Far Homes Short-term Rental Investment Analysis: Tulum, Q.R., Mexico
Far Homes projects Maya Train & Tulum Airport will more than double Tulum tourism by 2023, bringing 3 million more tourists annually.
Short-term rental revenue set to surge, recent slow-down of new construction and home sales offers opportunities for investors.
This research report is for informational purposes only, it is not investment advice.
Tulum has seen enormous change over the last twenty years, from a quiet town of 7,000 people in 2000, to a tourist boomtown that experienced astronomical growth during the pandemic. In fact, the population of Tulum has tripled over just the past 7 years and Far Homes can project that the city will reach a projected 50,000 residents in 2023. Tourism to Mexico was up 45% year over year in 2022, with 22 million visitors to the country vs 15.4m in 2021, a new record. The Mexican Ministry of Tourism projects that the country will receive an economic boost of $46.4B via tourism in the summer of 2023, a 6.6% rise from a record 2022 season. Tourism secretary Bernardo Cueto Riestra of Quintana Roo, where Tulum resides, projects that 1.8 million tourists will generate $1.7 billion in income for the state in 2023.
At times demand for housing and lodging felt as if it couldn’t keep up in spite of over 250 new developments in progress in 2022. In order to meet the astronomical pandemic-driven demand, more than 250 developments were in progress in 2022. As a result of those developments flooding the market, STR rental revenues declined by about 20% in 2023. But the tide has turned: new construction dropped significantly, and home sales have stalled in recent months. But the tide has turned: new construction has dropped sharply and home sales have stalled in recent months. Builders are getting squeezed on high interest rates and rising labor costs. While mortgages are not always available for international buyers in Tulum, the high cost of borrowing is still a factor; many cash buyers are sitting on the sidelines due to uncertainty on how inflation and interest rates might impact their investment portfolios.
Does that mean Tulum is done growing? Not at all. In fact, given the available inventory and escalating prices we think now is a uniquely good time to buy. Far Homes Co-Founder Max Blumen recently took a deep dive into Tulum and created a report on the STR investment opportunity. Download the full 16-page report – it’s free! – to see detailed data and analysis on the future of short-term rentals in Tulum, including revenue and profit forecasts, capitalization rates, and other key information for sophisticated investors.
We believe this slowdown will be short-lived, and offers a strong opportunity for anyone wanting to invest in property in the area for two reasons:
- Our forecasts show Tulum’s monthly median short-term rental revenue will double by 2033. We project Tulum will see an estimated 4.3M visitors in 2033, spurred by the Mayan Train & Tulum Airport both opening this December. And we believe supply growth encumbered by high cost of capital will be unable to keep up with demand.
- An excess of supply today means motivated builders and sellers. Those who can invest now are at an advantage; the buyer’s market Tulum is experiencing today is driving developers to give generous discounts and other incentives, especially for those willing to make larger down-payments and wait for 6-18 months for delivery. And with many units in the area starting in the low $100,000s, investing here is accessible for many.
That being said, it’s important to do your homework before you buy. Keep these tips in mind when evaluating a potential property:
- Buy from a reputable builder: good developers have a C.V. that outlines their prior work so you know they deliver quality. It’s a major red flag if a builder won’t give information on their history.
- Ask about funding: builders who have external funding are much more secure than those who are using down-payments from unit pre-sales to pay for construction. Before you put down a deposit, find out about where the builder’s funds are coming from.
- Consider builders with diverse projects: Builders who have projects outside of Tulum where sales are more predictable, or those who have other projects that aren’t reliant on residential real estate sales, such as hospitals or commercial buildings may be more stable, since they have multiple sources of income.
- Use a reputable, local agent & lawyer: Because MLSs are uncommon in Mexico, and don’t exist in the area around Tulum, it’s harder to find information online. A local, reputable agent will have their finger on the pulse of what’s being developed in the area, what neighborhoods are most popular for tourists, and where the good buys are. And a lawyer is necessary for any foreign buyer purchasing property near the coast; you’ll want one who has a strong track-record and is looking out for your best interests. Far Homes has a network of trusted agents and lawyers we can connect you with if you’re ready to take the next step.
With over 200 developments in progress, not to mention resale from established buildings, there’s plenty to choose from, and some options are better than others. One of our favorite new developments that’s currently in pre-sale is Nygma.
Nygma is in a unique location as one of the few with views of Tulum National Park, and proximity to Parque del Jaguar an addition to the national park being developed scheduled to open in early 2024. Nygma’s developer is Forza, which has completed 100+ residential, mixed-use and commercial projects throughout Mexico since 2006. A deeper analysis of Nygma is available in our Tulum STR report.
Far Homes does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
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