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Why Invest in Mexico Real Estate? Part 1

12 January, 2015

Hi everyone, I know it’s been a while since I posted a blog and I have several ready to go about Mexico Beachfront Property,great Condo deals,places to eat…etc,but I started to think about what we specialize in and that is investments. I mean,it is the first word in our name, Investment Properties Mexico. So I decided to spend a few weeks doing research on how to explain why you should invest in Mexico Real Estate and why everyone else is. In my following 2 blogs I will explain how you can earn a 12% ROI,or cap rate,still stay liquid,and about long term double digit returns by investing in Mexico Real Estate. So,let’s get started.

There has been a lot of ink spilled in the financial papers and news lately about REITS,pronounced “reets,” so what are they? REITS were introduced in 1960 by Congress as an answer to allow people with limited resources or income to invest in large scale projects and income producing real estate developments; basically allowing you to purchase Equity in these projects.

So why the sudden allure of these investments? Well,they have a lot of upside and little downside. For one they allow you to invest in property without being a landlord or ownership,and they are easy to buy and liquidate with little risk since you are buying into a portfolio of properties and not a single piece of property. These can be bought on the stock market or in a specified mutual fund and they yield a higher return than their wider stock opponents with much less risk.

So,what’s the incentive for this type of investment? Protection to start with,in order for a fund to be considered a REIT it has to return 90% of its earnings back to its investors but most return 100% of their taxable income so they can be considered a “ pass through entity “  thereby avoiding all federal and state taxes. A REIT will deduct this from their Corporate taxable income base and not be held liable for the tax burden but here’s the kicker… the tax responsibility goes to the shareholders “but “ the losses cannot be passed on to the investors so it’s in their best interest not to invest foolishly thus losing money or their status as a REIT.

There are 3 basic types of REITs in the US. They are Industrial,Multi Family,and Hotel. Not surprisingly there are also Hybrids or combinations of these 3 coming out for a more diversified portfolio investment option. Equity REITs own property outright and depend on rent for dividends while Mortgage based REITs loan money for projects and rely on interest for returns for their shareholders but without the hassles of actual ownership.

Well,here we are in Mexico and in 2011 the first REIT or Firma as they are called down here was formed by a company called Fibro Uno which started out with 13 properties and by the end of 2012  was in control of 279 properties. As with the American model they are set up in 3 categories such as Industrial with Fibra Macquarie and Fibra Terrafina,Hotels with Fibra Inn and Fibra Hotel,and Hybrids which have a mix of both. It is estimated that another 20 Firmas will be formed within the next 5 years.

Fibra Inn just recently acquired Holiday Inns & Suites in Guadalajara for Ps 139.9 mill and Wyndham Casa Grande Monterrey for Ps 204 mill

Fibra Uno just teamed with Canadian giant Reichman International who invested 165 million in a 33 story office and commercial tower property in Mexico City. Not to mention the share value went up 12.7% last year…not a bad increase on top of dividends.

In total,hundreds of millions of dollars from foreign countries such as the US,Canada,and Europe are being invested in developments and Fibras in Mexico. To date over 57% of domestic Fibra bonds are owned by foreign hands,up 30% in less than 2 years. And although Mexico is only the 2nd largest economy in Latin America,capital flow into Mexico outnumbered Brazil in the last 2 years.

Well,what does this have to do with Investment Properties Mexico? Everything…I just showed how small investors who want to invest in Tulum real estate,Akumal real estate,or any real estate in Mexico can generate huge returns with little or no risk.

Before I go let’s look at Mexico’s economy; all countries base their economic stability on GDP which is the total of all goods and services produced and most scale it per capita,or per person,in order to compare it to other countries. Right now Mexico has a GDP of around 3.2%-3.4% on a global scale with an estimated growth of 4%-4.2% in 2014. If GDP stays flat for several quarters then you are in a recession,if it stays too long in a recession or drops then you are in a depression and it’s time to start dusting off your resume. Mexico is still the easiest and most inexpensive country to produce goods for Latin and North America,and China,whose investment practices usually involve buying up foreign debt is actually investing 1.63 billion US in Dragon Mart in Cancun. Another company,Audi is investing 1.3bm in a plant that will produce 150,000 autos a year. Audi is owned by Volkswagen who already builds all of their Beetles for the global market in Mexico.

I just wanted to lay down a foundation and explain how real estate investments in Mexico work outside of just buying a Condo. In my next blog Part 2,I will lay out how you can earn a 12% return,still stay liquid,and most of all how it works. Until then don’t take our word for it,do your own homework,listen to our client testimonials,and above all

Buy Smart,Buy Secure,with Investment Properties Mexico.

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