1. Explanation of Property Appreciation in San José Del Cabo
In real estate, “property appreciation” refers to the increase in the value of a property over time. However, things start to get exciting when we talk about pre-construction projects. Several factors contribute to this appreciation, such as:
I. Market Demand:
With its pleasant weather, swimmable beaches, stunning sunsets, and unique cultural and culinary experiences, San José del Cabo is in high demand. This demand and low inventory lead to price escalations, making property appreciation very attractive.
II. Economic Growth:
Los Cabos has seen steady property value growth due to its increasing popularity as a global vacation destination, which translates into significant returns on investment.
III. Lower Purchase Prices:
Investing in the early stages of new developments, particularly in the “family and friends” phase, gives investors access to unique pricing. Property values tend to rise as the project progresses toward completion, allowing early investors to benefit from immediate appreciation.
IV. Inflation:
As the general cost of living rises, so do property values. Cabo has one of the country’s highest living costs, directly impacting property appreciation.
V. Location:
Los Cabos’s lifestyle, high-end projects, significant infrastructure investments, major brands, and top-tier restaurants drive growth, which has a direct influence on property appreciation.
2. Historical Growth Data and Future Projections
•In this chart, according to MLS BCS, we can see how the media price per condo has increased; in 2019, the media was $250,000. Today, that media has doubled up.
The only way to predict the future is by looking into the past. Baja California Sur has the most elevated property appreciation, with 13% annually, and places like La Paz and Loreto have 30% annually.
3. Investment Opportunities
* Emerging Areas: San José del Cabo is rising, with multiple areas near town poised to take off. The East Cape and Puerto Los Cabos are making significant contributions to San José’s downtown, enriching it with art, restaurants, cultural experiences, and a vibrant atmosphere.
* Tourism Growth: Tourism in Los Cabos has increased significantly. The data collected from FITURCA (Los Cabos fideicomiso tourism) shows a 16% rise in visitors during the first half of 2023 compared to 2022. This influx drives demand for luxury homes and vacation rentals, making the area attractive for investors looking to capitalize on short-term rental opportunities.
* Luxury Developments: San José del Cabo is experiencing a surge in high-end developments, including resort-branded residences such as the Four Seasons (the first place on earth to have two locations of this brand within a 100km radius), from The St. Regis all the way to Costa Palmas we find unbeatable amenities, and the uniquely luxurious Ritz-Carlton. These communities cater to affluent buyers, significantly boosting property values.
* Strong Market Indicators: The real estate market in Los Cabos, particularly in San José del Cabo, is resilient. Pre-construction sales dominate, with over half of the current listings being new developments. These projects allow investors to purchase at pre-sale prices and benefit from future appreciation.
* Favorable Economic Conditions: Favorable exchange rates and the U.S. interest rate decline, combined with limited inventory, are contributing to rising property prices. These conditions are drawing in investors, particularly from Canada and the U.S.
4. Real Estate Market Trends
According to Forbes Mexico, Cabo experienced a 17.7% growth in housing and condo prices, just below La Paz, which is in a booming phase. These two areas are seeing the highest real estate growth in the entire country.
Additionally, FITURCA (a public-private trust for tourism in Baja California) has positioned Cabo as the most exclusive and high-end tourism destination, with an average daily cost per person in the Corridor reaching a record $813 USD.
In March 2024 (high season), the supply of lodging through online platforms increased by 59%, reaching 9.7 thousand units.
From Todos Santos to La Paz, various projects are under development, and most share a common focus: sustainability and offering experiences that immerse people in the authentic vibe of the place. These projects embrace the local, untouched charm, creating a unique experience that, my friends, generates significant profits.
A smart move would be to acquire part of the available inventory in these pre-construction projects and be on the side of an industry that generates profits, not expenses.
5. Investment Returns and Expected ROI
This is just an example based on the actual market and the formula for calculating the return on investment. However, we tried to be informative and not promise actual return numbers.
If we have a regular two-bedroom lock-off unit for $539,000 USD we will have a 10.8%
Here’s how the ROI was calculated
1. Annual Rental Income: This is the total income you expect to receive from renting the property each year. In your case, it is $83,160.
2. Annual Expenses: These are the costs associated with owning the property, including property management, maintenance, insurance, costs of rental commission and any other operational expenses. Your annual expenses total $24,948.
3. Net Annual Income: This is the rental income minus the expenses:
Net Annual Income} = 83,160 – 24,948 = 58,212
So, your net income after covering the expenses is $58,212.
4. Initial Investment: You provided the total purchase price of $539,000 as your initial investment.
5. ROI Formula: The formula to calculate ROI is:
This means that for every dollar you invest, you earn about 10.8 cents in net profit annually from this rental property, assuming the property is owned without a mortgage.
Remember that this formula is earnings before interest, taxes, depreciation and amortization
6. Access to Financing and Payment Facilities
Los Cabos is typically a “want-to-buy” market, unlike the USA, Canada, and the mainland, where people need to buy. It is mainly a cash market, so financing is not often considered.
Despite that, we cannot forget that financing gives a buyer many possibilities. So here are some options depending on the type and stage of the project and, in the case of a resale, the kind of developer or owner, seller financing, investment fund financing options, and construction loans
Last but not least, ALWAYS use escrow.
