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Vacation Rental Income
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Choosing the right property....for the right reasons.
I finally found the perfect place in paradise, a beautiful two bedroom condo right on the white sandy beach overlooking the turquoise blue waters of the Caribbean and at an unbelievable price of $200,000 USD. I am sitting on my terrace admiring the fabulous view, knocking back a couple of margaritas and adding up all the vacation rental income that has come streaming in. I have been enjoying wonderful vacations that this income pays for and not to mention that I have putting a tidy sum away with the super cash flow it’s bringing in.
I kick back and put my feet up and pat myself on the back for the savvy investment I made.
Then suddenly, I wake up…..It was just a dream.
I think we all have the same dream. If that super deal with super rental income did exist, you would be second in line, because, of course I would have to buy it.
So, what is reality? That comfortable two bedroom beach front condo will really be upwards of $500,000 USD and vacation rentals will not come streaming in.
The Mexican Caribbean is becoming one of the most popular tourist destinations in the world, so the market for vacation rentals is huge. However, when choosing a property these are some guidelines to go by.
1 – The closer to the beach, the higher the cost of purchase but also the property has much more potential for a higher occupancy. In some areas such as Playa del Carmen, the vacation rental market is so hot that properties not on the beach also do well. But the further away from the beach the lower the occupancy will be and rental rates must be lowered accordingly.
2- Occupancy rates even on beach front properties do not reach 100% annually since vacation hot spots are seasonal. Also there are many factors that influence vacation rental income, such as recovery from a hurricane, economic problems in other countries, acts of terrorism, etc.
3- Your vacation rental income potential will be greatly influenced by the property manager you choose. Also, if you actively participate, the occupancy can increase. You will need to decide how much time and money you wish to invest in promoting your property.
4- Buy a property keeping in mind that vacation rentals should cover the property’s expenses – monthly condo fees, taxes, utilities, etc. Any extra income then starts to help pay for your vacations. It is not wise to purchase with the idea of positive cash flow, however if you do become actively involved and have a good manager you can do nicely with the income.
5- If you plan on using your property most of the winter, especially Christmas week, the rental income will decrease substantially. High season for vacation rentals is Christmas week through Easter.
6- Consider a condo hotel. You can purchase a fully titled condo but let the hotel operator rent it out. They will normally take care of all expenses and maintenance and you may still receive some income after all expenses and rental operation fees. However, this will limit your own vacation time as there are limits to how many weeks you can use it. Most have contracts for a certain period of years and then you can opt out if you like.
7- Another option would be a small entry level condo in an older beach front complex. There are still some options under $200,000 USD located on nice beaches. However, they are small units and older building. These do well for economy vacation rentals and you can have a place on the beach without a huge investment.
Vacation rental income is a definite benefit of buying a second home here in the Mexican Caribbean, but do be realistic and choose wisely. Buy what you can comfortably afford without relying on the rental income and you will enjoy your place in paradise.
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Finance North America specializes in providing mortgage financing to U.S. citizens purchasing real estate in Mexico.
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