Puerto Vallarta
Live and Retire In Mexico
Articles by Robert Foster

Published June, 2001

Question -- Budd and Ellen Dakin ask:... "We are looking for an inexpensive area to live, possibly renting at first. We do not require a large residence (600 to 1000 sq. feet). Do you have any idea how much it would cost to buy or rent a basic accomodation of that size? We are not afraid of doing minor renovations ourselves if we buy. Transportation via local bus is not a problem for us."

Answer -- These very issues have been recently discussed on the People's Guide web site. Click through the articles I've (Robert Foster) done on various aspects of budget living in PV. Many of these articles are in the form of answers to questions raised in letters such as yours. The range of rental prices, realistic monthly living costs, pros and cons of various neighborhoods, etc., are all discussed.

Puerto Vallarta articles

But, to recap very briefly: Something comfortable and livable -- though likely very plain and utilitarian -- can be rented in a traditional outlying suburb of Puerto Vallarta for as little as $200 to $400 US a month. (Peso equivalent, of course, and yes, with all essential services such as cable tv, phone, internet, and bus, etc.)

My wife and I are also extremely frugal minimalists, but we don't hesitate to invest when we find a bargain in real estate. For example, in the spring of '95 we bought a fairly large, comfortable home here. It's in a traditional, non-touristy suburb. You can get much more home for your money if you avoid the tourist zones (which have become breathtakingly expensive, and have an annoying feeling of unreality and hype-in my opinion).

You also ask, "Do you have any info on deposit interest rates and guarantees through Lloyds? I have heard that the interest rate, paid in pesos, is quite good. Any info you can give us would be greatly appreciated."

Allen W. Lloyd and Associates offers a family of funds; several money market funds, and at least one Mexican stock equity fund. Many foreigners residing in Mexico use the AWLASA money market fund. It is the most liquid and easy to use, offering daily withdrawals. The two other money market funds offered to individuals (there is yet a fourth, but it is for corporate investment) require at least thirty-days withdrawal notice, and have higher minimum balances. But, they pay 1.5-to-3 percent more.

Lloyd has a website, with an English-language option, that discusses the various funds in detail. Lloyd Associates

More generally, peso interest rates have historically been subject to dramatic swings. But, owing largely to a fairly new (and long-overdue) policy of transparency, responsibility, and accountability at the Mexican central bank, the peso has been uncommonly stable the last couple of years. (Stable in terms of the US dollar exchange rate; the rate of local peso inflation; and the subsequent peso interest rate.)

Generally, the key question regarding a money market investment, in any currency, revolves around the "real" return, meaning the actual, net gain you realize after factoring in the underlying variables of local peso inflation and future exchange rate risk. The Lloyd web site has a calculator section which indicates that from end of '99 through end of 2000, the annualized peso inflation rate was 8.72%. The average annualized return on the AWLASA fund was 12.46%. That means the REAL peso yield was 3.44%.

Beyond that, investors need to determine whether they plan to use the local currency for expenditures, or are planning to make a paper peso profit, then switch back into dollars. If they are planning to switch at some point back into dollars, the exchange rate risk becomes a much larger, more direct factor.

My wife and I keep our focus on the dollar, with by far the bulk of our money still in dollar-denominated investments in the US. We routinely transfer small amounts by wire into our peso account as needed. I'm not necessarily recommending this strategy to anyone else. But it seems to work well for us.

Food for thought: We have investments in Mexican real estate. In the interest of common-sense diversification, I prefer to keep most of my other investments in another currency/economy. Putting too much of your net worth into just one country can be risky, just as putting too much into one stock, or one property, can be risky.

Robert Foster