Sotavento Luxury Residences

by DanCip, Sunday, December 30, 2018, 18:55 (342 days ago) @ Timmac

add to Timmac's point (sorry for the long posting)...

We've been looking at properties in Z for over 6-7 years (while waiting to retire) and we've consistently noticed that the secondary market for homes/condos have sold for somewhere between 10-20% below "ask" (you would be foolish to pay "ask" price in Z) and if that wasn't bad enough, we've seen homes/condos sit on the market for over 2-3 years.

Another BIG real estate challenge in Zihuatanejo is the fact that the property is only rentable for just 8-9 months of the year. Unlike other vacation spots in Canada &/or the U.S. whose off-season’s are being used for non-core activities (downhill biking at Whistler) Sotavento’s off-season months, because of the mosquitoes & the rain, will not be rentable. Which means that one's real estate "investment" in Zihuatanejo WILL sit idle 25% of the time, while your fixed monthly costs will not. This will reduce your overall investment return.

There are two other secondary issues when one considers a new purchase at Sotavento: (1) the rental/management company will not fully rent out the property to “100% capacity” (generally a vacation property may rent out up to ~85% to be considered maximum capacity) for at least 2-3 years which will more than guaranteed a negative (or breakeven) cash flow that needs to be subtracted from one’s overall return investment return.

Another minor point that needs to be considered that may or may not show up on an owners bottom line, but should be considered, is the inconvenience of construction activity and construction noise for the next 2-3 years and how that will play into the properties vacancy rate.

My wife & I have been very fortunate active investors in the Seattle condo real estate market over the past 8-9 years (one of the hottest real estate markets in the U.S.) and we’ve been fortunate to see our investment returns average between 8-12% overall net returns, but there is just NO WAY, NO WAY that an equity investor, depending on the management company at Sotavento will ever see anything greater then a 2-6% return after you weigh in your monthly fixed costs, your 25% no-rent months during the off-seasons, the management/owner income split, the sales commission that you will pay to the sales promoters, and Z’s historically soft real estate market. And all of the above does not take into consideration existing crime, Canadian & U.S. travel warnings, Mexico/U.S. political instability, and the possible food-fight’s between the management company and the future Home Owners Association.

Now don't get me wrong, Zihuatanejo is beautiful, we love it, but it seems that the true real estate investment winners in Z are either the developers (and not all of them have been lucky to sell-out a project – i.e. Loot & KahKan) and/or those investors who are patient enough to wait for a development to be completed and “seasoned” for a few years before one purchases a resale there.

When you add it all up my wife & I will definitely be renters at Sotavento, but never owners.


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