How To Buy For The Yield In This Proven Rentals Market
Kathleen has been writing to you this week about Puerto Vallarta, making the point that this is one Pacific coast destination where it’s not silly to make a comparison to the southern coast of California. In fact, the two regions are very similar. The big difference is the cost. Puerto Vallarta serves up the same Pacific Ocean surf, the same white sand, and, very important, a comparable level of infrastructure, amenities, and services as you find in towns along the coast of southern California, but at a steep, steep discount.
That’s all speaking generally. What about real estate values, specifically?
Puerto Vallarta can be inexpensive compared with many coastal spots in the States and even compared with some other South of the Border coastal retirement options. At the same time, it’s a proven rentals market.
In the Puerto Vallarta region, including Nuevo Vallarta, you can find real estate for sale for as little as US$60,000 (for a condo) or for as much as many millions of dollars (for villa compounds right on the coast). In other words, whatever your budget, even if it’s relatively modest, you can find something. This is one reason we like this region as much as we do.
As in any coastal area, prices go up exponentially the closer you get to the water. Older is less expensive. Newer and in a gated community with amenities costs more.
If you’re considering the market as a prospective investor, again, you have lots of choice. Pay as much attention to location as to price. If you’re shopping for a rental investment, buying cheap doesn’t guarantee a good yield.
Using the US$60,000 condo as an example, the price looks great and breaks down to about US$850 a square meter…low by most any standard (don’t mention this to the guy from Tucson who keeps writing to me to try to persuade me that Tucson is the world’s cheapest place to buy real estate right now). But the location isn’t going to attract vacation renters in this market with thousands of available units. If you’re buying for investment, you have to balance price with rental potential.
On the flip side, the price of a US$635,000 one-bedroom condo on the water in a marina community may compare well with parts of southern California, but don’t expect a great yield on that either. Even if you could rent it out every day during the high season (mid-November through April), the rent isn’t likely to be high enough to help you break the 5% net threshold (my minimum expectation for a reasonable rental yield). This is the kind of property you buy for yourself with the thought that you’ll rent it out when you’re not using it to help offset some of the carrying costs.
Between those two extremes lies lots of opportunity in the Puerto Vallarta area…from reasonably priced condos in town that appeal to those who want to walk to the shops and restaurants to higher-priced (but not over-priced) condos on the water in the newer resort areas for those looking to be near the beach.
With such variety in a market, you have to get your boots on the ground to find the buy and the area that works for you. Fortunately, the Vallarta area has an MLS system (as I remind you regularly, this is a rare thing outside the United States), which can help you get your bearings without having to drive around and around for days or weeks trying to focus your search.
The important bottom-line point is that the Vallarta region offers properties at price points to work for any budget. We’ll show you firsthand when we convene in this town for our Live and Invest in Puerto Vallarta Conference taking place May 30-June 1.
I hope to meet you there.
Lief Simon
