Well-managed vacation rentals in Los Cabos generate 7-10% annual ROI, with top-tier properties exceeding 12%. But the spread between neighborhoods is enormous — a beachfront condo in Pedregal and an ocean-view unit in El Tezal can show dramatically different cap rates despite similar gross revenue.
Key Takeaways
- Turnkey vacation rental ROI: 7-10% typical; well-managed properties reach 8-12%
- Average Cabo Airbnb revenue: $30,870/year; top 10% RevPAR: $289/night (AirROI 2026)
- STR income typically 2x long-term rental income but with higher operating costs
- Property management fees: 25-35% of gross revenue
- Condo appreciation: 9.91% YoY in 2025; 50-108% over five years
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Get Expert GuidanceUnderstanding Cap Rates in Los Cabos
Cap rate (capitalization rate) = Net Operating Income / Property Purchase Price. It's the return you'd earn if you paid all cash with no mortgage. A 6% cap rate on a $500,000 property means $30,000 in annual net operating income after all expenses but before debt service.
In Los Cabos, cap rates are influenced by three factors that differ from US markets:
- Seasonal occupancy swings: 46-73% in peak season vs. below 40% in summer
- Higher management costs: 25-35% of gross versus 8-12% typical in US markets
- Stronger appreciation: 8-12% annual price growth offsets lower cap rates
Cap Rates by Neighborhood
| Area | Entry Price | ADR Range | Est. Cap Rate |
|---|---|---|---|
| Pedregal | $800K+ | $450-$1,600+ | 4-6% |
| Cabo del Sol | $600K+ | $350-$800 | 5-7% |
| Quivira | $500K+ | $300-$700 | 5-7% |
| El Medano/Centro | $300K+ | $220-$650 | 6-8% |
| El Tezal | $250K+ | $200-$500 | 7-9% |
| East Cape | $200K+ | $150-$400 | 7-10% |
The inverse relationship between price and cap rate is typical of resort markets. Luxury properties command premium nightly rates but their purchase price is even more premium, compressing the cap rate. Value-oriented areas like El Tezal and the East Cape offer higher yields on lower acquisition costs.
Calculating Net Operating Income
Here's a realistic NOI calculation for a $500,000 two-bedroom condo in a mid-range Corridor location:
- Gross rental income: $35,000 (based on $350 ADR × 100 nights = $35,000)
- Less platform fees (16%): -$5,600
- Less property management (30%): -$10,500
- Less HOA fees: -$6,000 ($500/month)
- Less property tax: -$600
- Less insurance: -$2,000
- Less maintenance reserve: -$2,500
- Less fideicomiso fee: -$800
- = Net Operating Income: $7,000
- Cap Rate: $7,000 / $500,000 = 1.4%
Wait — that looks terrible. And that's exactly the point. When you account for all real expenses (not the rosy projections in marketing brochures), many Cabo properties show thin cash-flow yields. The real investment thesis is total return = cash flow + appreciation.
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Book a Strategy CallTotal Return: The Real Story
When you add 8-12% annual appreciation to even a modest cash-flow yield, the total return picture changes dramatically. That same $500,000 condo appreciating at 9.91% (the 2025 YoY average) gained $49,550 in equity — dwarfing the $7,000 in net rental income.
Over five years, Los Cabos condos have appreciated 50-108% depending on location and property type. A $500,000 purchase in 2020 is worth $750,000-$1,000,000+ today. That's the real investment thesis — you're buying a performing asset in a market with strong secular tailwinds (US baby boomer retirement, remote work, direct flights, tourism growth).
Operating Expenses Breakdown
The biggest mistake investors make is underestimating expenses. Here's what actually comes off the top of your gross rental income:
- Platform fees: 16% (Airbnb) or 8% (VRBO) of gross bookings
- Property management: 25-35% of gross revenue
- HOA fees: $200-$1,500/month depending on community
- Cleaning between guests: $75-$200 per turnover (often included in management)
- Utilities: $100-$400/month (electricity in Baja is expensive due to AC usage)
- Property tax (predial): 0.1-0.15% of assessed value annually
- Insurance: $1,500-$5,000/year including hurricane coverage
- Fideicomiso annual fee: $500-$1,000
- Maintenance reserve: 1-2% of property value annually
- Income taxes: 25% of gross for non-residents (see our STR tax guide)
How Top Performers Optimize Returns
The top 10% of Cabo STR performers achieve RevPAR of $289/night versus the market average of $120. What separates them:
- Professional photography and listing optimization — listings with professional photos earn 24% more on average
- Dynamic pricing tools — adjusting nightly rates for seasonality, events, and demand signals
- Multi-platform listing — presence on Airbnb, VRBO, Booking.com, and direct booking website
- Guest experience — 5-star reviews compound; a property at 4.9 stars earns significantly more than one at 4.5
- Strategic amenities — private pool access, ocean views, and walkability to restaurants drive the highest premiums
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Start Your JourneyFrequently Asked Questions
What is a typical cap rate for rental property in Los Cabos?+
Cap rates range from 4-6% in luxury areas like Pedregal to 7-10% in value areas like El Tezal and the East Cape. These are based on actual net operating income after all expenses. Many marketing materials quote gross yields of 8-12% that don't account for management fees, taxes, and operating costs.
What ROI can I expect from a Cabo vacation rental?+
Well-managed vacation rentals generate 7-10% total annual ROI combining cash flow and appreciation. Cash flow alone is often thin (1-4% net cap rate after all expenses), but 8-12% annual property appreciation makes the total return attractive. The real investment thesis is total return, not cash flow alone.
How much does property management cost in Cabo?+
Full-service vacation rental management runs 25-35% of gross rental revenue. This covers guest communication, booking management, check-in/checkout, cleaning coordination, maintenance, and listing optimization. On $35,000 in annual gross revenue, that's $8,750-$12,250 in management fees.
Is Cabo real estate a better investment than US property?+
Cabo offers stronger appreciation (8-12% vs. 3-5% in most US markets) and higher gross rental yields, but also higher operating costs, currency risk, and less liquidity. For investors comfortable with the Mexico-specific risks, the risk-adjusted return has outperformed many US markets over the past five years.
Which Cabo neighborhood has the best rental investment returns?+
El Tezal and the East Cape offer the highest cap rates (7-10%) due to lower acquisition costs. El Medano and Centro provide high occupancy (55%+) at mid-range prices. Luxury communities like Pedregal and Palmilla have lower cap rates (4-6%) but stronger appreciation. The best choice depends on your cash flow vs. appreciation preference.
How much has Cabo real estate appreciated?+
Los Cabos condos appreciated 9.91% year-over-year in 2025, with cumulative five-year appreciation of 50-108% depending on location and property type. The San Jose Corridor luxury segment saw nearly 40% appreciation in a single year. Total BCS real estate sales volume reached $1.44-1.59 billion in 2025, up 12% year-over-year.
Aaron Cuha
Real Estate Advisor & Los Cabos Market Expert
Real estate advisor and founder of Living In Cabo. 15+ years helping families navigate complex real estate decisions. Strategic partner with Ronival — Baja's largest brokerage.
