So yesterday I was having a discussion with my wife about the condo we sold in San Diego two years ago. I looked it up on Zillow to see how much it had appreciated, and to my surprise it had appreciated by $100K. So I was wondering if we made a mistake of selling it too early. Did we leave money on the table?
It made me think about the 2 properties we bought in Mexico in 2013 and 2014. The big issue with buying properties in Mexico is that there is no way to see how much they appreciate as sites like Zillow do not keep track of properties appreciation in Mexico. This has kept our net worth from growing as fast as we had hoped.
Our 2 properties in Mexico cost us $450K, so what if we had spent that amount in San Diego to buy a rental property, would we have a higher net worth than we do now?
Let’s look at the numbers:
Buying a property in San Diego:
The San Diego Condo we sold
Let’s say we had bought a 2 bedroom condo in San Diego at $450K which would be similar to the one we sold. let’s compare apples to apples and buy the condo cash as we did with both properties in Mexico, because financing there is very difficult to obtain and the interest rate is ridiculously high.
So with no mortgage payment, the only cost to us would be the HOA of $370.00/month, property taxes of $440.00/month, homeowner’s insurance of $160/month and add $150.00/month for miscellaneous repairs, total expense cost is $1,120.00/month. To be competitive in the neighborhood we lived in, we would rent it at $2,500.00/month. So in theory we would clear $1,380.00/month, which is really good as a passive income.
Buying properties in Mexico:
This is our Condo complex in Cabo
We bought our first condo in the very touristy town of Cabo San Lucas, and our second condo in the equally touristy spot of Playa del Carmen on the Carribean side of Mexico. The great thing about buying properties in Mexico is that the property taxes are almost non-existent. The yearly combined taxes we pay for our condos is $600.00! I know it is crazy to believe that it can be this low. They do get you though when you sell your property, as the capital gain taxes are at 35%. There are ways to get around that by hiring a good lawyer.
We don’t do yearly rentals and have chosen the vacation rental path. It has been very lucrative for us to rent them daily and weekly. We chose that route so that we could vacation at our properties whenever we choose to. Last year we netted $2,400.00/month with our rentals.
At first glance buying the properties in Mexico has yielded a better monthly and yearly return than if we had purchased the property in California. We have been investing the profits into our Vanguards Accounts, and were able to put away more than $100K the last 3 years. The only big positive of buying the property in California, is that our property would have appreciated yearly. We would have probably increased our property value by at least $100K.
As a conclusion, I would say that either options would have worked really well for us. Like any investment that one makes there is always a certain degree of risk involved, and that is how we rationalize buying the 2 properties in Mexico. We will probably sell one of the properties in the next few years, and keep the other property for about 20 years. I am currently 45 years old and do not see myself still having a rental property when I am 65, but who knows…
Great post FS.
Hard to get into rental properties over here since real estate is becoming ridiculously expensive. Maybe Mexico is the answer?
Do you have a property manager? How much does that costs?
Also how do you make sure you don’t get scammed? I know someone who was scammed trying to buy a condo in the Bahamas.
Thank you soo much! That means a lot coming from you!
We got really lucky with our property managers. They usually cost a lot of money, and charge you at least 20-30% on all rentals in addition to a monthly fee of $200-$300/month. The crazy thing about the commissions is that even when you find a renter they will still charge you that commission. We are doing the rentals ourselves through sites like airbnb, and only pay our managers about $100/month.
Finding a property manager is really important as you can get terrible reviews if you have a bad manager..
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I am just turning 62 and have been selling my CA rental properties one a year. Yes I am taking the tax bite. Why, because who wants to own rental property when they are 65. Let slip the golden chain and go for something new.