Considering Buy in Rocky Point

[DiegoD]

First of all, thanks for all the advise. I am a long time lurker, first time poster.

Brief Intro:
I have dual citizenship and live in San Diego. We are a young family (30's) and come Rocky Point as often as we can.

I have traveled to Puerto penasco at least 4 times. We rented in las conchas from seaside the first time and in LP for the subsequent times. I have introduced this beautiful place to a couple of coworkers and they love it.

My father and I have some money saved and we would like to invest in a Vacation home / Rental property and I am looking for your advise. I have done my fair share of researching in both this forum and other websites, but live, fresh advised to my situation is very welcomed.

What we are looking for:
- A 2 Bedroom / 2 Bath condo from 100k to 150k - We would be using this place 2 months out of the year and whatever other weekend we can make the drive. The rest of the time would be rented with the necessary deposit and rules in place for the renter. Having been a considerate renter I would hope karma comes back my way, but I also consider my neighbors and want to be fair to them.

My only point of reference is Las palomas, we like the resort and have enjoyed numerous times there, but we are unfamiliar with what is like to be the owner and how happy they are with their experiencies. Any current or previous owners input is greatly appreciated.

Also I dont want to exclude myself from other resorts or condos if this community has great advice.

At the end of the day what I need is a good place to call home for the summer and holidays and a sustainable rental for when I'm not using it. I am not looking to make income or this is not my primary intention, mostly just HOA and upkeep to break even.

I am looking forward to contact a couple of real estate agents to make a drive soon and tour properties from this forum this is my short list, any input? any places to stay away from?

-REMAX
-Favian and Cashiela ([email protected])
-Dee Brooks ([email protected])
-Maria Alemany (http://www.rockypointinvest.com/) -Whom I believe lives at LP.
-Abigail ([email protected])

Thanks!

 

[Roberto]

Irrespective of where you buy, here are some simple suggestions made from experience:

• Only buy a completed property, not one under construction, that has a Mexican Title or a Bank Trust on the individual unit you are buying. A master trust on the development is OK. You will find properties offered with the promise of a bank trust in the future. It may take many years or you may never get one. Talk to Cholla Bay and San Jorge "owners" .
• Leasing a property as a means to avoid having to get a bank trust is illegal and risky. You could lose all of your investment.
• Be certain the property is in a legal subdivision and is actually a legally subdivided unit.
• Remember if a Notary does not process your sale, you did not buy anything. No one else can arrange a legal transfer of real estate. The Notaries are now also required to document the legal source the money came from that you used for the purchase.
• Have a Notario examine the actual bank trust or title and the identification of the seller. Do this after you have decided on a property you are confident you want to buy and before you make an offer. You will have to pay for this but it is well worth it if there is even the slightest issue. This will tell you if the property can be sold and is offered by the actual owner and not someone else that cannot legally sell or if there are unpaid capital gains taxes possible. Otherwise your deposit can be at risk. If it offends the seller or their representative to ask this, walk away.
• Be aware that the so called 'escrow accounts' are not what is offered in the US. Usually the initial earnest money is simply held by the real estate agency. I would write a US check, make the time to accept your offer short and be prepared to cancel the check. Lots of escrow money has disappeared over the years.
• Pay all the fees as itemized by the Notario directly to the appropriate agency, do not use an intermediary company or individual other than the Notario. Millions of dollars have been stolen by collecting these required payments and keeping the money, leaving town with the money. Irrespective of what anyone tells you, you can make these payments directly except those made to the Notario.
• Never agree to state a purchase price lower than the actual price you paid. Not only is this illegal it lowers the buyers closing costs at purchase but inflates the capital gains tax you pay when you sell, assuming a flat or growing market.
• Read the HOA rules carefully if you purchase a condo . You will have little recourse but to complain to your friends after the sale is finalized. You can learn alot by talking to other owners in the development.
• If an HOA, be sure you understand all the fees. If you don't like the fees, don't buy, you will never get them lowered.
• If you want to rent your property, take the time to understand ALL of the legally required taxes, fees and procedures. This has changed recently and is more expensive that prior years. Be sure to factor the costs of damage and wear and tear, renters can be hard on a property and if your's gets run down it will not rent well.
• If you choose to rent 'under the table' be certain you understand the risks. Remember that your neighbors after you buy, who are legal, will be watching and reporting. The management companies of the condos and rental companies will be required to enforce the rules. Many renters have not ever declared rental income and little was done but things are changing, not a risk to take.
• If you need to depend on rental income to make your payment, don't buy.
• If you get a legal contract from the seller to finance your purchase be aware that all of the terms and fees at closing can change by the time you satisfy the contract and apply for transfer of the property. You may have to pay part of the capital gains tax of the seller as that will be determined according to the date contract is satisfied, not the date of the start of the contract.

This may sound like a lot but it is all simple stuff. Others may disagree with what I offer and some may offer more suggestions. You will not have a problem if you keep your eyes open, mouth asking questions and brain thinking !! It's still pretty much a buyer's market so be confident in taking the time you need to made the best decision for you.

 

[brokenwave]

As Roberto said,
The HOA fees will run you $350-450 per month on a 2 bedroom, as well as the occasional
capitol improvements fund fees $1000-3000+ , every 2-4 years.
The HOA fees will be $50-60K during the next 10 years.
If you are going to rent it out 10 months a year be prepared for surprises that will cost you $$.
But at the current real estate prices it wouldn't be bad, much better than for those who paid $350-400K for the same thing 5-7 years ago.

 

[DiegoD]

Thank you Roberto for the detailed advice and brokenwave for the HOA info. !! I am definitely taking notes, what is your take on this property?
http://www.flexmls.com/share/AGz4/1104-Las-Palomas-Cortez-Puerto-Penasco
This is kind of what I have on mind? where would you start your offer in a buyers market?

Thanks !

 

[mis2810]

As a recent buyer, I'll share my 2 cents. If you've only stayed at a house in Las Conchas and at Las Palomas, I suggest before buying you should stay at other resorts that interest you first in order to get a "feel" for what you are buying into. I haven't checked the prices lately on 2 bedrooms at Las Palomas, but they will definitely be at or over the high end of your range of 100k to 150k. The HOA fees at Las Palomas are VERY expensive. It is a huge resort that I'm sure requires a ton of maintenance. Not sure how the HOA is being run now, but they have had problems in the past. Just yesterday, I saw an advertisement on Facebook saying they were hiring for maids, landscapers, receptionists, cooks, etc. That's the only time I've ever seen an advertisement for what basically amounts to a "job fair" at a resort. It makes me wonder why they are looking for so many people all at one time - maybe I'm just overly suspicious.

You'll likely find a better deal at the Sonoran Spa, Sun, or Sea. The Sonoran Sky is pricey. I would probably rule out the Sonoran Sun as well, just because of the proximity to the new Home Port. Which completely rules out Esmeralda as far as I'm concerned, as well. Not sure what the HOA fees are at the Sonorans, though. Over the years I've stayed at all of the Sonorans, Las Palomas, and Las Palmas. Bella Sirena looks beautiful but its expensive and the HOA fees are sky high. Princesa never interested me because, first of all, they have pine trees out front and that immediately seemed out of place and weird to me - ruined the whole beach vibe - and even though it was built at the same time as some of the other older resorts it just looks old to me - inside and out.

After years of staying at the other resorts, we chose Las Palmas because even though it's still a resort, it doesn't seem huge and impersonal to me like Las Palomas did. It's one of the older resorts on the beach, but the common areas are very well maintained and the HOA fees are the lowest on the beach. $199/month for a 2 bedroom. They have never asked for capital improvement fees from the owners since the beginning of the resort. Before we purchased there we had heard from various sources - with nothing to gain - that it was the most well managed HOA on Sandy Beach and from what I've seen I believe it. They're constantly making improvements to increase rentals, but at the same time making sure that the property does not become run down because of the increase in rentals. They also look for ways to cut operational costs without it affecting the quality and efficiency of the resort from either the owners' or the renters' view. The prices at Las Palmas are currently in line with your budget as well. The other thing I might add about Las Palmas is that both bedroms have ocean views unlike some of the other resorts. Even though it sounds like it, I'm not trying to push Las Palmas, just telling you what my first hand experience has been. I'm not a realtor, never have been, and never will be, either!

Seriously, do not buy at any resort that you haven't stayed at a few times during different parts of the year. You can't judge one resort by Spring Break when it's jam packed, or during mid-December when it's a ghost town. Each resort has it's own "vibe" and you have to find the one that appeals to you, but that also makes solid business sense as well.

 

[mis2810]

The other thing I forgot to mention is about your dual citizenship. My husband is a Mexican citizen and I thought that would save us a ton of money and not have to have a bank trust for our condo. If the property you ultimately decide to buy is privately owned by a Mexican citizen without a bank trust, your closing costs will definitely be lower. However, if you purchase a condo that already has a bank trust in place, and you want to buy it in your name as a Mexican citizen, the buyer has to pay to cancel the bank trust which can run into thousands of dollars. Because of this we opted to transfer the trust, rather than cancel it and have my husband purchase as a Mexican citizen.

 

[mis2810]

And another thing . . . LOL. Cash is king. If you aren't looking for owner financing and you have the cash you should probably expect to pay 15% to 20% less than the listing price. Low ball your offer(s) if you have the cash - especially on an unfurnished unit like the one you linked to above.

 

[DiegoD]

Mis2810,
Your advice could not be more valuable to me. I am looking forward to visiting Rocky Point next weekend and will definitely visit Las Palmas.
Who do you recommend as an Realtor and the consequent Notario paperwork?

As a side note, in a way I felt a bit pressured by the construction of the Home Port. I have high hopes for Rocky Point and know that in the next 10, 15 and 20 years it will be a great destination (Not that it is not already, I love the feel of it now but there is so much untapped potential). I feel like I have a good 12 month window before prices pick up considerably (wishful thinking for all the residents and the town as well) and want to buy before its expensive again.

I will definitely make more trips and explore other resorts.

 

[DiegoD]

The other thing I forgot to mention is about your dual citizenship. My husband is a Mexican citizen and I thought that would save us a ton of money and not have to have a bank trust for our condo. If the property you ultimately decide to buy is privately owned by a Mexican citizen without a bank trust, your closing costs will definitely be lower. However, if you purchase a condo that already has a bank trust in place, and you want to buy it in your name as a Mexican citizen, the buyer has to pay to cancel the bank trust which can run into thousands of dollars. Because of this we opted to transfer the trust, rather than cancel it and have my husband purchase as a Mexican citizen.

-Great info about the trust, I always thought it would be a cake walk as a Mexican citizen. I will definitely look into that.

 

[mis2810]

Without going into too many details on a public forum, we did not use a realtor - ours was an owner to owner transaction. If you want to private message me, I can give you more details. Our unit was never listed on the MLS. But, I have had contact with 3 or 4 of the condo realtors over the years while looking and the one realtor that I got the best advice from, and general feeling from, was Dan Monroe. www.rockypointdan.com. But since I didn't actually use his services during the purchase, I'm only going on my gut feeling.

 

[sheep3mom]

If you are looking at the Sonorans, Jim Ringquist is really good and very knowledgable. Plus he's a really nice guy.

 

[mis2810]

Ditto to Sheep3Mom - if I had been interested in the Sonorans, I would have contacted Jim. Don't know him personally, but he seems very nice here on the forum and I look forward to reading his newsletter every month.

 

[Roberto]

what is your take on this property?
http://www.flexmls.com/share/AGz4/1104-Las-Palomas-Cortez-Puerto-Penasco
This is kind of what I have on mind? where would you start your offer in a buyers market?

Thanks !

I am not a fan of condo living, although I see the advantages, it holds no appeal to me so I will not comment on likability! The unit you reference is unfurnished and unless you live like a monk there will be significant additional expenses, especially if you want a well appointed rental. Examine the costs of furnishings carefully. $7 to $10K at minimum I would guess. Not much available here. You can buy in the US and import but be sure you know the costs.

As Mis2810 says, to find a location that suits you best, visit them all as much as possible.

The advice about the bank trust/title is good to think about also. You will have fees from both the bank and from the Notario under any circumstances. The Notario fee should be a similar amount to transfer an existing trust or cancel and issue a title, maybe $1,800 but be sure to inquire. Bank fees to transfer an existing trust might be about $2,000 or so but fees to cancel differ from bank to bank so the amount to cancel will depend on the bank and the number of years left on the original trust. The more years left on the trust, the more the fee to cancel.

It might be less expensive at closing to keep the trust, but remember too the annual fees for a bank trust should be factored in. This annual cost varies depending on the issuing bank so inquire about the specific property you are interested in and remember this is not an amount set in stone, it can increase over the years. You might save say $1000 at closing by assuming the existing trust but with fees of $300+ annually you might be better off in the long run paying the cancelation fees and relieving yourself of the annual trust fee.

Clearly this is an issue you need to put a pencil to when you get the relevant information on the property you select. Remember too, if you finance, these costs will be established at the time you pay off the note, not at the time you sign the contract. The Notary might charge more in 5 years, the banks may charge more in that time also. This also applies to any capital gains taxes you are liable for due to increases in value over the term of the note.

Have fun looking.

 

[brokenwave]

DiegoD,
I own a house in Cholla, We have an HOA fee but it's like $200 per year. I have to pay for the maintenance on the house.
Painting the exterior every 4-5 years $1200, Painting the roofs every 5 years $800. We have to wash the windows every trip
to get the dust and sand off, spray off the patios and do a wipe down of the inside surface counters, or we have someone do that
for $50.
I don't have nice beach in front of my house or nice landscaping or many amenities like at the resort, but I have a great view being
100 feet from the water
My closest neighbor is 40 feet from my place and I am able to see a great sunset from my front patio every time I am there.

When I built my house in the late 80's, there wasn't much to choose from back then.

When we go to one of the resorts to eat or we will go to visit friends who are staying there and hang out on the beach,
so sometime my wife and kids wish we had a Condo, but when we get back to Cholla that quickly fades.

There are advantages to both living in a Condo and having a private home elsewhere in the RP area. Your choice.

 

[dry heat]

Another realtor option in rocky point (I believe he has the highest sales volume and most listings in Las Palomas)...
http://www.rockypointjohn.com/ (John Witt)

 

[Buffalo Marty]

Hi Diego- just my 2 cents: I closed in Dec 2012 on a 2bdr/2bth at the Sonoran Sea. My agent was Dan Monroe aka 'Rocky Point Dan'- you can Google him and find his website. Even for those not interested in buying I would recommend his e-mail newsletter since it contains various news and notes about Penasco.
Based on my experience, I could not have higher praise for Dan- he was looking at properties for me, and sending me ones he thought I might like for more than 2 YEARS before I ever even got close to making an offer. He never pressured me, never was anything other but a straight shooter, and simply acted as a knowledgeable resource, no more, no less, until I saw something that I was ready to make a move on. And when I did move forward, it was super smooth every step of the way, up to Dan having 'power of attorney' at closing when I couldn't be present. This is just my experience keep in mind, but I definitely wanted to share it. I know that Dan works across numerous of the resorts, as he took me to many different ones during the search process (Pinacate, Princessa, Palomas, Sea, Spa, etc)
I have been thrilled so far with the investment. I have been renting and making a decent chunk to offset the Loan+HOA, but I agree with Roberto that you should not count on this income to pay bills- definitely consider a 'worst case' scenario so you can cover everything, and treat any income as extra. You can PM me if you have any other questions- I went though all this recently and could share any tips/experiences that might come in handy. Take care.

 

[brokenwave]

+1 on RP Dan, I have heard good things about him.

There are a few decent agents, and then there are a few hacks agents in RP, You know who you are.

Diego D, Don't count on it as positive cash flow or an investment. (maybe it will work but expect ups and downs
in the rental market).

2005-2007 had many people thinking it as such, I couldn't believe all the stories sales pitches I heard from
those Hacks who called themselves Professional, I have 2 good friends who sipped the Condo Kool-aide
and lost them to foreclosure because the stories they believed crashed in front of them, and then the HOA fees increased
to make up for all the people who bailed.

 

[dry heat]

If you are paying cash for your unit (which I assume you are) Below is a possible scenario if you are aggressive in renting your unit (ie. self market):
purchase price at $150,000. With real estate you would probably be happy with an 8-10% annual return (pre-expenses). This would mean an annual cash flow of about $12k-15k (pre-expenses).
Figure your real estate taxes, utilities, tax service and HOA are roughly $500-$600 per month ($6k-7kish annual)
If you rent your unit on average 120 nights per year (32% occupancy for the year) with an average gross rental of $200 per night (then subtract the 25% rental management fee), you are now at about $150 per night. Based on 10 rental nights per month, you are at $1500 per month or $18k per year gross rental income.
add another 1k per year for maintenance and your net is around $11k per year (roughly 7% annual return after expenses). I think this is a fair expectation.

Eventually lending will return and when it does, that will automatically increase values. When the port is complete, that will also increase values. I think we are on a positive (economic... not environmental Jerry) course. As long as we don't have anything crazy happen again for some time... we should be ok. so another future benefit of holding real estate is the hope of increased values. since you are still buying at lower prices (today), you should be able to sell for a profit in 5-10 years.

 

[Roberto]

If you are paying cash for your unit (which I assume you are) Below is a possible scenario if you are aggressive in renting your unit (ie. self market):
purchase price at $150,000. With real estate you would probably be happy with an 8-10% annual return (pre-expenses). This would mean an annual cash flow of about $12k-15k (pre-expenses).
Figure your real estate taxes, utilities, tax service and HOA are roughly $500-$600 per month ($6k-7kish annual)
If you rent your unit on average 120 nights per year (32% occupancy for the year) with an average gross rental of $200 per night (then subtract the 25% rental management fee), you are now at about $150 per night. Based on 10 rental nights per month, you are at $1500 per month or $18k per year gross rental income.
add another 1k per year for maintenance and your net is around $11k per year (roughly 7% annual return after expenses). I think this is a fair expectation.

Eventually lending will return and when it does, that will automatically increase values. When the port is complete, that will also increase values. I think we are on a positive (economic... not environmental Jerry) course. As long as we don't have anything crazy happen again for some time... we should be ok. so another future benefit of holding real estate is the hope of increased values. since you are still buying at lower prices (today), you should be able to sell for a profit in 5-10 years.

All due respect Dry, I think you might be a little off base. I might be a little off topic but seems to me to be related to any real estate purchase.

Is that occupancy realistic. Most rentals are weekend only so that estimate would be like 100% occupancy on the weekends ??

Is $200 night a typical charge. I know nice rentals on or close to the beach at $150.

Remember too that the overhead is every month irrespective of how bad the rental market might be. And you can assume that overhead, taxes and fees will increase over the years, not decrease.

Completing the port does not mean it will actually be used so do not depend on that or any other 'pie in the sky' stuff. Also I am of the opinion that most of the boat people fromthe US will arrive in time to board and leave on return to port in tour busses. That is how I would market them, an 'all inclusive' cruise, one price and cheap. If this is the case the impact on rentals will be there but much less than personal vehicle arrivals.

When was 'lending' ever available here? Developer financing yes but I have never heard of a traditional bank loan on a house or condo here. Yes if it were available the market would be radically different. Or maybe you mean in the US as second mortgages were a prime source of purchase money in the past.

 

[dry heat]

All due respect Dry, I think you might be a little off base. I might be a little off topic but seems to me to be related to any real estate purchase.

Is that occupancy realistic. Most rentals are weekend only so that estimate would be like 100% occupancy on the weekends ??

Is $200 night a typical charge. I know nice rentals on or close to the beach at $150.

Remember too that the overhead is every month irrespective of how bad the rental market might be. And you can assume that overhead, taxes and fees will increase over the years, not decrease.

Completing the port does not mean it will actually be used so do not depend on that or any other 'pie in the sky' stuff. Also I am of the opinion that most of the boat people fromthe US will arrive in time to board and leave on return to port in tour busses. That is how I would market them, an 'all inclusive' cruise, one price and cheap. If this is the case the impact on rentals will be there but much less than personal vehicle arrivals.

When was 'lending' ever available here? Developer financing yes but I have never heard of a traditional bank loan on a house or condo here. Yes if it were available the market would be radically different. Or maybe you mean in the US as second mortgages were a prime source of purchase money in the past.

1. I mentioned if he was aggressive with marketing his unit (ie. self marketing). It is realistic to see an average of 10 rental nights per month if someone is aggressive on their marketing efforts.
2. For a 2 bedroom unit ($200 per night is a rough avg for 2014 among the higher end sandy beach resorts).
3. Completing the port will not significantly change the # of visitors staying pre or post a cruise. What it will more than likely do is raise the overall value of the resorts since the possibility of those wanting to buy here will increase.
4. Lenders such as M&I did lend in Rocky Point. Along with other Mexican lenders that required at least 25% down. This is outside of the developer financing that was available at the time. Hopefully we will see such lenders return one day.