Vacation Rentals vs. Long-Term Leases in Los Cabos: A Data-Driven Comparison
For American investors buying property in Los Cabos, the rental strategy question is fundamental: Should you operate as a short-term vacation rental (Airbnb, VRBO) or sign long-term leases? The answer depends on your property type, location, risk tolerance, desired level of involvement, and financial objectives. This guide breaks down both strategies with real numbers, regulations, and practical considerations.
Short-Term Vacation Rental (STR): The Numbers
Revenue Potential
Vacation rentals in Los Cabos can generate significantly higher gross revenue than long-term leases, but with higher costs and variability:
- One-bedroom condo (marina area): $100-$200/night × 200 nights average occupancy = $20,000-$40,000 gross annual revenue
- Two-bedroom condo (corridor): $200-$400/night × 180 nights = $36,000-$72,000 gross
- Three-bedroom villa (Pedregal/Palmilla): $500-$1,500/night × 150 nights = $75,000-$225,000 gross
- Luxury estate (5+ bedrooms): $1,500-$5,000/night × 120 nights = $180,000-$600,000 gross
Operating Costs
STR operating costs are substantial and must be factored into any ROI calculation:
- Property management: 20-35% of gross revenue (covers listing management, guest communication, check-in/checkout, cleaning coordination)
- Cleaning: $50-$200 per turnover depending on property size
- Maintenance reserve: 5-10% of gross revenue (STR properties receive more wear than LTR)
- Utilities: $200-$800/month (owner-paid for STR, higher due to AC usage)
- Insurance: $1,000-$3,000/year (STR-specific liability coverage)
- Platform fees: 3-5% host fee (Airbnb) or listing subscription (VRBO)
- Supplies and amenities: $100-$300/month (toiletries, coffee, linens replacement)
- Furnishing depreciation: Budget $5,000-$15,000 every 3-5 years for furniture replacement
After all expenses, net income from STR typically represents 45-65% of gross revenue.
Seasonality
Los Cabos STR revenue is heavily seasonal:
- Peak (December-April): Highest rates, 75-95% occupancy. This period generates 55-65% of annual revenue.
- Shoulder (May, October-November): Moderate rates, 45-65% occupancy.
- Low (June-September): Reduced rates (30-50% below peak), 25-45% occupancy. Hurricane season affects bookings.
Long-Term Rental (LTR): The Numbers
Revenue Potential
Long-term rentals in Los Cabos provide steady, predictable income:
- One-bedroom condo: $800-$1,500/month = $9,600-$18,000 gross annual
- Two-bedroom condo: $1,200-$2,500/month = $14,400-$30,000 gross annual
- Three-bedroom home: $2,000-$4,500/month = $24,000-$54,000 gross annual
- Luxury villa: $5,000-$15,000/month = $60,000-$180,000 gross annual
Operating Costs
LTR costs are simpler and lower:
- Property management: 8-12% of monthly rent (or self-managed)
- Maintenance: 3-5% of annual rent (less wear than STR)
- Vacancy allowance: Budget for 1 month vacancy per year between tenants
- Legal/contracts: $500-$1,500 for lease preparation and tenant screening
Net income from LTR typically represents 75-85% of gross revenue.
Head-to-Head Comparison: A $500,000 Two-Bedroom Condo
- STR gross revenue: $45,000/year (average)
- STR net income (after 40% expenses): $27,000/year = 5.4% net yield
- LTR gross revenue: $21,600/year ($1,800/month)
- LTR net income (after 15% expenses): $18,360/year = 3.7% net yield
STR wins on absolute returns, but the gap narrows when you factor in the owner's time, stress, and the higher risk profile of vacation rentals.
Regulatory Landscape
Short-Term Rental Regulations
Los Cabos has been tightening STR regulations in recent years, following trends in other Mexican resort markets:
- Registration: STR operators must register with the municipal government and obtain a commercial operating license
- Tax obligations: STR income is subject to ISR (income tax) and potentially IVA (value-added tax) if revenue exceeds certain thresholds
- HOA restrictions: Many condominium HOAs have implemented their own STR rules — minimum stay requirements, noise policies, and guest registration. Some communities have banned STR entirely.
- Platform compliance: Airbnb and VRBO are beginning to collect and remit Mexican taxes in some jurisdictions
Long-Term Rental Regulations
LTR is less regulated but comes with tenant protections under Mexican law:
- Tenants have strong eviction protections — removing a non-paying tenant can take 3-6 months through the courts
- Lease agreements should be prepared by a Mexican attorney and specify terms clearly
- Rent increases are typically tied to Mexico's official inflation rate (INPC)
- Security deposits are standard (usually 1-2 months' rent)
The Hybrid Strategy
Many savvy Los Cabos investors employ a hybrid approach:
- Peak season STR (November-April): Maximize revenue during the high-demand tourist months
- Off-season LTR (May-October): Sign a 6-month lease with a seasonal worker, expat, or remote worker at a reduced monthly rate
- Owner use: Reserve 2-4 weeks per year for personal use
This hybrid approach can optimize total annual revenue while reducing the vacancy risk that plagues pure STR strategies during the summer low season.
Which Strategy Is Right for You?
Choose STR if:
- Your property is in a high-demand tourist area (marina, Médano Beach, corridor resort)
- You want to use the property yourself for part of the year
- You're comfortable with income variability and seasonal fluctuations
- You're willing to invest in professional management or handle guest communications yourself
- Your HOA and community allow short-term rentals
Choose LTR if:
- You prefer predictable, steady income with minimal management
- Your property is better suited for residential living (residential neighborhoods, less tourist-oriented areas)
- You don't plan to use the property yourself
- You want lower operating costs and fewer headaches
- Your property doesn't have the furnishings, location, or views to command premium nightly rates
The Los Cabos rental market is mature enough to support both strategies. The right choice depends on your property, your priorities, and how actively you want to manage your investment.