Capital Gains and How to Identify Them in Tulum

What is Capital Gains?

According to the Oxford Dictionary, the term Capital Gains means “a profit that you make from selling something, especially property”. 

If we consider this concept in the realm of Real Estate, Capital Gains can be defined as “the value of a property that increases over a period of time as a result of external variables”..

The point of departure is the building value of a property. This value increases over time; for this reason, the market price will always be higher than the initial value. This is why buying a property is considered a long-term investment.  

Now comes the interesting part, there is a phenomenon that we call INCREASING CAPITAL GAINS, which is the exponential increase in the value of a house, as a result of market conditions; as well as, the level of certainty of the project.

For a better understanding of this concept, we have created the chart below which shows the factors that determine Increasing Capital Gains.

Let's Understand the Chart

On one hand, on the "Y" coordinate axis there appears the price of the property set by the current market in the destination. 

On the other hand, on the "X" axis, there appears the following formula:

WORK PROGRESS + TIME = Level of Certainty.

This means that the greater the progress of work overtime, (more urban infrastructure, services, accesses, common areas, and amenities on the housing development), the greater the group of people interested in investing in a property in Tulum. We call this phenomenon "Level of Certainty".

When do Increasing Capital Gains Occur?

Notice that we are talking about properties and housing developments available for PRE-SALE since, in order to get on the Increasing Capital Gains train, we must invest in a developing real estate market that has not yet reached the maximum market prices that are reached once the market has been consolidated and 100% completed. 

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What You Should Know to Make Increasing Capital Gains

1. Identify the Level of Certainty
   At this point, it is very important to receive specialist advice from a local expert (local knowledge); as well as, to start making your own research on the developing area in order to identify work progress and the different aspects that help you recognize upcoming price increases.
   The main objective is to find that "suite spot" on the chart, where the level of certainty is sufficient for you to invest safely, at a low price.
2. Know the Maximum Market Value
   Once the house or housing development is completed, its price will reach the market price; for this reason, the increase in the property's value will be at regular levels of gains.
   

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‍Example of Increasing Capital Gains in Tulum

In this section, we would like to provide you with an example of Increasing Capital Gains. Please, notice that this is not the only housing development with this opportunity in Tulum, it only serves as an example to understand the concept of Capital Gains in-depth.

*This example involves a development in Tulum called SURENNA.

First, let us place ourselves in time:

September 2021:

• SURENNA, a development of 25 houses and 34 lots, is launched in the pre-salephase.
• The initial value of the houses was $195,000 USD, and their level of certainty so far was low because the housing development was only in its initial stage; which means that, there were no houses, and there were only lots and utilities. At this moment, prices were far below market prices.
• The first house was built in the housing development and sold in October 2021 to the first buyer in Surenna at the value mentioned above.

April 2022:

• The housing development is still in the pre-sale stage as building a house takes 8 months approximately. However, there are 5 houses already built, and 20 sold houses being constructed. At this moment, the level of certainty is higher, and so are house prices.

• Another interesting factor in the progress of work is that the first house sold and built is being successfully rented by AIRBNB, which generates more confidence in future buyers of the housing development. For this reason, the level of certainty goes even higher.

Example on the Chart

Results:

The value of the houses today is $225,000 USD which means that the client who bought the first house for 195,000 USD has earned a 16% Capital Gains in just 6 months plus the amount received by vacation rentals.

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CONCLUSION

Buying PRE-SALE properties is not the only way of getting returns on property investments. However, if you want to increase your Capital Gains over the next 5 to 10 years, you should analyze your investment carefully so that you can get on the Increasing Capital Gains train and enjoy its long-term benefits. 

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