Buying a vacation property in Mexico to rent on Airbnb sounds simple on paper: buy a nice place near the beach, list it, collect income. The math behind a solid investment is more layered than that, and getting it wrong usually shows up a year later when the “passive income” property turns out to barely break even.
This guide walks through the actual formula investors use to calculate ROI on an all-cash beach property in Mexico, with a full breakdown of the monthly costs that most buyers underestimate.
The Core ROI Formula
If you’re paying cash (no mortgage), your return is a straightforward cash-on-cash calculation:
ROI = Net Operating Income (NOI) ÷ Total Cash Invested
Two numbers drive everything: how much cash you put in, and how much net income the property generates each year. Get either one wrong and the ROI number is meaningless, so it’s worth being precise on both.
Step 1: Total Cash Invested
This is more than the sale price. A property that isn’t furnished, registered, and listing-ready isn’t actually generating income yet, so all of the following count as part of your invested capital:
- Purchase price
- Closing costs (notario fees, ISAI transfer tax, registration — typically 5 to 8% of price in Mexico)
- Fideicomiso setup fee, if the property sits in the restricted coastal zone (most beachfront property does)
- Furnishing and setup (furniture, kitchenware, linens, professional photos, listing creation — often $15,000 to $40,000 USD for a full furnish)
- A cash reserve to cover the first few months before bookings ramp up
Add these together and you have your true denominator.
Step 2: Gross Rental Revenue
Revenue is calculated as:
Average Daily Rate × Occupancy Rate × 365 days
The mistake here is using a best-case occupancy number pulled from a peak month. Riviera Nayarit and Puerto Vallarta have a strong winter season and a slower summer, so annual occupancy for a well-managed beachfront unit typically lands between 55% and 70%. Model the seasonality month by month if you can, rather than using one flat annual number.
Step 3: Operating Expenses — The Part Most Buyers Underestimate
This is where ROI projections usually go wrong. Below are the real monthly costs of running a short-term rental in Mexico.
| Expense | Typical Range | Notes |
|---|---|---|
| HOA fees (Cuota de Mantenimiento) | $150–$600 USD/month | Higher for beachfront towers with pools, gyms, security |
| Electricity | $100–$500 USD/month | Spikes heavily in summer from AC use; can exceed $800 in peak heat months for larger units |
| Property tax (predial) | Low, but budget monthly | Mexico’s predial is low relative to the US, often a few hundred USD per year, but include it |
| Cleaning costs | $40–$80 USD per turnover | Often passed to the guest as a fee, but confirm it’s not being subsidized by you |
| Rental management commission | ~20% of gross revenue | Standard market rate for full-service management (listing, guest communication, check-in/out coordination) |
| Property manager retainer | $100–$300 USD/month | Covers having someone on call to handle anything that breaks inside the unit |
| General maintenance & upkeep | ~1% of property value per year | A safe rule of thumb; divide by 12 for the monthly reserve |
| Mexico income tax withholding (ISR/IVA) | Varies by income level | Airbnb and Booking.com now withhold this automatically at the platform level on Mexican-sourced income |
| Fideicomiso annual fee | $500–$700 USD/year | Divide by 12 for the monthly equivalent |
Add these up and you get your true monthly operating cost. Multiply by 12 for the annual figure.
NOI = Gross Annual Revenue − Annual Operating Expenses
A Worked Example
Here’s how it plays out for a mid-size beachfront condo:
| Line Item | Amount (USD) |
|---|---|
| Purchase price + closing + furnishing | $400,000 (total cash invested) |
| Average Daily Rate | $300 |
| Annual occupancy | 60% |
| Gross annual revenue | $65,700 |
| Management commission (20%) | $13,140 |
| HOA fees | $4,800/year |
| Electricity | $3,600/year |
| Property manager retainer | $2,400/year |
| Cleaning costs (net of guest pass-through) | $1,500/year |
| Maintenance reserve (1% of value) | $4,000/year |
| Property tax | $300/year |
| Fideicomiso fee | $600/year |
| Income tax withholding | ~$2,500/year (varies) |
| Total operating expenses | $32,840 |
| Net Operating Income (NOI) | $32,860 |
| Cash-on-cash ROI | 8.2% |
For an all-cash beach property in this market, anything landing in the 7 to 10% range is a solid, defensible number. Numbers above that usually mean either a genuinely strong location and pricing edge, or occupancy and ADR assumptions that deserve a second look.
Don’t Stop at Cash Flow — Factor in Appreciation
Cash-on-cash ROI only measures the income side. If you’re holding the property for several years, the more complete picture is total return:
Total Return = (NOI + Change in Property Value) ÷ Total Cash Invested
In growing coastal markets like Riviera Nayarit, appreciation can outweigh the income yield over a five to seven year hold. If you’re modeling an eventual sale, IRR (internal rate of return) is the more accurate tool, since it accounts for the timing of cash flows and the exit proceeds, including capital gains tax treatment, which differs for residents and non-residents.
The Bottom Line
ROI on a Mexican beach rental comes down to three honest numbers: what you actually invested to get the unit rent-ready, what it realistically earns after every recurring cost, and what happens to its value if you hold it for the long term. Skip any one of those and the projection looks better than the property will actually perform.
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