Every vacation-rental pitch in Mexico leads with a big yield number. Almost none of them survive contact with a spreadsheet. If you are buying to invest, the single most valuable skill you can bring is the ability to calculate real ROI yourself — so you can tell the difference between a genuinely good deal and a good-looking listing. This is the exact method, worked end to end.
The four numbers that matter
Different sources quote different “ROI” figures, and they are not measuring the same thing. Learn all four and never confuse them:
- Gross yield = Gross annual rental revenue ÷ Purchase price. The marketing number. Ignores every cost.
- Net yield = Net operating income (after all operating costs) ÷ Total capital invested. The real one.
- Cash-on-cash return = Annual pre-tax cash flow ÷ Cash you actually put in. Matters most if you finance.
- Total return = Net income plus appreciation. The long-run picture.
The trick is to always ask which one a seller is quoting. When someone says “12% ROI,” they almost always mean gross yield — which can hide a net yield half that size.
Step 1 — Nail down total capital invested
Purchase price is not your cost basis. Your real invested capital includes:
- Purchase price
- Closing costs — notary, acquisition tax, fideicomiso set-up. Budget roughly 5–8% of price.
- Furnishing and set-up — a rental-ready two-bedroom typically needs USD 15,000–30,000.
- Initial reserve — a few months of operating buffer.
Skipping these inflates every yield figure you calculate. Include them.
Step 2 — Build realistic gross revenue
Gross revenue = Average Daily Rate (ADR) × nights booked. The killer variable is nights booked. Sustainable annual occupancy in a well-run unit is 50–70%, not the peak-season 85% a listing implies. Underwrite at 55–60%.
Step 3 — Subtract every operating cost
The costs that always appear:
- Platform/booking fees (~3–5% of gross)
- Property management (20–30% of gross)
- HOA / condo fees
- Utilities, internet, consumables
- Maintenance + replacement reserve
- Insurance + predial (property tax)
- Accounting / tax filing
Step 4 — The worked example
A two-bedroom condo in a strong beach market:
| Line item | Amount (USD) |
|---|---|
| Purchase price | 320,000 |
| Closing costs (~6%) | 19,200 |
| Furnishing & set-up | 22,000 |
| Initial reserve | 6,000 |
| Total capital invested | 367,200 |
Revenue:
| Revenue | Amount (USD) |
|---|---|
| ADR | 180 |
| Occupancy (58% × 365 = 212 nights) | — |
| Gross annual revenue | 38,160 |
Operating costs:
| Cost | Amount (USD/year) |
|---|---|
| Platform fees (4%) | (1,526) |
| Management (25% of gross) | (9,540) |
| HOA / condo fees | (3,600) |
| Utilities + internet | (2,400) |
| Maintenance + replacement reserve | (2,200) |
| Insurance + predial | (1,200) |
| Accounting / SAT filing | (900) |
| Total operating costs | (21,366) |
| Net operating income (NOI) | 16,794 |
Now the four numbers:
- Gross yield = 38,160 ÷ 320,000 = 11.9%
- Net yield = 16,794 ÷ 367,200 = 4.6%
- Cash-on-cash (all-cash, no financing) = 16,794 ÷ 367,200 = 4.6%
- Total return (add ~4% appreciation) = 4.6% + 4.0% = ~8.6%
Look at the gap: the pitch says 11.9%; the real cash yield is 4.6%. That is not a bad deal — a 4.6% net cash yield on a hard, dollar-earning asset, plus appreciation, is respectable — but it is less than half the headline. The whole point of the calculation is to see that gap clearly before you wire funds.
Step 5 — Stress-test it
Never underwrite the base case alone. Re-run it with:
- Occupancy at 48% instead of 58% (a soft year).
- Management at 30% instead of 25%.
- A special HOA assessment of a few thousand dollars.
If the deal only works at optimistic inputs, it is not a deal — it is a hope. A property that still clears a positive net yield at 48% occupancy is genuinely resilient.
The mistakes that break the math
- Using gross as if it were net. The most common and most expensive error.
- Assuming 80%+ occupancy. Almost never sustainable year-round.
- Omitting closing and furnishing costs from the capital base.
- Ignoring Mexican income tax (25% gross withholding, or net-basis filing with the SAT) when comparing to a home-country investment.
How we help
We build this exact model for the specific unit you are considering — pulling real comparable ADRs and occupancy for that building and micro-market, itemizing the true cost stack, and stress-testing it at conservative inputs before you commit a peso. Because we are paid by the buyer and not on the sale, the ROI we hand you is the one you can actually underwrite, with the gap between the pitch and the reality already closed.