James Glover
NuWire: How has the [Baja California Sur] market changed over the last few years? And if you could specifically talk about the areas of La Paz and Loreto, that would be great.
Glover: In La Paz and Loreto there is a big push to move on with more development. I lived in La Paz for the last 13 years, and I'm just now closing up a home there, but La Paz has taken a long time to really boom.
[La Paz is] very different than places like Cabo San Lucas or Ensenada. It's very tranquil, it's very Mexican, it's a capital city, but they are having troubles in really moving on with their developments. It is getting bigger and growing more every day, but more so with locals than foreigners. There are more developments coming, but there seems to be some resistance, and it is not developing quite as quickly as it is in Cabo with the larger developments.
We have seen a great deal of increase in growth there [in La Paz], and the prices there are very low relative to someplace like Cabo, which has already gone up but will continue to go up.
Loreto as well has a big push. FONATUR, which is the government tourist organization, many years ago built a golf course there to try to create tourism there, but people just didn't come. Now there's a big push by the government again and with Loreto Bay Villages and several other large developments that are being built there...which definitely is bringing in more money...better roads, highways, hospitals.
NuWire: Can you talk a bit about some of the other emerging areas that you've seen in Baja?
Hotel in Cabo San Lucas, Baja Mexico
There's no doubt Los Cabos is one of the major ones. That includes the San Jose del Cabo area, the corridor between that and Cabo San Lucas. It's about 22 miles that the Mexican government has really designated as...the next Cancun, the next Puerto Vallarta, the next Acapulco. They're putting a great deal of money into infrastructure, improving airports, improving the marinas.
One of the things I like about Cabo is that it is not tied to just the American market. It is tied to the international market....We have hotels here where the base rate is $2,000 a night up to $7,000 a night. And they're 85 percent full year round....$4 and $5 million homes are being built all over the place, thousands of them, and they're being sold. They're not tied to just the American market of retirees.
I would say that all along the Baja Sur loop...[has] really got a great deal of growth in investment, and I don't see it slowing down anytime real soon. There may be some areas that have already become very expensive, but right next to [them] are areas that are just now coming on the market.
NuWire: As a foreign citizen, if I buy real estate in Mexico, are my property rights different than those of Mexican residents?
Glover: If done properly, they're not. The thing is, you can't own property as a foreigner whether it be for investment or for residential use anywhere in Baja. It's basically 50 kilometers from the sea. But because Baja is so narrow, they basically exclude all of Baja from foreign ownership directly. But there are two vehicles you can use to purchase property.
If it's for personal residence, it pretty much has to be what they call a fideicomiso....It is similar to what we would call a trust deed in the United States. And that means that basically the bank holds the deed...but has basically given up all powers, via a power of attorney, to you.
You can sell [the property]. It can be inherited. Nobody can take title away from you. You basically just have to pay...a fideicomiso annual maintenance fee to keep it current.
The other vehicle that I use a lot with investors, which is different than people that are going to use it for their residence, because...Mexican corporations [can't] own land for personal residential use. Now, Mexican corporations can be 100 percent foreign owned....A Mexican corporation is a Mexican in the eyes of the law. So your rights are no different than a Mexican at that point.
NuWire: What type of property ownership is standard?
Glover: The fideicomiso is the equivalent of freehold, it's not leasehold....These are not the old time 30-year leases or 99-year leases. Now, fideicomiso lasts for about 50 years but is automatically renewed at your choice.
Nobody's going to be able to take [your property] away from you. The Mexican government is fully aware that if a fideicomiso expires and...somebody comes along and takes it away from you, it will destroy their property values all over the country.
If [foreign buyers] do what is required of them correctly, they have all the rights of a Mexican and they're not going to lose their property.
NuWire: I want to move on to the financing question. If you can talk a bit about the financing that's available for investors and perhaps touch on if it's difficult to acquire and where would they go to acquire it, that would be great as well.
Glover: Financing isn't that difficult to acquire. One of the things you've got to realize is that it only exists for those properties that have existing structures.
Construction loans are...coming, there's no doubt, they're going to come, but it's more difficult and has not yet happened.
GE Capital and GMAC of Mexico are the two big financers of...properties down here.
It's very easy to obtain [financing] with...just decent credit really.
Their [interest] rates are high sevens at the best to low eights depending on your credit rating and how much money you're willing to put down, but they have a loan to value ratio of 85 percent in most cases.
NuWire: I want to move on to the part of the interview where we're talking about the specific areas that are best for...yield rates, best areas for capital appreciation and that sort of thing.
Glover: I think hands down as far as Baja goes—and actually overall Mexico because of the government's push and support, as well as the worldwide recognition of the area—is the Los Cabos area. There's no doubt that this area is getting a great deal of international investment. The Brazilians own the marina; Spaniards own the airport. This is not tied to the American economy; it's tied to a world economy of very wealthy people.
There's a lot of money in this town, and there's a lot more coming.
The government is coming in and doing what needs to happen....They are going to develop this place like Honolulu or...any other major resort area.
Baja California Sur coastline
We have flights coming in from all over....So, to me, that's definitely one of the reasons I'm here [in Cabo], is because I see the greatest opportunity here.
And there are some areas north of here, like...Todos Santos that are going to...bleed over because not everybody wants to live in town or in the city or want the nightlife and the discos and the restaurants; they want to be a little more rural....Todos Santos is a beautiful artist community...that is going to boom. It has been designated as a Pueblo Magico (Magic Town) and the government is putting $5 million into the infrastructure of this small town. It is continuing to boom, where property values can double in a year in some cases.
La Paz is dragging its feet still....There are developments going on, but it's going to take a little more time before it really sees the boom that the Los Cabos area is getting because the government isn't helping as much there. Plus they need to get a golf course....If they put a golf course in La Paz, a lot of people [who] live in Cabo that are now tired of it...and don't want to live in this place because it has gotten so big, they would move.
Until there's a golf course in La Paz, I believe it's holding up their investment. As soon as there is a golf course, which they are starting, it will make a radical change and then probably more golf courses will be built. Here in this [Cabo] area, we already have eight major golf courses with...at least four more championship being built right now, and I mean literally under construction, with another six planned.
NuWire: Which investment strategies have been most successful in the Baja, Mexico, market, and what mistakes have you seen investors make?
Glover: One of the biggest areas that I've seen people do very well with is buying condos, multiple condos, putting them into rental pools [and] holding on to them. Basically if they break even with their rental fees and homeowners' association fees and everything, the appreciation alone is very good. That's been an excellent place and a very safe place to work.
One of the bigger areas that's more dangerous...is buying raw land with the intention of dividing it up and selling it off in smaller lots. Depending on power and water availability—this is a desert—and a lot of people get told a lot of things, like, "Oh, you have water, no problem." Again, you've got to investigate that, make sure, and that's where a lot of people make mistakes—they don't [investigate it].
Beachfront of course has gone up and is going to continue to skyrocket because Americans and foreigners love to be on the beach....If they can't be on the beach, then they want an awesome view.
Gated communities...protect the people's investment. There's a lot of developments here where people have no CC and Rs, or homeowners' associations....You put a million dollar home in and somebody next to you put $50,000 in a trailer and a palapa and has a bunch of beater sand rails lying around and...they're hurting your property values. So one of the ways to be safer in your investment is to find the newer developments that are going in or even older ones being renovated and purchase, hold on to them and rent them out while you're holding on to them.
NuWire: If you could kind of look into the future and talk a bit about the types of investments or types of properties that you think will be most successful in the future, that would be great.
Gated community in Mexico
I still think the weekly rental market is huge and will continue to grow. I think that whether it's high end condominiums or medium priced condominiums or homes, those that could be rented...weekly or...biweekly definitely have a great potential.
The commercial market. A lot more land needs to be developed commercially...there's a greater need for warehouses, office buildings and stores. We've had a lot of car dealerships come in in the last year, but there's an awful lot of infrastructure, commercial infrastructure, that doesn't exist. So there's a lot of commercial plazas that have been built and as soon as they're built, they're full. So I think there's still great potential there.
NuWire: How much money would you say an investor needs to get started investing in Baja California?
Glover: If it's in the Cabo area, at least $300,000 for a condominium or townhouse that they would be able to rent, maybe a little bit less. If you're talking about the entire of the Baja, you can still find places in La Paz for $100,000 to $150,000. I believe you can up in Tijuana and Ensenada as well...there may not be as big a market for the weekly rental as there is in Cabo, but there would be appreciation in your values and you would be able to rent it. [You] just wouldn't necessarily get quite as premium for it.
But again, to play the game in Cabo, the stakes are higher, the costs are higher to begin with. But the return is more guaranteed. Only because we're not...tied to only the American economy. The American economy has slowed down, and nothing has slowed down in Los Cabos. It has slowed down in other areas, so that's something to consider.
NuWire: Can you talk a bit...more about the price differences in different towns for condos and apartments that are older and then condos and apartments that are newer?
Glover: I would say the older condominiums that are attractive to people to rent...in [the] Cabo area would be no less than...$200,000s to $300,000s as the beginning price.
You get up into Todos Santos, they don't really have much, but as far as homes go, you can find small homes easily in the $200,000 range.
La Paz, you could probably find condos or small homes in the $150,000 and up range. Ensenada and Tijuana again.
As far as Loreto goes, there's not a lot of inventory. All of it's new....I believe you can get a home in the $300,000 to $400,000 range completely built and finished, which should appreciate rather well. Not as quickly as places like Cabo, but I do believe there's potential there.
