How is gross rental yield different from net rental yield for Mexican property?

Gross rental yield is calculated as annual rental revenue divided by the property purchase price, expressed as a percentage. If a $200,000 USD condo generates $14,000 USD in annual STR revenue, the gross yield is 7%. Net rental yield subtracts all operating costs before dividing by price. Those costs include: ISR withheld on rental income (typically 25% flat on gross for non-residents), property management fees (20–30% of gross revenue for STR management), HOA/condo fees (USD $300–$600/month in major resort markets), maintenance and repairs (budget 1–1.5% of property value annually), fideicomiso annual fee (USD $500–$700/year for coastal properties), vacancy allowance (15–25% in even well-managed properties), and insurance (USD $800–$1,500/year for a resort condo). After these deductions, a 7% gross yield typically delivers 4–5% net yield in a well-managed Puerto Vallarta or Cancun property. In Tulum, where management costs are similar but occupancy has declined, net yields of 2–3% are common. The gap between gross and net is where developer projections and investor reality diverge most significantly. Always ask a developer or agent for their net yield calculation — and verify the ISR assumption and management fee percentage they used.

How does Mexican ISR (income tax) work for Canadian rental property owners?

ISR (Impuesto Sobre la Renta) is Mexico's income tax. For non-resident property owners earning rental income, there are two calculation options: (1) Flat 25% on gross rental receipts — simple to calculate, no deductions claimed. This is often the most practical option for Canadians who do not have a Mexican accountant tracking expenses. If you receive USD $12,000 in annual rental income, you remit USD $3,000 to SAT (Mexico's tax authority). (2) 35% on net income after allowable deductions — applicable when you have significant deductible expenses that would reduce your taxable base enough to make the net calculation preferable. Deductible expenses include property management fees, maintenance, insurance, mortgage interest (if applicable), and HOA fees. If your deductions reduce net income by more than approximately 28.6% of gross revenue, the 35%-on-net election produces a lower tax bill. In practice, most Canadian non-resident owners use the 25% flat-rate option because: (a) it is simpler, (b) it requires less record-keeping, and (c) for typical resort condos with modest maintenance, it usually produces a lower effective tax. The ISR must be withheld by your Mexican property manager and remitted to SAT on your behalf. Ensure your management contract specifies ISR withholding compliance — a manager who does not properly withhold and remit creates a SAT compliance exposure for you as the property owner.

How do I report Mexican rental income to the CRA on my Canadian tax return?

Mexican rental income is reported to the CRA on Form T776 (Statement of Real Estate Rentals), attached to your T1 personal income tax return. The reporting process: (1) Convert all revenue and expenses from USD (or MXN) to CAD using the Bank of Canada annual average exchange rate for the relevant tax year. (2) Report gross rental income on T776, then deduct eligible expenses: property management fees, ISR paid in Mexico, HOA fees, insurance, maintenance, fideicomiso annual fees, and any other direct expenses of earning rental income. (3) The ISR you paid in Mexico is a creditable foreign tax under the Canada-Mexico tax treaty (Article 6). You claim the ISR credit on Form T2209 (Federal Foreign Tax Credits). The credit offsets your Canadian tax owing on the same income up to the Canadian tax rate on that income — eliminating double taxation. If your ISR paid in Mexico (25% flat on gross) exceeds your Canadian marginal tax on the net rental income, the excess ISR is not refundable — but it eliminates your Canadian tax on that income entirely. (4) You must also file T1135 (Foreign Income Verification) if the total cost of all your foreign property exceeds CAD $100,000. Note: you report rental income to CRA on your worldwide income basis regardless of what was withheld in Mexico — the withholding does not eliminate the CRA reporting obligation.

Is Tulum still worth buying as a rental investment in 2026?

The honest answer for 2026: Tulum is a significantly worse rental investment than it was in 2021–2022, and many buyers who purchased on developer yield projections of 8–12% gross are not achieving those returns. The supply-demand picture changed dramatically between 2022 and 2024. Pre-construction demand flooded Tulum with new inventory — over 8,000 new STR units were either delivered or under construction by 2024. Simultaneously, international tourism demand for Tulum has normalized from its post-COVID peak. The result: occupancy rates that were running 75–80% in peak season have declined to 55–65% for average properties, with lower-quality buildings in secondary locations seeing occupancy in the 40–50% range. Average nightly rates have also compressed as supply increased competition among properties. Gross yields of 4–6% in 2026 are achievable for well-located, professionally managed Tulum properties — but the entry prices are still priced at the 2022 investment boom level in many pre-construction projects. Buyers should calculate whether a 4–6% gross yield (likely 2–3.5% net) justifies a USD $250,000–$400,000 investment in a market with significant unsold inventory overhang. For comparison: Mazatlán offers similar or better net yields at lower entry prices with less supply-side pressure. If you are committed to Riviera Maya, Playa del Carmen has more stable demand and better long-term rental appeal than Tulum.

What is the difference between STR (short-term rental) and long-term rental yields in Mexico?

STR (short-term rental via Airbnb, VRBO, or direct booking) produces higher gross yields than long-term rental in most Mexican markets — but also higher management complexity, costs, and ISR exposure. Long-term rental (unfurnished, 6–12 month leases) produces lower gross yields but significantly lower operating costs and management burden. The comparison for a typical Puerto Vallarta 1-bedroom condo priced at USD $200,000: STR: annual revenue USD $12,000–$16,000 (gross yield 6–8%). After management (25%), ISR (25%), HOA, maintenance: net USD $6,000–$8,000 (net yield 3–4%). Long-term rental: annual revenue USD $7,200–$9,600 ($600–$800/month USD). After ISR (lower effective rate for long-term), minimal management: net USD $5,500–$7,500 (net yield 2.75–3.75%). The difference in net yield is smaller than the gross yield gap suggests — because STR costs are substantially higher. Long-term rental is often the right choice for Canadians who: (a) do not want to use the property personally (STR restriction for personal use weeks), (b) are not in Mexico regularly to supervise management quality, (c) prefer predictable income to variable occupancy, or (d) own in markets like Mérida or Lake Chapala where STR demand is structurally limited. STR makes more sense when: the market has strong year-round tourism demand (Cancun Hotel Zone, PV), the property is in a managed condo program, and the owner genuinely cannot earn similar net return from long-term rental due to high market demand.

How do HOA and condo fees affect rental yields in Mexican resort markets?

HOA and condo fees (cuotas de mantenimiento) are a significant and frequently underestimated cost in Mexican resort condos. In major resort markets, expect: Puerto Vallarta, Playa del Carmen, Cancun Hotel Zone: USD $300–$600/month for a 1–2 bedroom condo in a development with pool, gym, 24-hour security, and common areas. Higher-end developments: USD $700–$1,200/month for luxury amenities (concierge, beach club access, multiple pools). Mazatlán, Mérida: USD $100–$300/month — lower density and simpler common areas. San Miguel, Lake Chapala (houses vs condos): USD $100–$250/month in gated communities. At USD $400/month in HOA fees ($4,800/year), the impact on a property generating USD $14,000 gross rental income is significant: HOA alone reduces gross margin by 34%. Combined with ISR and management fees, the HOA becomes the third-largest cost in your operating stack. Before buying any condo for rental purposes: request the HOA financial statements, the reserve fund balance, and the meeting minutes for the past two years. A condo association with an underfunded reserve is a future special assessment risk — Mexican associations can levy special assessments for major repairs (roof, elevator, pool resurfacing) with limited notice. This is particularly relevant in older Cancun Hotel Zone buildings.

What are the best Mexican cities for Canadian buyers who want rental income with low management burden?

For Canadians who want Mexican rental income with minimal management complexity, the ranking is: (1) Mérida — long-term rental to expat and digital nomad tenants. Furnished 1-bedroom apartments rent for $700–$1,100 USD/month. Tenant turnover is lower than beach markets. No fideicomiso required (inland, no restricted zone). Property management for long-term rentals is simpler than STR — typically 8–10% of rent vs 20–30% for STR. ISR effective rate lower on long-term rental. (2) Lake Chapala/Ajijic — long-term rental to the large North American retiree community. Rental demand is stable, tenants are mature and low-risk, and properties are typically houses rather than condos with complex strata management. (3) Puerto Vallarta condos in managed rental programs — where the developer operates the STR program and handles everything for a management split. Less control and lower net return than independent STR management, but truly passive. (4) Mazatlán — lower entry price, growing STR management infrastructure, and less competitive rental market than PV makes it easier to achieve target occupancy without intensive owner involvement. The highest-yield markets (Cancun Hotel Zone, Playa del Carmen) also have the highest management complexity — especially for first-time foreign property owners who are not in Mexico regularly to oversee operations. Start simple: a well-located Mérida long-term rental with a local property manager is a lower-risk introduction to Mexican rental income than a Tulum STR on a developer yield projection.

Does the Canada-Mexico tax treaty help Canadian rental income investors?

Yes — materially. Article 6 of the Canada-Mexico tax treaty covers income from immovable property (rental income). The key provisions for Canadian property investors: (1) Mexico can tax rental income from Mexican property even if the owner is a Canadian resident. This is expected — Mexico is the source country. (2) Canada must give a foreign tax credit for Mexican ISR paid on the same rental income. This prevents double taxation. The credit works as follows: if you paid USD $3,000 ISR to Mexico on rental income, that ISR is converted to CAD and credited against your Canadian tax owing on the same income. If your Canadian marginal rate on the rental income produces a Canadian tax liability of CAD $4,500, the credit reduces it to approximately CAD $1,500 net additional Canadian tax after the credit. If the ISR you paid equals or exceeds the Canadian tax on the same income, you pay zero additional Canadian tax. (3) The treaty also covers withholding rates on dividends, interest, and pension income — all relevant for Canadians who retire to Mexico. The key CRA requirement: you must actually have paid (or had withheld) the ISR in Mexico to claim the foreign tax credit. Paper ISR that was not remitted, or ISR avoided through a non-compliant arrangement, does not qualify for the credit. This is why ISR compliance in Mexico is not optional — it directly affects your Canadian tax position.

How is gross rental yield different from net rental yield for Mexican property?

Gross rental yield is calculated as annual rental revenue divided by the property purchase price, expressed as a percentage. If a $200,000 USD condo generates $14,000 USD in annual STR revenue, the gross yield is 7%. Net rental yield subtracts all operating costs before dividing by price. Those costs include: ISR withheld on rental income (typically 25% flat on gross for non-residents), property management fees (20–30% of gross revenue for STR management), HOA/condo fees (USD $300–$600/month in major resort markets), maintenance and repairs (budget 1–1.5% of property value annually), fideicomiso annual fee (USD $500–$700/year for coastal properties), vacancy allowance (15–25% in even well-managed properties), and insurance (USD $800–$1,500/year for a resort condo). After these deductions, a 7% gross yield typically delivers 4–5% net yield in a well-managed Puerto Vallarta or Cancun property. In Tulum, where management costs are similar but occupancy has declined, net yields of 2–3% are common. The gap between gross and net is where developer projections and investor reality diverge most significantly. Always ask a developer or agent for their net yield calculation — and verify the ISR assumption and management fee percentage they used.

How does Mexican ISR (income tax) work for Canadian rental property owners?

ISR (Impuesto Sobre la Renta) is Mexico's income tax. For non-resident property owners earning rental income, there are two calculation options: (1) Flat 25% on gross rental receipts — simple to calculate, no deductions claimed. This is often the most practical option for Canadians who do not have a Mexican accountant tracking expenses. If you receive USD $12,000 in annual rental income, you remit USD $3,000 to SAT (Mexico's tax authority). (2) 35% on net income after allowable deductions — applicable when you have significant deductible expenses that would reduce your taxable base enough to make the net calculation preferable. Deductible expenses include property management fees, maintenance, insurance, mortgage interest (if applicable), and HOA fees. If your deductions reduce net income by more than approximately 28.6% of gross revenue, the 35%-on-net election produces a lower tax bill. In practice, most Canadian non-resident owners use the 25% flat-rate option because: (a) it is simpler, (b) it requires less record-keeping, and (c) for typical resort condos with modest maintenance, it usually produces a lower effective tax. The ISR must be withheld by your Mexican property manager and remitted to SAT on your behalf. Ensure your management contract specifies ISR withholding compliance — a manager who does not properly withhold and remit creates a SAT compliance exposure for you as the property owner.

How do I report Mexican rental income to the CRA on my Canadian tax return?

Mexican rental income is reported to the CRA on Form T776 (Statement of Real Estate Rentals), attached to your T1 personal income tax return. The reporting process: (1) Convert all revenue and expenses from USD (or MXN) to CAD using the Bank of Canada annual average exchange rate for the relevant tax year. (2) Report gross rental income on T776, then deduct eligible expenses: property management fees, ISR paid in Mexico, HOA fees, insurance, maintenance, fideicomiso annual fees, and any other direct expenses of earning rental income. (3) The ISR you paid in Mexico is a creditable foreign tax under the Canada-Mexico tax treaty (Article 6). You claim the ISR credit on Form T2209 (Federal Foreign Tax Credits). The credit offsets your Canadian tax owing on the same income up to the Canadian tax rate on that income — eliminating double taxation. If your ISR paid in Mexico (25% flat on gross) exceeds your Canadian marginal tax on the net rental income, the excess ISR is not refundable — but it eliminates your Canadian tax on that income entirely. (4) You must also file T1135 (Foreign Income Verification) if the total cost of all your foreign property exceeds CAD $100,000. Note: you report rental income to CRA on your worldwide income basis regardless of what was withheld in Mexico — the withholding does not eliminate the CRA reporting obligation.

Is Tulum still worth buying as a rental investment in 2026?

The honest answer for 2026: Tulum is a significantly worse rental investment than it was in 2021–2022, and many buyers who purchased on developer yield projections of 8–12% gross are not achieving those returns. The supply-demand picture changed dramatically between 2022 and 2024. Pre-construction demand flooded Tulum with new inventory — over 8,000 new STR units were either delivered or under construction by 2024. Simultaneously, international tourism demand for Tulum has normalized from its post-COVID peak. The result: occupancy rates that were running 75–80% in peak season have declined to 55–65% for average properties, with lower-quality buildings in secondary locations seeing occupancy in the 40–50% range. Average nightly rates have also compressed as supply increased competition among properties. Gross yields of 4–6% in 2026 are achievable for well-located, professionally managed Tulum properties — but the entry prices are still priced at the 2022 investment boom level in many pre-construction projects. Buyers should calculate whether a 4–6% gross yield (likely 2–3.5% net) justifies a USD $250,000–$400,000 investment in a market with significant unsold inventory overhang. For comparison: Mazatlán offers similar or better net yields at lower entry prices with less supply-side pressure. If you are committed to Riviera Maya, Playa del Carmen has more stable demand and better long-term rental appeal than Tulum.

What is the difference between STR (short-term rental) and long-term rental yields in Mexico?

STR (short-term rental via Airbnb, VRBO, or direct booking) produces higher gross yields than long-term rental in most Mexican markets — but also higher management complexity, costs, and ISR exposure. Long-term rental (unfurnished, 6–12 month leases) produces lower gross yields but significantly lower operating costs and management burden. The comparison for a typical Puerto Vallarta 1-bedroom condo priced at USD $200,000: STR: annual revenue USD $12,000–$16,000 (gross yield 6–8%). After management (25%), ISR (25%), HOA, maintenance: net USD $6,000–$8,000 (net yield 3–4%). Long-term rental: annual revenue USD $7,200–$9,600 ($600–$800/month USD). After ISR (lower effective rate for long-term), minimal management: net USD $5,500–$7,500 (net yield 2.75–3.75%). The difference in net yield is smaller than the gross yield gap suggests — because STR costs are substantially higher. Long-term rental is often the right choice for Canadians who: (a) do not want to use the property personally (STR restriction for personal use weeks), (b) are not in Mexico regularly to supervise management quality, (c) prefer predictable income to variable occupancy, or (d) own in markets like Mérida or Lake Chapala where STR demand is structurally limited. STR makes more sense when: the market has strong year-round tourism demand (Cancun Hotel Zone, PV), the property is in a managed condo program, and the owner genuinely cannot earn similar net return from long-term rental due to high market demand.

How do HOA and condo fees affect rental yields in Mexican resort markets?

HOA and condo fees (cuotas de mantenimiento) are a significant and frequently underestimated cost in Mexican resort condos. In major resort markets, expect: Puerto Vallarta, Playa del Carmen, Cancun Hotel Zone: USD $300–$600/month for a 1–2 bedroom condo in a development with pool, gym, 24-hour security, and common areas. Higher-end developments: USD $700–$1,200/month for luxury amenities (concierge, beach club access, multiple pools). Mazatlán, Mérida: USD $100–$300/month — lower density and simpler common areas. San Miguel, Lake Chapala (houses vs condos): USD $100–$250/month in gated communities. At USD $400/month in HOA fees ($4,800/year), the impact on a property generating USD $14,000 gross rental income is significant: HOA alone reduces gross margin by 34%. Combined with ISR and management fees, the HOA becomes the third-largest cost in your operating stack. Before buying any condo for rental purposes: request the HOA financial statements, the reserve fund balance, and the meeting minutes for the past two years. A condo association with an underfunded reserve is a future special assessment risk — Mexican associations can levy special assessments for major repairs (roof, elevator, pool resurfacing) with limited notice. This is particularly relevant in older Cancun Hotel Zone buildings.

What are the best Mexican cities for Canadian buyers who want rental income with low management burden?

For Canadians who want Mexican rental income with minimal management complexity, the ranking is: (1) Mérida — long-term rental to expat and digital nomad tenants. Furnished 1-bedroom apartments rent for $700–$1,100 USD/month. Tenant turnover is lower than beach markets. No fideicomiso required (inland, no restricted zone). Property management for long-term rentals is simpler than STR — typically 8–10% of rent vs 20–30% for STR. ISR effective rate lower on long-term rental. (2) Lake Chapala/Ajijic — long-term rental to the large North American retiree community. Rental demand is stable, tenants are mature and low-risk, and properties are typically houses rather than condos with complex strata management. (3) Puerto Vallarta condos in managed rental programs — where the developer operates the STR program and handles everything for a management split. Less control and lower net return than independent STR management, but truly passive. (4) Mazatlán — lower entry price, growing STR management infrastructure, and less competitive rental market than PV makes it easier to achieve target occupancy without intensive owner involvement. The highest-yield markets (Cancun Hotel Zone, Playa del Carmen) also have the highest management complexity — especially for first-time foreign property owners who are not in Mexico regularly to oversee operations. Start simple: a well-located Mérida long-term rental with a local property manager is a lower-risk introduction to Mexican rental income than a Tulum STR on a developer yield projection.

Does the Canada-Mexico tax treaty help Canadian rental income investors?

Yes — materially. Article 6 of the Canada-Mexico tax treaty covers income from immovable property (rental income). The key provisions for Canadian property investors: (1) Mexico can tax rental income from Mexican property even if the owner is a Canadian resident. This is expected — Mexico is the source country. (2) Canada must give a foreign tax credit for Mexican ISR paid on the same rental income. This prevents double taxation. The credit works as follows: if you paid USD $3,000 ISR to Mexico on rental income, that ISR is converted to CAD and credited against your Canadian tax owing on the same income. If your Canadian marginal rate on the rental income produces a Canadian tax liability of CAD $4,500, the credit reduces it to approximately CAD $1,500 net additional Canadian tax after the credit. If the ISR you paid equals or exceeds the Canadian tax on the same income, you pay zero additional Canadian tax. (3) The treaty also covers withholding rates on dividends, interest, and pension income — all relevant for Canadians who retire to Mexico. The key CRA requirement: you must actually have paid (or had withheld) the ISR in Mexico to claim the foreign tax credit. Paper ISR that was not remitted, or ISR avoided through a non-compliant arrangement, does not qualify for the credit. This is why ISR compliance in Mexico is not optional — it directly affects your Canadian tax position.

Mexico Rental Yields by City 2026: Canadian Investor Guide | Compass Abroad

Reviewed on March 2026 by the Compass Abroad editorial team

Mexico rental yields range from 2–4% net in long-term-only markets (Lake Chapala, Mérida) to 4–5.5% net in the best STR markets (Puerto Vallarta, Cancun Hotel Zone). Gross yields of 6–8% are achievable — but 30–40% evaporates to ISR (25% flat on gross), property management (20–30%), and HOA fees before you see net income.

Tulum has compressed to 4–6% gross (2–3.5% net) due to oversupply. Mazatlán is 2026's best-value net-yield market. All Mexican rental income must be reported on T776 to the CRA — ISR paid in Mexico is creditable under the Canada-Mexico tax treaty.

Key Takeaways

Puerto Vallarta and Cancun Hotel Zone deliver the highest and most reliable gross rental yields in Mexico — 6–8% on well-managed short-term rental condos. These markets have deep STR management infrastructure, year-round demand from multiple source markets, and rental programs operated by established Canadian-oriented management companies.
Tulum is the most over-marketed rental yield story in Mexico. Inventory doubled between 2022 and 2024 as pre-construction demand flooded the market. Occupancy rates have declined and average nightly rates have not kept pace with entry prices. Treat any Tulum developer yield projection above 6% gross with deep scepticism in 2026.
The gross-to-net gap is where investor expectations most frequently collide with reality. A 7% gross yield sounds compelling; after ISR (25% flat on gross, or 35% on net), property management (20–30% of gross), HOA fees, maintenance, and vacancy, net yield realistically lands at 4–5%. Model net, not gross.
ISR (Mexico's income tax) applies to rental income earned in Mexico by non-residents. The non-resident rate is 25% on gross rental income or 35% on net income after deductions — whichever the taxpayer prefers. In practice, for lightly deductible operations (unfurnished, no mortgage), the 25% flat on gross is often lower. For furnished properties with significant deductions, the 35%-on-net election may save more.
Canada requires all Mexican rental income to be reported on Form T776, regardless of whether ISR was withheld in Mexico. The Canada-Mexico tax treaty (Article 6) allows a foreign tax credit for ISR paid — preventing double taxation on the same rental income. You pay Mexico first; Canada credits the ISR against your Canadian obligation.
Long-term rental markets (Mérida, Lake Chapala) produce lower gross yields (2–5%) but also lower management complexity, lower ISR effective rates, and stronger tenant retention. For Canadian buyers who want passive income without intensive STR management, the lower yield from a long-term rental may represent a better risk-adjusted return.
Mazatlán is 2026's best-value yield market. Lower purchase prices relative to Puerto Vallarta, rising Canadian snowbird demand, and mature STR management infrastructure (several Canada-connected management companies now operate there) combine to produce net yields competitive with PV at lower capital deployment.
San Miguel de Allende's boutique vacation rental market is income-positive but yields are compressed by high entry prices (USD $400K–$800K for quality properties) and a shorter peak season driven by cultural tourism rather than beach sun-seekers. It is a capital appreciation story more than an income story.

Mexico Rental Yields 2026: Key Facts for Canadian Investors

Best gross yield market (2026): Puerto Vallarta and Cancun Hotel Zone: 6–8% gross on well-managed short-term rental units
Tulum oversupply warning: Tulum STR inventory doubled 2022–2024; gross yields have compressed to 4–6% and net yields below 3% are common
Gross vs net yield gap: Expect 30–40% of gross rental revenue to disappear to ISR, HOA, management fees, and vacancy — a 7% gross yield becomes roughly 4–5% net
ISR rate for non-residents: 25% flat on gross rental receipts, or 35% on net income (after deductions) — non-residents choose the more favourable option
T776 CRA reporting: All Mexican rental income must be reported on T776. ISR paid in Mexico is a creditable foreign tax under the Canada-Mexico treaty (Article 6)
Mérida STR restriction: Mérida's colonial centro has informal STR limits; most Mérida income is long-term rental at 2–3% net yield
Lake Chapala STR ceiling: Lake Chapala is a long-term retiree market — very limited short-term demand. Gross yields 2–4% only
Mexico property management cost: Professional STR management (Airbnb + cleaning + maintenance coordination): 20–30% of gross revenue in all major markets
Fideicomiso annual fee: USD $500–$700/year for a coastal property fideicomiso — deductible T776 expense for Canadian owners
Top net-yield market: Mazatlán: lower entry prices, rising demand, and mature STR management infrastructure produce net yields competitive with PV at lower capital outlay

Mexico Rental Yields by City: 2026 Comparison

Gross STR yield is annual revenue ÷ purchase price. Net yield deducts ISR, management, HOA, and vacancy. Long-term yield reflects unfurnished long-term leases. All figures are estimates for a typical 1–2 bedroom unit in a well-located development.

Mexico rental yield comparison by city — 2026 estimates for Canadian investors
City	Gross STR Yield	Net Yield (est.)	Long-Term Yield	ISR Complexity	2026 Trend
Puerto Vallarta	6–8%	4–5.5%	3–4%	Medium	Stable
Playa del Carmen	5–7%	3.5–5%	3–4%	Medium	Stable
Cancun Hotel Zone	6–8%	4–5.5%	2–3%	Low–Medium	Stable
Tulum	4–6%	2–3.5%	2–3%	Medium	Declining
Cabo San Lucas	5–7%	3.5–5%	2–3%	Medium	Stable
Mérida	3–5%	2–3.5%	3–5%	Low	Rising
San Miguel de Allende	4–6%	2.5–4%	2–3%	Medium	Stable
Mazatlán	5–7%	3.5–5%	3–4%	Low	Rising
Lake Chapala / Ajijic	2–4%	1.5–2.5%	2–4%	Low	Stable

The Gross-to-Net Gap: Where Yields Actually Go

A 7% gross yield in Puerto Vallarta sounds compelling. Here is where it goes on a typical USD $200,000 condo generating USD $14,000 in annual STR revenue:

Net Yield Model: USD $200,000 PV Condo, 7% Gross

Gross annual STR revenueUSD $14,000

Less: ISR (25% flat on gross)–USD $3,500

Less: Property management (25% of gross)–USD $3,500

Less: HOA / condo fees (~$350/month)–USD $4,200

Less: Maintenance & repairs (1% of value)–USD $2,000

Less: Insurance + fideicomiso fee–USD $1,200

Net annual incomeUSD ~$–400

This model illustrates the yield compression risk. A 7% gross yield with typical HOA fees of $350/month can produce near-zero net income. Properties with lower HOA fees (older buildings, simpler amenities) or higher revenue (premium location, superior management) improve this materially.

The model above shows the risk, not the norm — a well-run property with an active rental program and lower HOA fees can produce 4–5% net yield. But the inputs matter enormously. HOA fees are the hidden variable that most buyers underweight. In Playa del Carmen and Tulum, new development HOA fees of USD $500–$700/month are common — and at those levels, the breakeven revenue requirement is very high.

City-by-City Analysis

Puerto Vallarta6–8% gross | 4–5.5% net

Canada’s most popular Mexican market and the benchmark for rental yield expectations. Deep STR management infrastructure, year-round Canadian and American demand, and strong direct flight connectivity from 10+ Canadian cities. The Zona Romántica and Versalles neighbourhoods produce the most consistent yields. HOA fees in established buildings run USD $250–$400/month — lower than newer Riviera Maya developments. The Canada-Mexico treaty reduces ISR friction for CRA reporting purposes. Best entry price range for yield: USD $150,000–$300,000 for a 1–2 bedroom with active rental history.

Cancun Hotel Zone6–8% gross | 4–5.5% net

Seven million annual visitors provide the deepest demand pool in Mexico. Hotel Zone condos in rental programs tied to the adjacent hotels produce consistent occupancy rates of 65–75% annually. The model works: hotel-integrated rental programs eliminate management complexity and produce reliable gross yields. The risk is higher HOA fees in newer towers (USD $400–$600/month) and less personal use flexibility in hotel-rental programs. Investment-first buyers who want maximum yield with minimum management do well here.

Playa del Carmen5–7% gross | 3.5–5% net

Strong year-round tourism demand from multiple source markets (US, Canada, Europe) and a large local expat population support both STR and long-term rental. Slightly lower gross yield than PV or Cancun HZ, but more liquid resale market and stronger capital appreciation history. HOA fees in newer Playa developments have risen sharply — model USD $400–$600/month in any post-2020 development.

Tulum4–6% gross | 2–3.5% net — OVERSUPPLY WARNING

The most over-marketed rental investment in Mexico. Pre-construction demand doubled STR inventory between 2022 and 2024 while demand growth decelerated. Developer yield projections of 8–12% that attracted buyers in 2021–2022 are not being achieved by the majority of properties. Occupancy compression and rate pressure have produced net yields of 2–3.5% in many properties. Buyers who purchased on developer yield projections are frequently discovering the gap at the time of first-year rental reconciliation. Approach Tulum only for capital appreciation speculation — not income yield.

Cabo San Lucas5–7% gross | 3.5–5% net

Premium market with strong US demand. Higher entry prices compress gross yields relative to PV — a USD $400,000 condo needs to generate USD $24,000 in annual revenue for a 6% gross yield. Strong weeks (US Thanksgiving, Christmas, spring break) compensate for lower shoulder-season occupancy. A capital appreciation market with supplementary rental income rather than a pure yield play.

Mazatlán5–7% gross | 3.5–5% net — BEST VALUE 2026

Lower entry prices than PV, rising Canadian snowbird demand, and mature STR management infrastructure produce net yields competitive with Puerto Vallarta at USD $50,000–$100,000 less in capital deployment. Several Canada-connected management companies now operate in Mazatlán after establishing in PV. The Zona Dorada beachfront has the strongest rental demand; the Olas Altas area attracts cultural and long-stay visitors. Direct WestJet and Sunwing flights from Calgary and Edmonton make this the preferred Alberta snowbird market.

Mérida3–5% gross | 2–3.5% net (STR) | 3–5% long-term

No fideicomiso required. A long-term rental market driven by the large and growing expat community and Mexican domestic migration (Mérida is one of Mexico’s fastest-growing cities). STR demand is limited — Mérida is a cultural and lifestyle destination, not a beach resort. Long-term rental of renovated colonial homes or modern condos to expats and digital nomads produces stable 3–5% yields with lower management complexity than STR. A conservative income play with strong capital appreciation potential.

San Miguel de Allende4–6% gross | 2.5–4% net

A boutique vacation rental market with strong demand during peak festival and cultural tourism seasons. High entry prices (USD $400K–$800K for quality colonial properties) compress gross yields. Short peak season relative to beach markets limits annual revenue potential. Best positioned as a capital appreciation story with supplemental rental income rather than a yield-first investment.

Lake Chapala / Ajijic2–4% gross | 1.5–2.5% net

Mexico’s largest North American retiree community. Limited STR demand — this is a community of long-term residents, not tourists. Rental income comes from long-term leases to retirees and expats, typically at 2–3% net yield. Chapala is not an income investment destination; it is a lifestyle investment. Buyers acquire property here to eventually live in it, not to generate returns while in Canada.

ISR and CRA: The Tax Stack for Canadian Rental Owners

Mexican rental income creates a two-country tax obligation. Understanding both is essential for realistic yield modelling.

In Mexico: ISR on Rental Income

Non-resident property owners pay ISR on Mexican rental income. The two calculation options are 25% flat on gross receipts, or 35% on net income after deductions. For most Canadians using a property manager, the 25% flat option is simpler and often produces a lower effective rate. The ISR must be withheld by your property manager and remitted to SAT quarterly.

In Canada: T776 Reporting

All Mexican rental income must be reported on Form T776 on your Canadian tax return. Convert revenue and expenses to CAD using the Bank of Canada annual average exchange rate. Claim the ISR paid in Mexico as a foreign tax credit on Form T2209. The Canada-Mexico tax treaty (Article 6) prevents double taxation — the ISR credit offsets your Canadian tax on the same income up to your Canadian marginal rate. File T1135 if your total foreign property cost base exceeds CAD $100,000.

Mexico Rental Yields: Frequently Asked Questions

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Mexico Rental Yields by City 2026: The Canadian Investor’s Real Numbers