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Monday, July 9, 2012

Retirement in Puerto Vallarta--live in Mexico?cheap, Huh?

Mexico on $5 a day? Sure, not a problem if you can survive on four cervezas during the day and sleep in a tent pitched somewhere in the woods during the night. Of course, if you live on the Mexican Riviera, you'll only be able to afford a couple cervezas a day but you will be able to sleep on the beach!

In 1997, we moved to Puerto Vallarta, Mexico, known as Vallarta or PV by the locals, and inevitably, when meeting folks in the States, we're asked why in the world we would live there. Most assume it's due to the low cost of living in Mexico and that one can do just fine on Social Security.

The reasons why we have lived in Vallarta for ten years have very little to do with the cost of living. One of the reasons has to do with the latitude of Vallarta which is the same as Hawaii, resulting in a climate absolutely perfect for golfing, fishing, tennis, hiking, swimming, or whatever your hobby is for seven months a year, November through May.

The population of PV, our sleepy little Mexican fishing village located on Banderas Bay on the Pacific Ocean, just surpassed 350,000 making it equal in size to Anaheim, California or twice the size of Boise, the capital of Idaho. Of the 350,000 inhabitants, there are close to 50,000 North Americans d uring the seven month "high season". They have retired here in order to enjoy the many world class restaurants, seven magnificent golf courses, world class deep sea fishing, modern supermarkets and shopping malls, and night life galore. Most of these North American residents of Vallarta have satellite TV with 350 channels, high speed internet service, air conditioning, and all the other modern conveniences that could be found in the States. Clean water, clean food, modern hospitals with the latest in sophisticated equipment for first class medical care, and a high regard for safety will be found here in PV. Actually, there are very few reasons not to live in Vallarta.

We haven't lived here for ten years because it's cheap! As an example, gasoline is about 8 pesos per liter or $4.00 per gallon. Electricity is about the same as in the US, while telephone calls to the States are about four times as much as the same calls from the States. Food in the supermarkets is about the same as in the US; the imported products are much more, while the locally grown products may be much less. Imported hard-goods, such as electronics, at Sams Club, Walmart, or Office Depot, can be twice as much as the same products in the States. Automobiles are approximately 20% more expensive, imported clothing 50% more expensive, etc. From a residents perspective, NAFTA isn't working too well because all imported items are taxed to the hilt and cost substantially more than they do in the States.

Housing, on the other hand, is generally much lower than in the States. Of course, this depends on where in the States and where in PV, but as an example, a small house in Central Florida would compare to a casita in PV with no view and would cost twice as much. A grand estate in Pebble Beach would compare to a luxurious villa on the hillside overlooking Banderas Bay and would cost two to four times as much. A 2,000 square foot condo in St. Petersburg, Flor ida, similar to one in the Marina Area of Vallarta, would cost roughly twice as much. On average, one can safely assume that housing costs in PV are approximately half of that in the States, keeping in mind that housing prices have almost tripled during the ten years we've lived here. One difference is that the house and condo values have been softening in California and Florida during the past year, while the boom in PV is expected to continue for at least another ten years. As the baby boomers retire and discover Vallarta, the demand for new houses and condos increases, as do the costs for land, materials, and labor, resulting in escalating real estate prices. Forecasts suggest that property values will double in the Vallarta area during the next five years.
There are a couple other significant housing related differences. The first has to do with real estate or property taxes. The annual predial or property tax in Mexico is about .1% of the purchase price of the property.

Assume you bought a condo in PV for $200,000 ten years ago, keeping in mind that it was twice as much as you could have bought in the States. It's value today would be about $600,000, however it's still on the books as $200,000 and it's annual taxes are approximately $200. A condo with the same cost basis of $200,000 ten years ago located in Florida or California could be taxed anywhere from $5,000 to $15,000 today and remember, this $200,000 condo would have been half of what you could have purchased in Vallarta. Also, if you're a resident for more than five years in Vallarta and can show that it's your primary residence, there is no capital gains tax upon the sale of your property. Annual automobile taxes and consumption taxes are equiva lent to those in the States.

First class medical and dental care is available in Vallarta at roughly half the cost of that in the States. Skilled technicians for auto repair, electronics repair, carpentry, plumbing, air conditioning, and electrical work are about the same as in the States. Of course, there are many non-professionals available in PV that will work for half the price, but you get what you pay for! The one exception has to do with masonry. For a fourth the price of that in the States, you can have beautiful granite counter tops, marble floors, tile work such as pools, etc. Another major cost difference is that of unskilled labor such as maids, gardeners, or handymen. They are readily available for $20 per day but don't expect the most efficient work in the world. Again, you get what you pay for!

In summarizing, the cost of living in Vallarta is probably somewhat lower than that in Florida and substantially less than California, given s imilar standards. It is probably higher than Milwaukee, Wisconsin or Cincinnati, Ohio but there's no comparison in life styles.

One thing is for certain, we don't know of any Americans or Canadians living in PV solely on their Social Security payments. In order to live on a tight budget in Mexico, you have to head inland, away from the tourist areas, away from Paradise, and can expect a totally different life style. For the money, Vallarta is extremely hard to beat, but it's certainly not cheap!

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