Puerto Vallarta, Mexico - There are a number of reasons why people purchase homes in our little corner of the world. Some purchase with the idea of living (often a relocation) in the Banderas Bay area (be that Mismaloya, Puerto Vallarta, Nuevo Vallarta, Bucerias, La Cruz de Huanacaxtle, Punta de Mita, or Sayulita) full-time.

Others purchase for the purpose of investing in real estate in our recovering market - with an eye toward a resale at a higher market value a few years from now. Still others purchase with the idea of renting out their home either 100% or a solid portion of the year.

As an investor (I have owned rental properties) and a local real estate agent, I thought that I would write a quick article related to a rental investment.

Owning a rental in a vacation city such as Puerto Vallarta is a bit different from owning a rental in a city such as Chicago. Rentals in the Chicagoland area (as I know well) are generally long term (year-to-year lease.)

While some rentals in the Puerto Vallarta area are long term, most people rent on a much shorter term (and higher $ / day) basis; most are daily or weekly rentals, with a heavy concentration (with higher rates) on our peak months (October - May.) The nature of this type of turnover in the rentals lends itself toward offering separate monthly / weekly / daily rates (and even longer term yearly rates if you'd like), but also toward the possible use of a local rental company to help ensure that tenants are checked in / checked out, and that any issues are addressed during their stay (or between rentals.) I have used companies to assist me with my rentals in the US (it's not always easy to manage them long-distance), and I think that such a plan certainly makes sense here.

Many investors are concerned about the return on investment. In calculating the return, I have traditionally considered the following:

• Revenue - Expenses
• Annual expected appreciation of my real estate
• Value of owning / using a rental home (if you are planning to do so)

In a recovering market, I always include that second item (annual expected appreciation) in my calculations. After all, it's great to have a property that's cash-positive... but factoring in an increase (or decrease if our market was falling - it's not...) in the value of the property over a period of time can make a difference in the calculation. It's often an overlooked positive. I'll discuss the 3rd item later...

Revenue is easy to calculate, but not easy to predict. One can assume an average price per night (with a lower price during the summer months - we do have tourists during those months, just fewer than during the high season), multiplied by the number of nights and a percentage of occupancy. Discount that by whatever management fee you're paying a company to manage your rental (if you are) - say, 20-25%, for example. One can check rental sites and ask for rental history to get a gauge of how a property or similar properties have rented in the past.

With that said, Puerto Vallarta tourism increased by 15% this year, and is expected to grow over the next few years. We have an increase in the number of flights, a significant increase in the number of cruise ships (often an individual's first exposure to our beautiful area), and a road being built from Guadalajara that will dramatically cut the transit time (leading to more tourists.) As such, I often look at the 2013-2014 rentals, but tend to assume that reality will be better as our tourism continues to improve/recover.

Note: Some areas rent better (particularly short-term) than others. Be sure to ask your real estate agent or rental agency for advice on which areas rent best.

With regards to expenses, there are a number of items to consider. Key items include:

• Management fees (if you didn't discount the revenue line earlier by that amount)
• Maintenance
• Maid service
• Annual taxes
• HOA fees
• Utilities

Maintenance of a short term rental does have some associated costs (fixing small items or appliances that may be damaged, replacing light bulbs, etc.), painting, etc., but isn't generally the largest line item.

Annual taxes in the Banderas Bay area are amazingly low. If a condo costs $200,000 USD, you can expect that your annual taxes will be somewhere in the $175 - 250 USD range PER YEAR. I only wish that my investments in the US had such low taxes - what a difference that would make for my investments in the United States!

Maid service isn't generally very expensive - perhaps as much as $20/day for a typical condo. If you just have maid service in between arrivals (or once a week), that number remains rather low. Some rental agencies can help you obtain maid service, as needed.

HOA fees can be a significant number, depending on the building. Those HOA fees often (but don't always) include water, gas, building administration, security, etc. They often do NOT include electricity. Water and gas bills here in Puerto Vallarta are generally not overly significant expenses. Electricity can be (especially during the warmer summer months) - IF your tenants are utilizing air conditioning frequently. Be sure to know what's covered, and make some assumptions for those that are not (note that your assumptions will be seasonal - higher electricity during the summer months, etc.)

That covers some of the basics of calculating revenue minus expenses, as well as a nod toward the inclusion of including the assumed annual increase in the value of your investment. There's another point that really should be considered (and is often overlooked), though - the value of having a vacation home.

The value of having a vacation home? Yes. Now this is entirely subjective, but something that I think really should be considered (and indeed was a key factor behind my purchase years ago). Knowing that you have a vacation home to go to has a very real (and challenging to calculate) value.

It's that escape that you can look forward to while working long hours in your home city. It's that knowledge that you have a "home" to go to whenever you'd like. It's the thought that all it costs is a plane ticket (not a hotel) to travel back to your other home. It's the ability to have a place to offer loved ones (if you so desire) a place to vacation. It's something to look forward to on a regular basis as the long winter months seem to drag on. There is comfort in that. (I know that well!) That has a value!

It's a good time to buy in the Bay of Banderas area. I hope that this article provides a bit of insight on some considerations if you're contemplating the purchase of home (as a rental) in the area that I call "home."

David Hoffman is a Real Estate agent at Tropicasa Realty. If you are thinking about buying or selling an investment property in Puerto Vallarta or the Banderas Bay area, contact him at 322-888-0791 or davidh(at)tropicasa.com.

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Since 1997, Wayne Franklin and his team at Tropicasa Realty have been a trusted name in Puerto Vallarta real estate. Tropicasa Realty is the region's representative for "The Leading Agents of the World" and with over 100 years of combined experience in real estate, all agents of the company are affiliated with AMPI. Wayne Franklin or any member of his knowledgeable team can be contacted in-person at their Romantic Zone Office - Pulpito 145-A at Olas Altas or in their San Marino Office - San Marino Hotel at Rodolfo Gomez 111-4. While in PV they can be reached at (322) 222-6505 or by calling 866-978-5539 (Toll-Free) from the U.S.

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