You bought the vacation condo or home of your dreams in the tranquil Pacific paradise of Ixtapa-Zihuatanejo and now you would like to get a return on your investment. Why not convert your dream vacation home into a dream vacation rental? Factors to consider whether your property could be a good revenue source are: location, view, proximity to the beach, number of bedrooms, and complex amenities if in a complex, among others. These considerations may allow you to draw anywhere from 100 – 1,000 dollars per night! A successful rental property can generate additional income and allow you to cover monthly fixed expenses such as association dues, property taxes and general upkeep and maintenance. Nevertheless, before reaping the benefits, there are some aspects that need to be considered before converting your home into a rental.
In order to turn your property into a rental, the first thing you will need to do is solicit permission to work from Mexico’s office of immigration and register your business with the Mexican tax authority (SAT, Secretaria de Administracion Tributaria). Here we provide a basic overview of the steps involved with converting your property into a rental. For more detailed information, it is recommended that you consult a local attorney or accountant.
Obtaining a rental permit
The office of immigration requires any foreign property owner who wishes to rent their home or condominium, to obtain a Mexican work visa. This work visa is called a Formato Migratorio (FM-3) and it allows them to work or perform profitable activities such as receiving money in exchange for renting out their home or condo. Some people might scoff, but the INM (Office of Immigration) has been known to peruse online rental listings as a way to monitor expatriates who may be renting their homes without proper authorization. Therefore, it’s crucial to comply with local regulations and get permission to perform business activities before starting a business, so as not to embark on costly and undesirable litigation with the Mexican immigration department. This can take as little as a few weeks or as long as several months.
Registering with the tax authorities
Once the FM3 permit is processed and approved you will then need to register with the Mexican tax authorities and obtain a Registro Federal de Contribuyentes Number, (RFC number), which is basically the equivalent of a Taxpayer ID Number. This unique RFC# should be printed, along with the registered rental business address, on a series of “facturas” which are official receipts that can be used to keep track of your rental income. Each time a rental income is generated, a factura should also be generated representing the income plus 15% IVA (Value Added Tax). These facturas are used to declare your income to SAT, for which you will need to contract a Mexican accountant who can also assist you with setting up and managing the accounting side of your rental business.
Rental Management, Administration
In order to keep your rental unit booked with guests you will need to have several things in place, namely the local administration of your unit. Your local administrator will be responsible for contracting a house keeping staff for daily ongoing maintenance of your rental. Once a guest is scheduled to arrive, the administrator can arrange for ground transportation, greet guests at the property & deliver keys, handle any renter issues should they arise and then once the guest has departed, ensure that the property has been left in good condition for the return of the rental deposit and is then taken care of to receive the next renters.
Promoting your business is also an important factor. Vacation rental websites such as vrbo.com are useful promotion tools. It’s also important to maintain an updated rental calendar so your guests know what dates the rental is available. Clear and consistent ongoing communication with renters is also a vital factor. For travelers new to Zihuatanejo or to travel in Mexico, it’s beneficial to have a local administrator who can greet your guests, provide them with area information and serve as a local backup in case any issues arrive during their stay. It’s this personal touch that often makes the difference for new, repeat and referral business.
If you will not be here locally to attend to the needs of your renter, hiring a professional management service will go a long way towards ensuring a high quality experience for your renters and higher income for you.
Home Owners Association Rules
If your vacation rental is located within a complex it’s important to check beforehand with the administration to make sure you are up to date on all of the rental rules and regulations. Many developments have regulations about the length of stay for a rental, number of people per unit, minimum renter age, etc. It’s also important that your renters understand and comply with these policies as well. A rental contract should also be considered which spells out all the terms and conditions of the rental. The best policy is to keep your renter informed so they can just relax and enjoy their stay.
Though owning a vacation rental may seem like a daunting proposition, if done correctly can provide you with a substantial year-round income and can over time, pay for the property itself. If you want the benefit without the hassles, you may want to consult a professional property management firm to assist you with the setup. Here we’ve outlined the basics towards turning your dream home into a sustainable business, but in rentals like any other competitive arena, the rest is up to you!
· · · This article originally appeared in the February 2010 issue of Another Day in Paradise for which Maura Taylor is a regular contributor. CLICK HERE to read full digital issues of this vibrant local magazine on all things Zihua.