For most buyers, their Los Cabos property is a second or third home, and sometimes sits unoccupied for extended periods of time. Rather than waste this asset, many owners have chosen to put the house out for rental while they are not using it. This can prove to be a very successful blend of business and pleasure. Yet many owners are disappointed when the rental income falls short of expectations. Many times this is because, although the property they selected was perfect for their needs, it is less than perfect for short-term (vacation or nightly) rental. If you will be renting your home, you and your real estate professional need to take that into consideration when you are shopping for the home.
The view a home or condominium offers is as critical as are the amenities of the home. “Over the years, our clientele has changed,” explains Don Hirschaut, President of the popular luxury rental agency Earth, Sea and Sky Vacations, “Our clients now compare Los Cabos to other high end destinations like Tuscany.” As a result, homes purchased for rental are becoming more and more elaborate. Is all this necessary? According to Hirschaut, investing in a higher end home, furnishing it nicely, and offering amenities makes sound business sense. His firm’s most popular rentals are in the superior category, and he notes that five and six star properties are among those least affected by the economy. In addition to a lavish décor, renters are seeking daily maid service, butler and chef on call, spa services provided in the rental property, premium electronics and home theatre, wireless Internet connections, VOIP phone service, and every conceivable luxury or convenience. “Clients are willing to pay higher rates for a spectacular house,” adds Hirschaut, “Rental fees of up to $6,000 per night are expected now.”
Location, Location, Location
It’s an old cliché but still true: The three most important factors in any real estate purchase are location, location and location. This is especially true for homes that will be used for vacation rentals. Being close to or on the beach is a definite plus, but so is proximity to golf, fishing, and downtown. Homes closer to downtown Cabo San Lucas are likely to be more popular for rental than those in outlying communities, unless they are adjacent to a golf course. In San José del Cabo, the Alegranza development is nearing completion, and is expected to be a successful rental property. Ocean view condominiums here start at about $600,000 and offer a full menu of amenities with proximity to golf and downtown San José. Although Puerto Los Cabos is too new to have a solid rental history, most realtors and rental agents believe the combination of golf, marina, beach and proximity to downtown San José del Cabo makes it a natural. Homes in the Fundadores, La Noria and Altillo neighborhoods are expected to be popular rentals. The developer has just begun presales on the spacious Villas Tamaral condominiums featuring incredible golf and ocean views. Prices range from $875,000 for a two-bedroom unit to over three million dollars for an 11,000 square foot penthouse. Other popular areas for rental properties include Palmilla, Cabo del Sol, Santa Carmela, and Pedregal. The Bay View Suites on Médano Beach in Cabo San Lucas are full-ownership condominiums purposely designed to be suitable as rental units. They will offer the same amenities as the adjacent Cabo Villas Beach Resort, who will manage the units and provide rental agency services. Bay View Suites plans to market aggressively through travel wholesalers, such as hotels.com, and predicts the units will return profits in excess of the finance payments and maintenance.
When shopping for your rental property, be sure to ask your realtor about special Home Owners’ Association restrictions. Some communities, such as the Villas del Mar in Palmilla, allow rentals but only when arranged by the HOA’s in-house staff. In order to maintain the low-density feeling of the development, rentals are limited to 20% of the available properties at any one time. But with rentals at Palmilla starting at about $2,500 per night, even with the limited number of rentals, your investment can be profitable. In Villas del Mar, the homeowner agrees to this restriction at the time of purchase. Be sure to ask your realtor about special restrictions or fees if you plan on buying to rent. In Pedregal rental is allowed, but homeowners pay an “excess usage fee” in addition to their annual HOA dues. On-site property management and rental services are available in many rental communities, but using them is not mandatory. El Rincón del Pedregal, an enclave of 26 “smart“ homes within Pedregal, is currently under construction and will offer fully integrated property management and rental facilities, thus making owning a rental property there completely effortless. The fees each community charges for these services vary; your realtor can provide details on the programs available for the property you are considering.
If you are using an outside rental agency expect to pay between 25-30% commission on the nightly rental. The agencies estimate that after deducting commissions, property management and maintenance, homeowners will realize a probable profit of 50% of the nightly rental fee. In addition to those previously mentioned factors, the number of nights a home is rented will depend on the individual homeowner’s motivation and expectations. Many owners rent just to help defray the expense of owning a vacation home. These owners are likely to reserve the home for their own use during prime rental weeks, such as Christmas, New Year’s, or during the fishing tournament season, all much to the rental agent’s chagrin. To maximize the number of rental nights, you’ll need to be aggressive with scheduling and advertising. Homeowners, who are willing to commit to an aggressive campaign, can anticipate as many as 275 nights per year, or 75% occupancy for an attractive rental property. Not every property will get those results, of course, but the properly selected and managed property can become one of the most cherished investments in your portfolio.
Carol Billups is Broker/Owner of Realty Executives Los Cabos, in downtown Cabo San Lucas between Amerimed and Lenny’s Deli.
