There are generally three reasons why a property in Mexico will not rent. We call this the3 P s in Real Estate .
People, Product or Price and Their Affects on Mexico Properties.
Today we will look at how to determine a rental price for your Mexico investment in hopes to eliminate or minimize any potential losses from pricing your property wrong.
Let s say that you ve just closed on your new property in the tropical area of Playa del Carmen or any other Mexico resort city. You re experiencing the excitement of owning here but you are unsure on what to charge potential renters. Rental pricing is one of the single most important aspects of rental investment ownership. If you price too high then you experience unwanted vacancy because no one wants to overpay. If you price too low then you will end up feeling like you, the investor, are getting the short end of the deal. This is why it s important to do your due diligence prior to marketing your Mexico property.
Grab some paper and a pen, hop online to the internet and see what the market says that we should rent our property for.
MEXICO REAL ESTATE FEATURES
Write down exactly what features your property has. At a minimum, you should know the following:
Location
Size in both meters and sq feet
# Of bedrooms and bathrooms
What appliances provided for the Tenant
Pool
Any other amenities that may or even may not be attractive to a renter
Now that you have the basics of your property written down, we will need to do a little research about our competition. Because the Playa del Carmen and the majority of the Mexican regions do not have MLS options, we will seek out other sources for our information.
The first place to start would be to go to your favorite search engine such as Google or Yahoo Find a good web site on rental properties for the city where you own your Mexican property.In our example we will copy and paste this link into your browser: http://www.playacarmenproperty.com/Riviera_Maya_Rentals/page_2143272.html
Here you will be able to look at many properties that are already on the market for rent. You will need to narrow these properties down to only those that are within about a mile radius (further if you are on the west side of the highway or if you are outside of Playa del Carmen s city limits). If you are in a specific neighborhood, it may be beneficial that you start by looking only in that neighborhood. If there is nothing or a very limited number of properties available, then you will need to expand your search. You will also only want to look at those that are truly comparable to yours in age, amenities, and size. A property that was built in 1980 will not be comparable to one built in 2008.
Once you have a list of comparable properties, write down the rent amount for each one.
Let s say that you ve found five properties with rents ranging from $1000 per month to $1500 per month. Our first instinct would be to think that our property would rent on the high side at $1500 per month. Makes sense there s another one out there at that price. WRONG. If your goal is to secure a Tenant quickly with minimal vacancy loss, you do not want to price your property anywhere near the highest on the market as it is typically better to price on the mid to lower side of the spectrum.
If your goal is to get as much rent as possible for your property then it is still better to price on the mid to low range. Confused yet
Look at it this way
People, by nature, are price conscious. When most people do a search for something such as a rental property or a property to purchase, they already know what their budget is and usually will not waste a lot of time searching for properties to rent that they know that they could not afford. If a prospective Tenant is looking to rent and their budget is $1200 per month, they will usually search for properties up to $1250 per month. Let s say your property is priced at $1300 per month but you know that you would take $1200. However, you wanted to test the market to see if you d get any activity by advertising at $1300. You just lost a potential renter because your property did not populate within their search criteria of $1250 maximum per month.
If you know that you would accept a particular price point for your rental property, do not advertise it for a higher amount. It s a waste of time. You lose prospective applicants. You incur additional vacancy.
But you say that if you charge more in rent then you make up for the extra time that it took to rent your property Take that philosophy out of your head. Here s what happens:
Let s say that the market dictates that your property should rent for $1200 per month but you advertise it for $1300 per month and you end up waiting an additional 60 days before a Tenant is found at this higher rate. 60 days of vacancy equates to $2600 in lost rent PLUS utilities that you had to pay for. Let s say you were lucky and found a Tenant that was willing to pay $1300 per month for a one year lease. The most that you would recover would be $1200 for the year; leaving you in the negative of $1400 for the year PLUS utilities. That doesn t seem too smart does it
Let s say that you are okay with having that loss for the first year because you will make it up on year two when they renew. Chances are, your Tenant has talked to neighbors and has realized that they are paying too much for rent. You've increased your risks for a vacancy at the end of the year because you charged your Tenant rent that was over market. The cycle then continues
Any successful rental property investor, regardless of the property location, knows that vacancy is hard to financially recover from. It is better to realize a lesser amount of rent, especially to keep you aggressively competitive with the market, than to wait it out for a higher price.
Next week we will talk about how to advertise your property to get the most exposure.
Kami Kemp is both a Texas Realtor and Real Estate Broker in Arizona with Prime Properties. She is a member of the Texas Association of Realtors, the National Association of Realtors and National Association of Residential Property Managers. She began her career in Property Management and Leasing in 1990, has served on various education committees through local associations and has taught many Fair Housing compliance and marketing classes throughout her career. www.TOPmexicorealestate.com 512-879-6546
