Can you buy a fixer upper in Mexico?
Many think of Mexico as a country that is cheaper, and in many regards, it is. You, however cannot compare apples to apples as the expression goes. Some things are the same price levels, but as we will explain, there are many unique factors that come into play in Mexico when it comes to real estate. For those thinking about buying a property to fix up or rehab, you have a lot of challenges facing you in Mexico. Most people buy new construction, but for those wanting to do a fixer upper, here are some of the reasons why it is hard to do in Mexico. This article is geared toward the Riviera Maya area of Mexico, but many of the principles apply to other parts of Mexico as well.
The past decade or so the home renovation revolution started where anyone could fix up a place and possibly sell it. Part of this was started by stores like Home Depot that brought the local hardware store to the masses and made it easy to stroll the isles, getting ideas for your home. Then came along all the home renovation shows that made it look easy to fix up and flip homes. For those of you looking to move to Mexico and possibly flip houses or condos, it won’t be the same as other countries. In fact, the whole idea of flipping houses or condos is relatively unheard of here. Here are some of the cultural and financial reasons that make this aspect of real estate difficult.
Mexican mentality of used things including houses
For those starting out on a property search, you probably have found that there is no list of properties or MLS where you can surf all the local listings. It can be very hard to look for properties for sale on your own without the use of a good realtor. If you are looking for something to work on, these types of properties are not even handled by most realtors unless it is a larger property (aka more expensive). The reason being there are few of these and hard to find. Plus, if it is a property that is abandoned or not occupied, it can have a messy title and closing could take a long time.
When a property goes up for sale, there are very few comparable sales, and no way to access recent sales. This means that a seller can ask whatever they want. Since property taxes are very low in Mexico, owners can sit on a property, waiting for someone to offer what they want. Even in some cases, people offer the asking price, only to have the owners rethink their price, and ask for more. All of this can make it hard enough to find and purchase a place that is for a project. Values of homes also comes into play by Mexican owners. This is what we will discus next.
A used house?
Most will find that an old house that still functions, albeit in rough shape, is sold as a house that is livable and not that different from a new house. So prices for run down houses do not come down a lot. This can be hard when you know you will demolish much of the house to renovate it. This same idea of value for things is carried over into used cars and furniture. Those that have looked at used furniture and cars in Mexico, soon realize that prices are not as cheap as other countries.
Finding a bargain on a house or condo is very rare in Mexico. Since most properties are owned without mortgages, there is no stress to pay it off or people in a hard financial situation ready to sell fast.
Why foreigners have a hard time renovating, let alone making a profit
For most people moving to Mexico, they are coming from the United States, Canada, or Europe. All of these places have a different climate, building codes, and methods of construction. These factors alone make it hard for foreigners to drop into Mexico and start a construction project. Then there are things like language, different types of labor laws, local ways of sourcing material and other factors that make it even more of a challenge. Even for expats that have lived in Mexico for a few years, it is not sufficient time to learn all the methods and ways of doing things.
Usually most people looking to do some sort of construction project will seek help from a local company or general contractor. This means added cost to the project. Of course in most cases in other countries, most people hire people to work, in Mexico you are at the mercy and limit of skills of whoever you see to oversee your project.
Taking some of your own ideas and adding them to the project can add a new perspective to the property. You also could be making some mistakes by not really knowing materials and qualities of materials.
Who is your buyer?
A large share of the people buying in the Riviera Maya are investors. They are looking at the rentability of the property and most likely not interested in the top end countertop you just added. There are people looking for a place to live in and these people will look for the finishes of the property. However, this market gets even narrower when you think of the people that will like your design.
Mexico is a cash market
Unlike many other countries where loans and mortgages are fairly easy to get, Mexico (especially the Riviera Maya) is a cash market. This means that most foreigners and even nationals that buy investment properties pay in full cash. This affects flippers in two ways.
- You need to start with a large amount of cash to buy a property and then need money to fix it up. Taking out a home equity loan is not really a possibility if you want to start another project.
- As an individual you have buyers that need to pay in cash. You are at some disadvantage to some developers that offer payments for properties (like 3 or 4).
Where can you buy a property that is somewhat of a fixer upper?
For most people moving to Mexico, they want a town near the coast and usually in a place that is established. Here in the Riviera Maya there are no real towns or areas that are known for fixer uppers. Since Playa Del Carmen is the largest urban area south of Cancun, here you have some options, albeit limited.
Occasionally you can find a house on the west side of the highway that is partially constructed or in disrepair. These types of properties can be bought and open to your ideas. Just don’t expect any bargain prices on houses. Also, don’t expect a perfectly charming street. Often these areas are a mixture of types of houses, mixed use properties and mixed levels of finished structures.
If you go more into the interior of the peninsula and the other side, you can find older towns where some locals are leaving the older homes to move to newer style developments. To many, some of the homes look like wrecks and are not worth the work to bring them back to being habitable. With some ideas and passion, it is possible to buy an older home for a reasonable price and renovate it to be something beautiful.
Cities like Merida and Valladolid have seen many foreigners purchase older homes in bad states to renovate them. At times you can find decent deals on a project you fall in love with. These areas are very different than the Riviera Maya and might take some getting used to if you only know the Riviera Maya. Many refer to these areas as “real Mexico”.
How to make money off real estate
Since finding a cheap condo or house to fix up is not too promising, especially in the Riviera Maya, what other options do you have? Here are three options for you:
- Building from scratch a house. This does take a lot of planning and research, but once you have done it, most end up with a great home that you will enjoy living in. The sale price will automatically cover all the expenses and you will be in a good position in the future when you want to sell the house to profit from it. See our article about building a house in Mexico.
- The biggest way that people make money off real estate in the Riviera Maya is buying and renting units. The rental market goes through its ups and downs, but overall it is a strong market with good returns for smart investors. We have several articles about investing, ROI, tips for owners, and where to buy real estate.
- The last option for real estate is land banking. This means just buying land and selling it a few years from now. This has been done in Tulum for the past decade. When people started to buy land in Tulum, many people thought they were wearing too rosy of glasses. Now, those same people are selling the land for 10 times the price. Land banking means knowing the market and knowing where it is moving. Areas become more popular and start to be developed over time. For some it is fairly easy to see trends when they are in the area for a while, however, many rely on a good realtor to help them know what areas are good to invest in. See our article about the differences between Playa Del Carmen and Tulum.
The best thing to remember is that real estate is part passion and part logic. If you are looking for something for yourself, if you like it, you like it and the price and comparable properties do not matter as much. There are some unique properties in Mexico and if you fall in love with one, well, there is only one place like that. If you are just looking as an investment, research and a good realtor is how to avoid some of the pitfalls that happen to others. If you have questions about what real estate is like in the area, let us know in the comments below and we will try to answer then to the best of our ability or point you in a good direction.
You can find more topics on real estate in our guide here.