As Turn-Key And Full-Amenity As Life Can Get—Plus A Guaranteed Rental Yield
Four hotels, eleven restaurants, twenty-two bars, seven pools, three spas, three gyms, five tennis courts, a basketball court, a beach club, and a Robert Trent Jones II golf course.
That’s a partial list of amenities and infrastructure already built, already in place, already being used by residents and guests at a development on Mexico’s Yucatan coast that I visited two weeks ago.
The developer behind what is probably the most impressive project I’ve ever seen anywhere in terms of amenities and infrastructure is a Spanish group that includes a tour company, a hotel company, a separate resort company, and the development company. Everything is vertically integrated to create a business model that supports itself from the bottom up. The tour company feeds the hotel company, the hotel company feeds and manages the resorts, and the resorts provide much of the amenities and infrastructure for the developments.
The community I’m speaking of and where I spent time last month is Bahia Principe Residences and Golf on the Riviera Maya near Tulum.
The master plan for the residential community at Bahia Principe calls for multiple lot sections for custom homes as well as multiple turn-key condo and townhome phases. To say the plan is ambitious is an understatement. However, the critical point to be made is that the seriously ambitious plan for Bahia Principe isn’t a plan. It’s a reality. In addition to all the infrastructure, amenities, and services, several turn-key residential options have already been built and sold.
Now Bahia Principe is moving into a next phase of development that, first, ties into the resort side of the model (which, remember, already exists and is already operating) and that, second, comes with a guaranteed rental return. This amounts to an unprecedented opportunity (I’ve never seen anything like it) for both the investor looking for a yield and anyone interested in a second home in this part of Mexico.
The new Quetzal Condos are one-bedroom rental units that allow owners to have a place in the resort where they can take advantage of all the amenities already in place as well as a rental property providing a decent return. Overall, the Quetzal phase at Bahia Principe will include 9 buildings with a total of 72 apartments. The first five buildings are scheduled to be delivered in November 2013, the final four in November 2014.
While the individual units are pre-construction, as I’ve explained, the development isn’t. Along with all the amenities I’ve mentioned, all infrastructure is already installed, as well. Road, electricity, and water are all in place, and people are living in the community. So, while the condos themselves are pre-construction, the “pre-construction risk” here is minimal.
Meantime, the pre-construction status means pre-sale pricing, which starts from US$182,000 for ground-floor units. Each unit is approximately 60 square meters of interior space, including an owner’s lock-off closet. Each ground-floor unit has a 25-square-meter patio, and each second floor regular unit has a 7-square-meter terrace/balcony. Each second-floor penthouse unit has a 30-square-meter roof-top terrace in addition to the 7-square-meter balcony.
These units aren’t yet built, but everything else I inspected on the property that has already been built was to a very high standard. This new phase will follow suit.
The pre-sale prices for this phase are guaranteed for the first three buildings. Prices for the final two buildings of the first five to be built will be higher.
Pre-sale prices work out to US$3,000 a square meter, which isn’t cheap. But you have to consider the price in the context of what you’re buying…which is a lifestyle. Whether for you or for your renters, the lifestyle on offer within the grounds of Bahia Principe is something you really have to see to appreciate. This is more a small city than a development community, all carefully planned and impressively executed. As an owner, you have full access to all amenities, full use of every service. This is as turn-key, comfortable, and convenient as life can get.
Even better, as an owner, you not only have access to all amenities, but you enjoy discounts on the costs of all associated services–35% discounts in every restaurant, 50+% discounts on rounds of golf, 15% discounts on the private catering services, etc. The beach club, hotel shows, pools, and sports facilities are free. As are the golf course and lake views.
While the resort has four hotels already, with more than 3,000 rooms in total, there is unmet demand for condo units near the golf course for both nightly and weekly/monthly rentals. The developer believes the demand specifically for one-bedroom condos is high enough that they are guaranteeing buyers of the new one-bedroom Quetzal units a gross yield on the purchase price of 5% for the first three years if you put your unit into the vacation rental program. The only expense you’d have is the US$140 a month HOA fee and a US$50 a month property management fee…and I’ll show you how to get those waived when we get to the payment terms.
You don’t have to take the guaranteed rental yield. You could opt to put your unit into the general rental pool. It’s possible your return could be greater than the guaranteed 5% a year. However, if you’re looking for a turn-key investment, 5% guaranteed is a decent stress-free way to go.
After the three years of guaranteed yield (or immediately if you choose), the rental management fee is 25% of gross rental income. The rental management program includes sourcing renters, check-in, and concierge service for your renters. In addition to hotel overflow (which happens, say, seven weeks a year, when the hotels can be overbooked by up to 10%), renters will come through package marketing through the developer’s tour operator, Soltour, as well as through external marketing avenues that Bahia already has put in place.
This part of Mexico sees nine months of high season and two months of low season each year. The remaining month of the year is considered “prime season” and is made up of two weeks over Christmas and two weeks over Easter. Bottom line, the rental potential here is very strong. So opting out of the 5% rental guarantee and going straight into the rental pool could make sense if you’re willing to take some extra risk. In return, you not only have the potential for a greater yield, but also the ability to use your unit yourself from time to time. Even if you opt for the 5% guarantee program, you get a total of six weeks personal usage–one prime week, two high-season weeks, and three low-season weeks.
Running numbers on straight rental management returns, with a 45% occupancy rate, you could achieve a 6.8% net rental yield. And that’d leave you much more than six weeks to enjoy you condo yourself.
To make these new Quetzal units even more attractive, the developer is offering financing. The terms are 60% down, which is paid during construction as 20% at signing and 6.66% every three months until completion. The balance is paid over six years at 5% interest. This means that, for the first three years, assuming a US$182,000 unit, your net monthly payment after deducting the guaranteed rental income would be US$414. For the last three years, the payment would be US$1,172, but this would be offset by what you could expect to be continued good rental income.
On top of the mortgage payment, you’ll have the US$190 HOA and property management fees. However, if you don’t take the financing offer, you can opt to pay 40% down at signing, and the developer will waive the first three years of HOA and property management fees. That’s a US$6,840 savings.
Or you could simply pay 20% down, with the balance due at completion. For these last two options, you could get a local mortgage in Mexico.
As an added incentive for Live and Invest Overseas readers…and for a limited time only…the developer has agreed to add in a free membership at the golf club. Remember, again, the golf course is already built, and you could start playing today even though your condo hasn’t been completed yet.
The golf membership is a US$15,000 value and is good for a family of four (two adults and two children) with a membership life of 35 years. After the first five years you could transfer the membership (that is, sell it), if you’d like. Once you activate the membership, the annual dues are US$1,200 for dad, US$600 for mom, and US$300 for each kid…but you only have to activate the individuals who will be using the membership.
Bahia Principe offers four-day, three-night Discovery Trips. Most developers these days offer “fly-and-buy” trips, as they’re referred to, to give prospective buyers a chance to come see what they’re buying into. In this case, there’s certainly a lot to see. You can read more about these programs here.
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