When you’re a realtor—especially one in Los Cabos—you spend a huge amount of time answering questions. Even if a client is comfortable investing in real estate at home, first-time buyers in México have a lot to learn about the process. As a realtor, I actually worry if a client doesn’t have questions. Here are answers to some of the most important questions potential buyers have when considering a home in Los Cabos.
Can I really afford to buy? A quick glance at the real estate magazines might make folks question their ability to move to Los Cabos; agents here advertise only their most prestigious listings. Print advertising is costly in México, so that makes sense. These ads can give new arrivals the impression that Los Cabos is only for the very wealthy, but there are affordable homes and condominiums available at quite attractive prices: A three-bedroom tract house on a small lot in a gated, middle-class neighborhood starts at about $150,000 U.S. Villas Emmanuel, for example, is a small condominium complex on the northern side of Cabo San Lucas. Here you can find a three-bedroom unit with marble floors and stainless steel appliances starting at about $214,000 U.S.
A detached two-bedroom home with a top-of-the-line kitchen and rooftop terrace in the San Luciano gated community on the Tourist Corridor was listed for $180,000 U.S. In every price range, there are a number of options. Working with your AMPI (Mexican Association of Real Estate Professionals) agent you will find the right option for your vacation or retirement home. The price of the home, though, should not be your only consideration.
Unlike in the United States, here in México the closing cost is a significant expense that must be thought out before house hunting. In Los Cabos, the annual property tax is very low. Instead the municipality relies on various fees when property changes hands. There is also a federal sales tax on real estate, which at press time was two percent of the purchase price. Foreigners must put their property into a trust known as a fideicomiso, and there are costs associated with creating that trust. And, finally, the transaction is presided over by a notario público, who is a court-appointed attorney with special powers, very much like a magistrate. His or her fee is another sizable portion of the closing cost. Stewart Title Los Cabos figures that the estimated closing cost on the purchase of a $350,000 U.S. house would be $15,000 U.S.
Photo on right: Awestruck: El Rincon del Pedregal (pictured) and other luxury residential communities await you in Los Cabos.
This sum is payable in cash—half due when the offer is accepted and the balance at the time of closing—and must be factored into your decision. If you plan to finance your purchase, some additional costs also apply. Our cost of living is lower than that in the United States or Canada (even with the higher entry cost), but you can still ask your real estate agent for a form on which to estimate your monthly expenses.
Is renting out your property an option? Many Los Cabos home owners rent out their property when they aren’t using it, and that can be quite profitable. If this is something that interests you, first make sure that you’re properly prepared. You will not only want to list your home for rent with a number of agencies, but you will also need to make arrangements to pay taxes to México for your rental income. Your rental agent will be glad to help you with this critical detail. Many condos and homes are already equipped with an “owner’s closet”: a secure place you can put those items you don’t want the renters to have access to. If your home doesn’t have one, you’ll want to identify a cupboard or small closet that won’t be missed and have a lock installed on it.
Many condominium complexes such as Las Mañanitas and Tortuga Bay in San José del Cabo run their own rental programs and make renting out your unit seamless and worry free. Each program differs slightly with some calling for the unit to be available a certain percentage of the time and others requiring the unit to be managed by the on-site staff. The fees charged for rental management vary greatly. You might consider renting it out through a firm specializing in rentals, such as Earth, Sea and Sky Vacations and Mexico Villa Rentals, which provide vacation rental service in a number of communities in Los Cabos. Many owners are comfortable doing the rentals using services such as VRBO (Vacation Rental By Owner) or creating their own websites and accepting payment through PayPal.
Don’t forget that you are responsible for your home even when it is rented. If your guests are partying like rock stars, you can expect to hear about it. Most home owners associations have set up a system of fines for homes with “problem renters” that can become prohibitive. The fine is the responsibility of the home owner, not the rental company. Make sure to check with your association about rules and fees pertaining to rental properties; if there are noise restrictions, tell your renters and have a plan in place to collect from them if a fine is assessed. Many owners have found it helpful to create a book for the house explaining the rules of the community and other helpful instructions.
Conversely, you might want to consider renting prior to buying in Los Cabos. Many clients prefer to rent and stay in a home to enjoy a different feeling of Los Cabos prior to committing to ownership. Working with your real estate agent, you can identify which community is most likely to fit your ownership profile. Your agent can then help you find a rental in that community or one similar.
Most agree that staying in a private home is a vast improvement over staying in a hotel and a great way to discover whether they even wish to own a vacation home. If the answer is yes, then, of course, the follow-up question is “Does this community feel like home, or do I want something a little different?” Most times your trial stay will confirm that the community is just perfect, but occasionally you might decide that some refinements are needed in your home search criteria.
Can I make money flipping a house in Los Cabos? You could say it’s more of a flap than a flip. During the “boom” years it was possible but not common to flip properties in Los Cabos. Why is it tougher here? Our closing and selling costs are higher than in the United States and Canada, so a buyer would need to identify a property at least 17 percent undervalued to make the transaction worth his while. There were some successful flips in the 2006–2007 season, but today’s market is substantially different.
Photo on right: Property management companies, like Lifestyle Management Services, exist so that you never have to worry about your home in Los Cabos. Pictured: Casa Bella.
The opportunity in the new reality is a short-term investment (two to five years). Overall property values have dropped in Los Cabos, just as they have elsewhere in the world. Significant price reductions have taken place throughout the region, and some sellers are desperate to sell even at a loss. Today’s investors are taking advantage of those bargains by holding on to property until the economic recovery is complete, using the home as a rental property in the interim. Once the inventory of properties for sale is reduced to pre-2009 levels, these investors plan to put the property on the market at a more normal price. For such investors this market is an exceedingly good opportunity. Your AMPI real estate agent probably has a “hot list” of great deals; this is a great time to act.
Do I have to live in a development?
The majority of residential properties in Los Cabos are within master-planned communities. Los Cabos is a very “new” area, and most of the development has taken place during the last 20 years. The vast majority of building and urbanization of what had been rural or communal properties has been done by medium- and large-sized companies. The legalities and paperwork involved in taking a property from rural to residential status is daunting, to say the least, and that means it’s very difficult for individuals to take on the task. Making the most of economies of scale, these companies produced communities by selling building lots, condominiums, and finished homes. Individual lots not in a development can be found in the older sections of both Cabo San Lucas and San José del Cabo as well as on the East Cape.
For the most part, the rest of us will be living in developments of some sort; and for most of us that is the best situation. Unless you will be a full-time resident, a planned community makes a great deal of sense. Although our crime rate is exceedingly low, it is comforting to know that someone is watching your home while you are away. A broken window or leaky pipe can do a great deal of damage in an unattended house or condominium. In addition, the home owners’ rules and regulations make it unlikely your neighbor will turn his property into a junk-car lot or other type of eyesore and negatively impact the value of your home. Newer communities offer a number of amenities that make owning there even more attractive. For example, the condominiums offered by Las Villas de Mexico in the Club Campestre master-planned community in San José del Cabo give owners the option of membership to a private club on a beautiful, pristine beach as well as eligibility to belong to the new Jack Nicklaus–designed golf club. Concierge service and eight swimming pools are also included; prices here start in the $300,000 U.S. range.
If you prefer custom homes to tract houses, consider buying into one of the communities that originally offered building lots rather than finished inventory. A few lots are still available in developments like Pedregal, Cabo Bello, Cresta del Mar, and Laguna Hills. Resale homes are also an option in these areas.
Who will take care of my house when I’m gone? Here in Los Cabos we’ve thought of everything. Shortly after the first snowbird arrived a new industry was born: property management. It’s since evolved into a completely hassle-free way to own vacation or seasonal property. Firms such as Baja Sur Property Management look after homes when the owner is gone, making periodic visits to check for any problems and to water plants. They pay utility bills, make sure the gardener and maid continue to work while the owner’s away, and do anything else required.
Photo on right: Las Mañanitas (pictured) in San José del Cabo, runs its own rental program, which makes renting out your unit seamless and worry free.
“A good property manager will make sure that the home is always ready for you,” explains Diana Owen of Cabo Property Management. “You should always be able to drop in with no notice and have all the utilities working and everything in the home working properly.”
Although it sounds counterintuitive, Cabo Property Management recommends continuing to clean the interior of the home, although on a less frequent schedule, while you are away. When dust accumulates in an unoccupied home, it can damage appliances or electronics and stain furniture; a monthly cleaning can prevent that. As anyone who has rehabbed a home knows, the best place you can be during construction is away. If you are painting or remodeling, your property manager can supervise the work for you, sparing you the inconvenience of living in a construction zone. In short, the property manager exists so that you never have to worry about your home in Los Cabos.
One word of caution: Not all property managers were created equally. Work with a professional company set up with the proper documentation. Insist on a monthly accounting and status report. Most offer several levels of service or can tailor a package to suit your needs. Your real estate agent can make recommendations, and always check with other clients.
How long will it take to buy a home in Los Cabos? The purchase cycle can take very little time—or can drag on for months. The answer really depends on several factors, the most important of which is you. In the weeks and months prior to your buying trip, make contact with a local real estate agent. Contrary to some rumors, you need only one. Unlike many parts of México, Los Cabos has an efficient multiple listing service so all agents have access to all properties. Your chosen agent can send you much of the information you need via e-mail and even set up a special account on that MLS system to view properties meeting your criteria. With your account (portal) you’ll be able to see the property details just as your agent does. In fact, the portal allows you to rate those properties with smiley faces; your agent will get a report of which properties appeal to you. Doing this advance work on the Internet will allow you to make the best use of your time in Los Cabos rather than wasting days driving to properties that are not at all appropriate. Working ahead you can compress your search to one or two days, but plan to look at properties at the start of your time in Cabo just in case. From the moment you’ve selected a house and written the offer, the negotiation phase can take a week; more if the negotiations are complex.
How long will it be until you can actually enjoy the home you’ve selected? The time needed to move from accepted offer to closing and possession varies widely and can be frustrating if you let it. Plan on the worst and hope to be pleasantly surprised. As a foreigner buying a home in the coastal area of México you are subject to certain extra paperwork (setting up a fideicomiso). In some cases an existing trust can be assumed, which will greatly speed up the process; your real estate agent and closing company will advise you whether this is in your best interest. A speedy transaction time here is about 45 days, 60 days is more common. The time of year also makes a difference.
In the real estate business, the gallows humor is that unlike most of the world, in México we have only 11 months in a year. The government offices involved in real estate transactions take a lengthy winter holiday break, generally from early December until mid-January. If you are in a transaction at that time of the year, your paperwork will be stalled for at least an additional month. There are numerous holidays throughout the rest of the year; patience is certainly a virtue for home buyers.
Bottom line: From the time you initiate your search until you spend your first night in your new home will probably be three to four months. Certainly not instant gratification, but it does speak to a well-thought-out purchase. One caveat: Most of the horror stories one hears about problems involve people who tried to cut corners or bypass the law. My best advice to clients is to take your time, become educated, and let the system do its work. After all, you can use those three months wisely: planning your vacation to your own home!
It’s normal to have questions when you’re moving to Los Cabos. There are many good sources of information: See www.loscabosmagazine.com for archived articles, your real estate agent, and numerous websites. There is only one thing you’ll never ask: Was it a good idea?
Carol S. Billups is Broker/Owner of REALTY EXECUTIVES Los Cabos, a full-service brokerage in Cabo San Lucas. She is frequently asked to cover the Los Cabos real estate market for Los Cabos Magazine and the radio station CaboMil. Her blog about living in Los Cabos is at www.caborealtor.wordpress.com. Carol urges readers to work with AMPI-member real estate agents who are bound by a code of ethics to be sure their investment is safe and the trust recorded properly.
REAL ESTATE IN CABO SAN LUCAS, SAN JOSE DEL CABO, LOS CABOS, MEXICO
