Back in 2008 I was doing software consulting for a large client in Denver. They had a policy that after 18 months of work, a consultant must leave for 6 months to help ensure the consultant wouldn’t be considered an employee by the IRS. And my 18 months was up in June of that year.
My real estate business was growing slowly, so I decided this was a perfect opportunity to devote more time to my business and see if I could grow it faster. I had heard about how popular San Miguel de Allende was with American and Canadian retirees. And I already had a little experience buying and fixing up properties. So my wife (Sudy) and I decided maybe it would be fun to go to this town, find a property, renovate it, sell it, and make a profit, all in 6 months.
Well, my 12 year old daughter (at that time) wanted nothing to do with moving to Mexico. And she expressed her views loud and clear. So I made a deal with her that I would look for a property in Denver or Boulder first. If I found one, we’d stay, if not, we’d give this idea of Mexico a try and she agreed. Well, I ended up finding multiple investment properties in Denver and we decided to stay. But I remained curious about the possibility of doing a fix and flip in this town. So, for my 60th birthday, Sudy and I went to San Miguel de Allende to see first hand if this is a town where an investor could make some money fixing and flipping a property.
There is a reason over 13,000 expats have made San Miguel de Allende part of their retirement lifestyle. The town is a nice size with a population of about 170,000. It’s nestled in the mountains about 3 hours north of Mexico City and because it sits at an elevation a little over 6,000 feet, it’s not too hot in summer and winters are very mild. Snow is a rarity. There’s plenty of great cafes, restaurants, shops, and there’s always something going on in the central plaza. It’s a cute little town and we enjoyed it a lot.
But what about finding a good deal on an old beat up property?
For a week, we walked the side streets of the town every day and checked out many properties that looked run down on the outside but turned out to be fully renovated on the inside. It soon became apparent that this town had been discovered many years ago and lots of people have already come in and bought cheap properties and completed their renovations. You won’t find any old properties left that are in need of work in the central part of town. And if any do exist, you won’t find them online. To find a good deal, you will need to get out and talk with locals, ask around, and maybe someone will know someone who is selling.
Although this town does not offer much potential for a fix and flip, as of 2019, more expats have continued to move into this town, and tourism has also increased. The central part of the town has become so popular with investors that limits have been put into place for controlling real estate development in and around the central plaza. Most of the growth now is in new homes and condos outside the city center. Prices are not low, but people believe prices will continue to go up, so expats as well as investors are buying property in this town.
Would I invest here for retirement? It’s close, but we felt it was getting too congested for part time retirement. But for a short term rental, it’s not a bad market. I would definitely consider a short term property if the price was right.
Retirement: This is a charming town with a reasonable cost of living and great weather. And it is very popular as a retirement destination. If a little over crowding isn’t an issue, this could be a good option for a retirement destination. Long term rents and cost of living are very reasonable when compared to a large part of the U.S. International Living Overseas estimates a monthly budget for an average retired couple at about $1,600. This includes rent, food, entertainment, utilities, transportation, etc. Health care is really good and much more affordable than the U.S.
Fix and Flip: Prices are too high to make anything on a fix and flip. There may have been some fixer-uppers to be had 10 years ago, but not anymore. If you are willing to hold onto the property for a few years, you might make some appreciation, but that’s not a true fix and flip. Also know that in the historical central area, renovations are controlled and must adhere to strict guidelines.
Short term rental: Looking at current real estate values and short term rental rates as of June 2019, a good location in the central part of town can make 6% to 8% annual ROI (return on investment), assuming an occupancy rate of 75%. It won’t be cheap, but there is a range of properties selling for anywhere from $250,000 to well over a million. Most apartments and condos that are over 2,000 sf, 3 beds, 2 baths, are $400,000 and up. And be aware that owners must pay a 25% income tax on gross rent (before any expense deductions) to the Mexican government. Other costs include 10% to 20% of gross rent for property management, local city fees of 3% of gross rent, and advertising fees from airbnb or VRBO. Maintenance and cleaning costs will be lower than the U.S. HOA fees will be similar to U.S. If you can find a reasonably priced property in the central area where tourists want to stay, I think a short term rental could do well. Prices are likely to continue going up as tourism continues to draw more people every year.
Click here to see a map of San Miguel de Allende with listed properties for sale. Look for the map icon in the upper right corner and click that to see the map.
I am glad we went to check out this interesting city. Even though it’s not an easy market for investing, it certainly is appealing to retirees and tourists. For that reason, it may be a great retirement place for some. And it could turn into a great investment if prices continue to go up and tourists continue to visit in huge numbers.
