and pays a property administrator 30% towards the high end of the monthly rent, can see still see on average an 8%-14% ROI on average, and recoup their initial investment between 7-10 years on average.
Additionally, we don’t ever see depreciation in value, but rather a steady 30% value increase about every 5 years. It’s because this is a cash market, and I don’t mean that properties are bought and sold in cash, but rather that properties are paid for in full. So there aren’t ever any short sales or fire sales. In fact this is not even a resale market, this is a buyer’s market because we have a lack of inventory. Remember that this is still a fairly small area and continues to grow, making it a pre-construction market.
As always, let me know if you have any questions, I’m happy to assist you in your search for investment property in the Riviera Maya!
