A Deep Dive into Real Estate Investment and Vacation Rentals

 A Deep Dive into Real Estate Investment and Vacation Rentals

BY NICK FONG

This exploration will take you into the heart of the rapidly growing real estate investment and vacation rental landscape in the vibrant destination of Los Cabos. It’s no surprise that this charming locale, with its harmonious blend of serene beauty and economic potential, magnetizes investors from North America. 

Known for its picturesque beauty and accessibility, Los Cabos has emerged as a favorite beach destination for West Coast North Americans for several reasons:

1. Proximity to the US and Canada.

2. Extensive air connectivity.

3. The presence of globally renowned hotels and brands, offers a sense of aspiration.

4. Breathtaking natural environment featuring the sea, beaches, whales, and sport fishing.

5. An array of international events like fishing, golf, and races, including the famous Baja 1000.

Beyond its appeal as a holiday destination, Los Cabos has become a preferred real estate investment market, thanks to beneficial taxation schemes in both countries and a favorable cost of living in Mexico.

Over time, the buyer profile has evolved from primarily retirees to younger investors. Interestingly, the retiree market seems to be shifting to other destinations in Baja, such as La Paz, Todos Santos, and the East Cape.

Modern investors are seeking the appreciation that comes from buying pre-construction properties, optimizing taxation in their home countries, or flipping properties for a 15-20% profit. However, an increasing number of investors are looking to combine these benefits with the steady return of renting their properties long-term or short-term. The popularity of short-term rentals has grown significantly, becoming a compelling factor for purchase.

Currently, our buyer profile consists of 70% investors and 30% residential buyers. Los Cabos ended 2022 on an impressive note with notable figures:

1. It stood as the 5th destination nationwide in terms of short-term rental income, generating close to USD 120 million. La Paz occupied the 13th place with USD 40 million.

2. Los Cabos was 10th in terms of nights spent, with 427,000 nights – a figure that has more than doubled since 2020 (from 195,000 nights). La Paz ended 2022 with approximately 300,000 nights.

3. Los Cabos had the highest average daily rate (ADR) in Mexico, with an ADR of USD 280, compared to Tulum’s USD 193, Vallarta’s USD 158, and Cancun’s USD 112.

The ADR reflects Los Cabos’ position as a luxury market catering to group travel, especially for villas with more than four bedrooms.

While the national growth in Airbnb listings was between 4-7% from 2020 to the end of 2022, Los Cabos witnessed a growth of around 25% during the same period, with an estimated 8,500 units listed currently. 

A look at Airbnb data for Los Cabos reveals a steady growth in listings, reserved nights, and ADR. During the pandemic, Mexico did not close its borders, and Los Cabos, being an aspirational destination, remained top of mind for North Americans. Vacation rentals saw a significant uptick, thanks to the privacy and security offered by these properties versus hotels. We saw new travelers, enhanced security, increased connectivity, and sector integration.

Today, we are witnessing an increase in the number of properties, especially in the 1- and 2-bedroom market, leading to saturation. Although the number of reserved nights continues to grow, the pace has slowed considerably. The ADR grew by almost 30% over two years, marking one of the largest global increases in nightly rates. However, we are now seeing a significant slowdown in rate growth. The market is balancing itself, returning to the seasonal destination status it once had.

As more properties are entering the vacation rental market, many new hosts and some with less-than-optimal practices are leading to a slight but steady decline in guest ratings.

Los Cabos continues to grow and stimulate growth in other areas of Baja, such as La Paz, Todos Santos, and East Cape, which are increasingly preferred by retirees from the USA and Canada.

For investors, factors like transparency, support from professionals who understand the needs of both property owners and short-term renters, experience in price strategy, seasonality, and exposure, as well as providing quality service to owners and guests, are critical. Other factors include capacity, location, amenities, aesthetic appeal, and comfort versus competition. Also, profitability is a key driver, with 5-bedroom or larger properties generating the most significant returns before tax.

Ronival Property Management, with 12+ years of experience, manages over 100 properties ranging from 2 to 6 bedrooms, with 60% being vacation rentals. Our one-stop-shop approach, encompassing real estate, management, vacation rentals, accounting, and projects, and high usage of systems, offers a comprehensive solution for investors. The exposure we provide via platforms like Airbnb, Vrbo, Booking, Marriott Homes & Villas, and VRMA, combined with our experienced staff, ensures investors and renters get the best of services.

In conclusion, the transformative journey of Los Cabos continues to be a beacon of growth, extending its charm to neighboring areas in Baja, and showcasing the potential for real estate investment and vacation rentals in Mexico.

If you are interested in enrolling your home in our exclusive vacation rental program, contact our Property Management team pm@ronival.com and follow us on Instagram as @ronivalvacations and @nickfong_ronival.