Is Lake Chapala Real Estate A Good Investment?
Is Lake Chapala a good place to invest in real estate? We all wish we had a crystal ball into the future and wish to make lots of money on real estate but the honest truth is that no one can predict the future. While you are not going to see the types of returns that have occurred in the U.S and Canada in the past several decades, you will, however, acquire a solid investment that should increase in value over time with the rate of inflation (which in Mexico is quite substantial, in the 8% range).
Following is a discussion I had with a prospective client which provides an in-depth look at owning property vs renting property in Lake Chapala, Mexico.
Client: Why won't I double or triple my money in a few years on Mexican real estate like I did in the U.S/Canada?
Retire In Lake Chapala: The main reason is that all sales in Mexico are cash. Mortgages are now available in Mexico but borrowing money is expensive (12-14%). Whereas, the U.S/Canada real estate market increases are built on long term mortgages and cheap interest, in Mexico, you need to fork out the full value of the property to own it. This holds prices pretty stable
Client: If I'm not going to see big returns on real estate then I would consider renting instead. What's the biggest pro and con to renting?
Retire In Lake Chapala: If you rent, you pay for liquidity, meaning you can get up and leave any time. This, of course, comes with a cost, the rental cost per month that you'll never see again. This could be anywhere from $6000 per year to $24000 per year? Do you really want to lose that much? But it also means the opposite whereas the landlord can kick you out at any time. In Mexico, leases hold little weight and are difficult if not impossible to fight in court. There are no renter's rights in Mexico. For a people who can pick up and move at a moments notice renting is probably fine. For others it's a monumental hassle. Side note: Rents are often said to be high in Lake Chapala but I beg to differ. Considering the cost of homes, the landlord is getting only 5-6% return on rentals. I've run the numbers many times on different properties in the past. Client: If you buy, it's costing way more than just the sales price, as the monies put into the home are not receiving a dime in return from the stock market, or other type investments like industrial or corporate bonds or crypto currency investment types, so this lump sum of cash is costing at least 4 to 5% just for being parked in bricks and mortar. Retire In Lake Chapala: This is an age old debate. There is no question that the money you have tied up in real estate is not providing you a direct return. However, real estate can be a great investment. Many people have made lots of money owning and flipping residential real estate (we happen to be working with a client right now who seems to have that gift). AND there is no guarantee that you'll make money investing in the markets (crypto currency, etc). Many people have lost lots of money by investing wrong. Is your money any safer invested in the stock market vs in real estate?? Both can make you money or you could lose you money. In fact the downside of losing on Mexican real estate is not as deep as having your money in the markets where you stand to lose everything. But this discussion is not about real estate investment as much as it is about owning real estate to live in personally. Your personal home during your time in Mexico. This is a different beast. Purchasing real estate to personally live in beats renting hands down every time. Client: Let's look at the Risk vs Rewards. For instance, if anything goes wrong with the home after buying it, one looses the privilege of taking up the phone and saying, “Look there's a water leak under the sink, you need to fix it by noon as guests are coming this afternoon.” You can make that request as a renter. If you own it, you get on your hands and knees and get down and dirty and fix it, or throw money at it with a handy man or plumber, as you own it, it's your problem, you become the house slave. Retire In Lake Chapala: This is somewhat true. Yes, if you own you become a slave to the house. However, If you rent in Lake Chapala, don't automatically assume you'll have your landlord there in the afternoon fixing the leak. Depends on the landlord. Small home repairs usually fall to the renter to fix. Furthermore, service people are very inexpensive compared to service people in the U.S/Canada and there are no service taxes to pay on top. Client: Markets have soared in the last few years, and what goes up must come down, so there's a high risk of not getting your money back on this purchase called a home, as homes are purchases not investments. Retire In Lake Chapala: As noted above, you could make money on real estate or lose it. Just like investing in the markets. Client: The safest part of a home purchase or sale are the folks and vendors associated with the transactions, example, home inspection $400 for just a piece of garbage that a 12 year old could put together. Retire In Lake Chapala: Yes, it is a good business but you don't have to have an inspection done. If you feel you can do so yourself that's your prerogative. Client: What about Real estate commission? For something that should only cost $ 100 to $200 per transaction, real estate commissions raises the price of the home substantially as the seller bakes in these costs into selling price. Retire In Lake Chapala: There was a time I would have agreed with you but now that I am a real estate agent I see how much work goes into each and every deal. Both before and after. It's a tremendous amount of time, effort and money involved both on behalf of the Realtor and the Agency (deeds, selling documents, CFE, Telmex, pictures, video, handling the money, etc) and then there is always the risk that it is all for nothing if the seller changes Realtors or buys from someone else or privately. Being an agent is a risky business with no set rate of return. Client: Sales tax of the sale, is very high, it's like paying about 4 years of property taxes up front. People get fooled that property taxes are so cheap in Mexico, when really they are not, as one pays an enormous amount of sales tax which is equivalent to about 4 years. Retire In Lake Chapala: Again, you are absolutely right. The property tax is paid when you buy a home and it's fairly substantial. The flip side being that the yearly costs are then low, as property taxes are only about $150-300 per year, but, yes, I agree with you. Client: Your costs and risk goes away up on purchasing a home vs renting a home Retire In Lake Chapala: Yes, that's why you want to make a smart purchase and (if any) smart renovations. I've seen people put too much into a renovation and not get their money back out. It depends on the property and location. But the fact remains that renting is not for some people. There are many who like to "make a home" and that involves renovations or changes to the property or adding filtration systems, etc. These items can be impossible to remove when you leave. Which is better? Renting or buying? Is investing in property for your personal use a good investment? Ultimately, only you can decide depending on your lifestyle and your personality but purchasing real estate in Lake Chapala remains a solid investment. News Flash: Now with the village of Ajijic accredited “Pueblo Magico” status, there
is even more reason to make your purchase now! For more information about home buying in Lake Chapala we are available for you questions. Contact us! Thank you for reading.