The Spreadsheet Behind Every Cabo Deal: How I Evaluate Investment Properties

Every developer in Los Cabos hands you a pro forma showing 7–10% rental yields. Every single one. And every single one is built on assumptions that would not survive a conversation with anyone who actually operates rental properties here. The Cabo investment property evaluation I run on every deal starts by throwing out the developer's numbers and rebuilding from actual market data. Here is how that works.

The Five Numbers That Matter

I evaluate every Cabo investment property on five metrics. Everything else is noise.

1. Gross Rental Yield

Annual gross rental revenue divided by purchase price. This is the starting point — the top-line number before expenses eat into it. Target: 5–8% for condos, 3–5% for villas. A $650,000 condo generating $45,500 in gross rental income delivers a 7% gross yield. That number is achievable for a well-located 2BR in the Corridor or Cabo San Lucas with professional management and dynamic pricing.

Red flag: if the developer's pro forma shows gross yields above 10%, they are either inflating nightly rates, using 80%+ occupancy assumptions, or both. The BCS MLS average occupancy for vacation rentals in 2025 was 62–68% depending on unit type, per AirDNA market data. No property consistently achieves 80% occupancy year-round.

2. Net Operating Income (NOI)

Gross revenue minus all operating expenses — property management, cleaning, maintenance, HOA fees, insurance, predial tax, utilities, platform fees, and supplies. NOI typically runs 45–55% of gross revenue in Los Cabos. The biggest line items:

• Property management: 15–25% of gross revenue (full-service includes guest communication, maintenance coordination, and accounting)
• Cleaning and laundry: $100–$200 per turnover for a 2BR, $200–$400 for a 3BR+ villa — at 50+ turnovers per year, this adds up to $5,000–$20,000
• HOA fees: $300–$1,200/month depending on community — see our HOA fee comparison
• Insurance: $1,000–$2,500/year for a standard residential policy with hurricane coverage
• Predial tax: $500–$2,000/year depending on catastral value
• Platform fees: Airbnb takes 3% (host-only pricing) or 14–16% (split pricing); VRBO takes 5% — this comes off the top before you see revenue

3. Cap Rate

NOI divided by purchase price. This is the number that lets you compare properties regardless of price point. Typical Los Cabos cap rates: 3–6%. The Corridor (Palmilla, Chileno Bay, Cabo del Sol) averages 3.5–4.5% because purchase prices are high relative to rental rates. Emerging areas like El Tezal and Rancho Cerro Colorado deliver 5–6% cap rates because entry prices are lower while rental rates are only modestly below the Corridor.

4. Cash-on-Cash Return

Net cash flow divided by total cash invested (including purchase price, closing costs, furnishing, and setup). This is the number that answers "what does my money actually earn?" If you paid all cash, it is close to the cap rate minus any debt service. If you financed a portion (rare in Mexico but possible through US-based lending or cross-border equity lines), the cash-on-cash can exceed the cap rate because you are leveraging borrowed funds.

5. Total Return

Cash-on-cash return plus appreciation plus tax benefits. This is the complete picture. In Los Cabos, appreciation has historically run 3–8% annually in the established communities, though it varies enormously by community, property type, and market cycle. Tax benefits for US owners include the ability to depreciate the structure (not land) over 27.5 years for residential rental property, and the depreciation deduction can shelter a significant portion of rental income from US taxes.

Worked Example: $650K 2BR Corridor Condo

That 2.6% cash-on-cash return is a long way from the developer's 8–10% projection. Where did the gap come from? Management fees, cleaning costs, and HOA fees are the three biggest line items that developer pro formas either undercount or exclude entirely. And this analysis does not yet include the "fun discount" — if you block two peak weeks for personal use, that costs another $7,000 in lost revenue, dropping cash-on-cash to 1.6%.

The Total Return Picture

Cash flow alone does not tell the full story. The $650K condo generating 2.6% cash-on-cash also delivers:

• Appreciation: 4–6% annually in the Corridor = $26,000–$39,000/year in unrealized gains
• US tax depreciation: $650K × 80% (structure) / 27.5 years = $18,909/year in depreciation deduction, sheltering the rental income from US taxation and saving $4,700–$7,000 in taxes depending on your bracket
• Personal use value: the two weeks you used the property would cost $5,000–$8,000 at a comparable hotel — that is imputed income you are not paying tax on

Total economic return: 2.6% cash flow + 4–6% appreciation + 0.7–1.0% tax benefit + personal use value = 8–10% total return. The deal works — but only when you account for all four components. A buyer who expects 8% from cash flow alone will be disappointed. A buyer who understands total return will see the full picture.

The "Fun Discount": What Personal Use Really Costs

Every buyer says the same thing: "We will use it for two weeks and rent it the rest of the year." The question is which two weeks. If you block the third week of September — green season, low demand — the opportunity cost is $1,400 in lost revenue. If you block Christmas week and Presidents' Day week — peak season, maximum rates — the opportunity cost is $7,000–$12,000. The time you use the property has a dramatically different price tag depending on when you use it.

My recommendation: block your personal weeks during shoulder season (late April, May, early November) where the revenue sacrifice is minimal and you still get great weather. Reserve peak weeks for rental income. The two most expensive mistakes I see: blocking Semana Santa for a family trip (that is $5,000–$8,000 in lost revenue for one week), and blocking all of December when a single Christmas-to-New-Year's booking can generate $8,000–$15,000.

Hidden Costs That Kill Returns

Beyond the operating expenses in the spreadsheet, these costs erode returns in ways most buyers do not anticipate:

• ISABI acquisition tax: 2% of the transaction value, paid at closing. On a $650K property, that is $13,000 that does not appear on the developer's pro forma but is real money out of your pocket.
• Fideicomiso setup: $2,500–$5,000 depending on the bank and property. An ongoing annual fee of $500–$1,500 adds up over a 10-year hold.
• HOA special assessments: $1,000–$10,000+ when the community needs a new roof, seawall repair, or elevator upgrade. These are unpredictable and not budgeted in pro formas. See our special assessment guide.
• ISR tax on rental income: Non-resident foreigners pay 25% ISR on gross rental income or 35% on net income (your choice). This is a Mexico tax obligation separate from your US taxes — though you can credit it against your US tax liability to avoid double taxation. Many investors do not budget for this until their first SAT filing.
• Furnishing replacement: Rental-use furnishings have a 3–5 year lifespan. Budget $5,000–$8,000 every 3–4 years for a full refresh of soft goods (linens, towels, pillows, kitchen supplies) and $10,000–$15,000 every 5–7 years for furniture and appliance replacement.