When I tell people I own a small home in Mexico, I am invariably asked the same set of questions:
- How did that come about? (it mostly just kind of happened, to be honest)
- How much did it cost? (about $100,000 Canadian dollars)
- Do you own it outright? (yes, but also not exactly, but yes.)
- Does it ‘pay for itself’? (of course, and some. For 2018 I calculated a range of 7-39% as my return for the year, depending on how you slice it)
People also often ask ‘is it safe there’? And I often tell them ‘no’. And not because it is not safe, but because if they are so paranoid about places outside of their own province or state that they think I would invest every drop of capital I’ve ever had in the area without even so much as feeling it was a safe place to be let alone live and invest in, then they are probably not up to the challenge anyway nor genuinely interested in my story.
But as for the other questions – fair enough.
How did this come about?
The short version is I experienced a quarter-life crisis, sold my home at a large profit, went on a trip and ended up coming across a property I could live in and rent just steps from the beach, allowing me to surf every day.
How much did it cost?
Unlike some #FIRE bloggers, I like to largely avoid discussing specific dollar amounts, especially when it comes to net worth and value of large items like homes. Sometimes it is inevitable, and often one could deduce the numbers I’m talking about with only a little sleuthing and some elementary algebra, but at the moment I am not so much focused on sharing the details of every dollar I bring in or spend, just those relevant to the larger overall goal of Freedom.
What is most relevant about how much my house cost (which I have already mentioned in this article btw), is that it was a hell of a lot less than it would have been virtually anywhere else even remotely desirable in North America right now, and it was almost entirely purchased with the gains made in just 20 months of ownership of my home in Victoria, BC – a notoriously expensive and arguably overheated real estate market. Another added bonus, of course, that it pays me to live there, enjoying a lifestyle I love (more on that below).
Do you own it outright
Yes, it is paid for more or less. In theory any property within 50 km of the beach in Mexico actually is held in a trust in your name by a bank, for which you pay an annoying annual fee. Eventually I may obtain permanent resident status in Mexico, which would allow me to make moves to have the deed in my name directly.
For more on this, check out what a Fideicomiso is.
Does it pay for itself?
I’ve always liked to look at large financial decisions as both investments and lifestyle decisions. When it comes to consuming, I like to buy things that are as versatile as possible, without sacrificing the performance where most needed.
And my home is no exception. With two (soon to be three) suites, it is very versatile. I can occupy one of the smaller units and rent the others to maximize rental income, or take over more of the house if I need more space now or in the future. I chose to buy a house within an HOA/Strata development, so that if I were away completely for a period of time, there would be staff and neighbors on-site to help out with security and cleaning, meaning I can continue to rent to vacationers from a distance and have peace of mind that someone is around to check up on the place – particularly during hurricane season.
2018 was my first full year in the place where I was also well-established enough to offer rentals. Because of my co-mingling of lifestyle and investment, the return for the year is somewhat subjective, and exists in a range between 7% and 39%, the lower end being based simply on the net income after all associated costs, while the higher end also includes all avoided expenses such as rent/mortgage, heat bills, internet bills and HOA/Strata fees as well as estimated appreciation on the property.
I think the most meaningful and useful value to use here is the 3rd value that I calculated, which lies somewhere in the middle. At 23%, this represents the gross income plus all avoided costs as described above, but avoids including the highly subjective and non-liquid appreciation value.
The real estate market is rather immature where I live, so it can be hard to gauge how it is moving and, of course, where it will go in the short, medium and long-term. However, in the same development as mine a unit was recently listed at $125,000 USD that was built 4-5 years ago for about $50,000. I am not sure yet if it sold, and the sellers may just simply be reaching for the stars, but ultimately it takes just one buyer to make a deal.
Based on such events like that, I estimated my property to be worth about $150,000 CAD for the purpose of calculating the upper-range ROI value used here. Including the land, construction and legal costs of purchasing the property, this rather conservative property value estimate would represent about a 36% appreciation rate in a little over two years, or about 18% per year.
Of course, ROI isn’t everything, but it is nice to know that I am getting at least 7% no matter how conservatively you slice it. And when you consider that I am able to access several good and consistent surf spots within a 5-minute walk or 30-minute drive, and dozens more within a few hours of driving, as well as eat good, healthy food at an affordable price and take part in the burgeoning and unique ‘Mexi-Cali’ community that is forming there, it is pretty nice to have my own little spot among it all to call my own.
The fact that so far it has been a strong investment is simply icing on the cake. And I continue to try to remember first and foremost that it is the cake itself that is the most important piece of this puzzle.