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

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.

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.

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.

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.

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.

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.

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.

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.