4 things You should know about the return on investment in Riviera Maya

Investing in the Riviera Maya and especially in Playa del Carmen is an experience that many foreigners and in recent years the national market wants to live, I mention some reasons:

a) The opportunity to enjoy an annual return on your investment due to how generous vacation rentals are in tourist areas.
b) The attractive resale margins achieved by the great growth in the area, and above all by buying in an early pre-sale and waiting for the right moment for a strategic resale.
c) The privilege of investing in a real estate that matches your tastes and preferences, and that in addition to being an investment vehicle, allows you to enjoy its vacation use in the seasons of the year of your choice, and thus have the perfect excuse to visit Tulum.

But there are a number of questions that arise in light of so much misinformation related to ROI, and the excessive use of this financial indicator as a sales tool:

1. 1. What does ROI mean and how is it calculated?
      In many advertisements you see the famous ROIs ranging from 7% to 12 or 14% in some cases, but what is this really?ROI is the acronym for Return On Investment, which is more well known in real estate slang as CAP RATE, and this ROI or better said CAP RATE, is the annual capitalization rate offered by the real estate, and is determined based on the property price and net income after maintenance and property expenses (NOI). Where the NOI is the acronym in English for Net Operating Income.

      Therefore, the formula for its calculation is:

      Annual Capitalization Rate = Annual NOI / Property Price

   2. Can the ROI of a property be guaranteed?
      There are real estate developments that guarantee a certain ROI the first year as a marketing strategy, the truth is that there is no way to guarantee the ROI, this is rather misleading advertising because in reality what is is offering is a discount; developers know that ROI depends on multiple factors, many out of their hands, especially when we talk about the arrival of the sargassum season, hurricanes, economic crisis or pandemics such as COVID-19.From my perspective, I think it is better to be totally honest with our clients, and not generate false expectations by promising returns that can only be met in ideal cases.
   3. Is ROI the first thing to consider before investing in a property in Playa del Carmen?
      No, the ROI should not be a determining factor in choosing the property to invest, although it is something that draws attention as an investor, there are many others criteria to choose your next property to invest in Tulum, I mention some:
      • The location of the development
      • Accessibility
      • The prestige of the developer
      • Constructions related to development (from the same developer or from the competition) but that create synergy
      • The competitive inertia of the area or colony (supply and demand)
      • The growth of the city (economic and demographic)
      • Nearby shops (restaurants, commercial premises, shops)
      • Public services (paved streets, lighting, drainage, health services)
      • The prestige of the vacation rental administrator who will operate the condominium

      All these factors are quite relevant in terms of revaluation of the sale price of the unit and the generation of annual net rental income, which will make your ROI or CAP RATE, as I mentioned above, improve year after year.

   4. What factors go into determining ROI?
      There are many factors that intervene in the integration of ROI, many of them will depend on the management of vacation rentals and others definitely not, it must also be taken into account that these factors will be affected by the national macro-economic variables, the economy of the countries that visit Tulum talking about foreign tourism, the climate of Tulum, the hurricane seasons, sargassum, etc. Here are some factors to determine ROI:
      • Occupancy rate
      • Rate per day
      • Exchange rate
      • The advertising strategy
      • Good management of maintenance costs
      • The prestige and good positioning of the real estate development

      In summary, that real estate developments in Playa del Carmen offer attractive capitalization rates or ROIs, this will only be part of a series of criteria to determine your next investment, but it will not be the only or the most important, in my experience In addition to everything that has been mentioned, another extremely important factor is that you like the property in which you are going to acquire, that it is a reflection of your tastes and preferences.

Iván Pérez
Project Manager and Real Estate Developer