The most obvious place to target for your first overseas property buy is an active tourist market. Not only is it easier to project and to feel confident of rental cash flow in a market with a track record, but active markets have established management industries and infrastructure, making it easier to connect with a rental manager and to outfit your purchase for rental.

We've made the point elsewhere, but it's worth repeating. Favor markets where demand is diversified. A market completely reliant on either foreign or local tourists is riskier than one that draws good numbers of both.

Another key to choosing right when shopping for a tourist rental can be avoiding cookie cutter and opting for something with inherent value. Beachfront is always a winner. Properties within walking distance of local amenities and a golf course also stand out even in a competitive marketplace. Whatever you do, don't buy an apartment in a complex of 300 identical apartments. You're reduced to competing for tenants on price and could find yourself one of a dozen or more owners trying to sell the same product at the same time when you decide to take your exit. Again, the only way to entice a buyer to choose your unit over all the others available for sale would be to lower the price.

Top Tourist Rental Buy #1: Mexico

You know that North Americans like to travel to Mexico to escape winter. Mexico's growing middle class likes to spend time on the country's beaches, too. Hot spots like Cancun and Puerto Vallarta rely on North American tourists to fill resorts November through February. Mexican tourists keep occupancy rates up during the summer months.

Our top tourist beach rental pick in this country is Playa del Carmen, the little beach town about an hour south of Cancun on Mexico's Riviera Maya. Once a sleepy fishing village, the port was inadvertently put on the map by Jacques Cousteau in 1954 when he filmed an underwater documentary of the Great Mayan Reef just offshore Cozumel Island and about 12 miles out from Playa del Carmen. Divers began seeking out these Caribbean waters, and, in the 1970s, a port was built to ferry tourists from the mainland to Cozumel. In the years to follow, Playa del Carmen (“Playa” to the locals) became more globally known, but only as an access point to Cozumel, the real star.

Simultaneously, 35 miles to the north, Fondo Nacional de Fomento Turismo (FONATUR), the Mexican government agency charged with targeting stretches of this country's long and sunny coasts for development, was doing its thing in Cancun. FONATUR's efforts in Cancun were so successful that it wasn't long before tourists to that northern point on this Riviera Maya coast reached critical mass and began looking for less crowded beaches. They discovered Playa, about an hour south, which, as a result, by the early 1990s, became the fastest-growing city in Mexico. Today's Riviera Maya is responsible for 30% of the country's tourism income, and Playa, named many times by TripAdvisor as the top destination in Mexico, plays a key role. The best rentals are on the water and along La Quinta Avenida (Fifth Avenue), the pedestrianized street that runs parallel to the beach.

The biggest downside to Mexico can be safety. This is a big country, and, yes, drug cartels make certain areas, especially along the U.S. border, no-go zones both for living and for investing. However, the cartels tend to avoid tourist zones. In fact, that's one reason the Mexican tourist market has expanded along the Yucatan Riviera Maya coast. Mexicans find it safe to vacation there.

Another benefit of Mexico, especially for a first-time overseas investor, is that it's close to home. You can get to Cancun, the nearest access point for Playa del Carmen, via quick direct flights from many U.S. cities. Thanks to this easy access, Playa attracts not only foreign tourists but also foreign retirees and second-home buyers, meaning a diversified market for renters and potential buyers when you're ready to resell.

Mexico is another market benefiting from the surging U.S. dollar. Dollar buyers have 50% more buying power in this country today than they did in 2013. Note, though, that real estate in some Mexican markets, including Playa, trades in U.S. dollars. Also note that some U.S. banks offer U.S. dollar mortgages for the purchase of property in Mexico and that some Mexican banks lend locally to nonresident North American buyers.

Top Tourist Rental Buy #2: Spain

Spain is the Florida of Europe. This is where retirees from Northern Europe head in their old age. It's also a top destination among EU snowbirds and vacationers. Decades of demand from tourists and retirees from the UK, Germany, the Netherlands, and Scandinavia created a boom market on this Mediterranean coast that became one of the greatest casualties of the 2008 global real estate crisis. Property prices in some parts of Spain dropped by as much as 75%, and values along the costas fell 50% overnight. Some markets are only recovering now, more than a decade later. Overconstruction, including construction by rogue developers without proper permits, along with epic lending at variable rates, created bloating that led to absolute collapse.

Many developments, especially along the coast, went into foreclosure, and you still can find properties coming off lenders' books. Great buys are possible, and this is a proven, perennial cash-flow market. Just as Americans will always migrate to Florida in search of sunshine, North Europeans will continue to make their way to Spain's Mediterranean coast for the same reason. The secret to successful buying for cash flow in this market is location. This is true for any property purchase anywhere but sometimes especially critical. This is one of those times. Each Spanish costa is different from all the others.

Most famous is the Costa del Sol. Puerto Banus attracts the rich and famous. The slightly less rich can be found in nearby Marbella. Retirees stretch along the coast toward Gibraltar. Many of the individual costas have tourist markets, as well, but remember to avoid the ubiquitous complexes.

That is not to say to dismiss ugly. Some of Spain's Mediterranean coast was developed in the 1960s and 1970s. The beachfronts of towns like Benidorm and Torremolinos are dense with old resorts and high-rise buildings. Although they can be unattractive, as most 1960s and 1970s architecture all over the world is, these legacy projects are also the best located. They're more limited in supply than the apartments built in more recent decades and better positioned. These granddaddy properties can generate strong yields.

Beachfront can be the surest short-term rental to buy, but real estate in a brand-name city can hold its value while generating reliable cash flow, too. Barcelona is such a city. Prices are higher than along the coast on a per-square-meter basis because values in Barcelona didn't fall as far during the crisis as those on the overbuilt costas, thanks to more limited supply and local demand.

One thing to note when investing in rental property in Spain is that the Spanish assume that, if a property you own is not your primary residence, you're renting it out. As a nonresident property owner in Spain, you will get a tax bill each year based on a presumed level of rental income. It's Spain's way of guaranteeing itself payment of tax on rental income earned by foreigners, who, for decades, didn't report it. Now the Spanish figure it for you, so, if you buy a second home in Spain, you might as well rent it when you're not using it yourself. You're going to be taxed as though you are regardless.

Top Tourist Rental Buy #3: Portugal

Portugal followed a path similar to that of Spain in the wake of the 2008 real estate crisis. Property prices fell as much as 50% across the country. The difference was that Portugal wasn't nearly as overbuilt as Spain, so most markets recovered more quickly.

On the other hand, Portugal has never had the same tourist or retiree appeal as Spain. Almost 83 million foreign tourists traveled to Spain in 2018, while Portugal saw but 12.8 million visitors that year.

Development along Portugal's coast never reached the levels of development along the coast of Spain because, since the early 1990s, Portugal has restricted it. No new construction is allowed within 500 meters of the water, and new construction anywhere in coastal regions comes with height limitations. This has kept Portugal's coast largely free of the high-rises and massive condo projects that blight the Mediterranean shores of Spain. Portugal has a few bona-fide international resort towns (Albufeira, for example), packed with tourists and their trappings each season, but even these feel cozy compared with some of Spain's tackiest locales.

The downside to the Algarve region is that it's relatively small. It compares in size to a single one of the Spanish costas. That makes it more manageable from a research and property shopping perspective but also means more limited investment options. Real estate values in many of the hottest tourist spots on the Algarve coast increased significantly between 2015 and 2019, pushing down rental yields. Lagos, for example, was an undervalued market when we purchased our apartment there, but we wouldn't recommend focusing on this city now.

Lesser-known areas haven't seen the same levels of appreciation but also don't see the same volume of tourists each season. Look to the eastern half of the Algarve for the best buys. We particularly like Taveira.

Lisbon has seen tremendous appreciation since 2015, as well as a significant increase in tourism. Prices per square meter in key tourist neighborhoods have pushed past those in central Barcelona, but Lisbon can still make sense if your budget stretches to afford it. The best buy today could be a renovation project outside the known hot spots of Barrio Alto, Chiado, and Baixa.

For a city cash-flow buy, we also like Porto, just beginning to attract attention. As in Lisbon, the best investments are on the edges of the city center, in neighborhoods where tourists don't need a car to get around.