Before you decide you want to buy property in Mexico, we strongly suggest you try renting in your destination of choice and you may want to try a few different areas before you decide where to settle down.
Renting a place first is always a good idea. What you are expecting and the reality of life once you are on the ground and living day-to-day are going to be different. In some cases, the surprises will be pleasant and in others they will be disappointing.
The point is, test the waters before you make the long-term commitment. Many people simply rent in Mexico which gives them the freedom to change their minds, to try someplace new, or to return home.
Or, you can also just dive in! My wife and I had been visiting the Yucatan for 15 years of vacations a couple of times a year. In that time, we fell in love with it. So, we had a pretty good idea of what to expect . . . at least, we thought we did.
We were definitely not prepared for some of the challenges! Ultimately everything worked out well and we are very happy with our choice but buying or building in Mexico is not a “cakewalk” and we want you to have the most complete information in order to ensure your Mexico adventure is a successful one!
Ready to Buy!
First, let me dispel a couple myths about property ownership in Mexico: “Foreigners cannot own property in Mexico” or “Foreigners can only get property through a 50 year trust.”
Both of those statements are false but the laws defining foreign investment in Mexico often lead to this confusion.
The Mexican Constitution states that no foreigner may own land within the restricted zones in Mexico. The restricted zones for foreign investment are within 100 kilometers (about 62 miles) of the border, or 50 kilometers (about 31 miles) from any Mexican coastline. However, a foreigner may own property outright with legal title of any part of the interior of Mexico not included within those restricted zones.
Now, we all probably have friends, or friends of friends, that have a place in Mexico that is within one of the restricted zones, the beach house or condo, the jungle retreat or the hacienda overlooking the sea. How did they do that?
In 1997 Mexico amended their Constitution to encourage foreign investment which opened up some options.
There are now two options. The first is the above-mentioned “50 year trust” or “fideicomiso (FEE-DAY-E-CO-ME-SO).” You buy the property and the bank holds the title in a trust in which you and your heirs are the beneficiary. The Fideicomiso grants all rights and privileges of ownership including sale of the property, building, improvements and transfer of ownership or beneficiary, and it can also be renewed by you or your heirs for another 50 year term. This is the most common method used by foreigners acquiring property in Mexico, and is the recommended way to do it if you don’t plan to work in Mexico and are going to own just one home. The trust set-up fee is a percentage of the property value at time of purchase, and monthly fees run $50-$100 per month, though most are closer to the $50 part of the range.
The alternative way to own property within Mexico’s restricted zones is by forming a Mexican corporation. The corporation must be wholly owned by foreigners (you can have partners) and you are subject to all rights and responsibilities of business ownership in Mexico. In this kind of a set-up, the Mexican corporation actually owns the property and it is carried on the balance sheet as a company asset. This is an interesting loop-hole in the Mexican Constitution but it makes sense if the goal is to stimulate long term foreign investment. Many of the beach resorts you see in Mexico are owned by foreign holding companies. This is a good route to go if you plan to own more than one property or are considering starting or moving a business to Mexico.
The set-up fees for creating a Mexican corporation can range from $1500 to over $5000, depending on your region and company structure. You will be required to make monthly tax filings which require a Mexican accountant. Even if you make zero every month, you still have to file. Basic accounting services with low volume should be around $50 per month. There are some legal nuances related to scope of business and structure in having a Mexican corporation; therefore, we highly recommend having a good attorney to walk you through the process.
Find A Good Realtor
There are some things you need to be diligent about in the buying process. The first thing you will want to do is to find a good Realtor. One that has been recommended is ideal, but if you don’t have a referral, do your homework and be very selective in your choice. See what you can find out about that particular office on-line, connect with expats in the area, in many cases they have been through the scenario and will be a good source for more than just a realtor tip. Don’t be lulled into a false sense of security by going with a known “brand name” real estate office – many are great, but the laws in Mexico are very different from the US and Canada, and agents here do not suffer the same consequences, if something goes wrong. Shop the people, not the brand.
You need a good attorney – again recommendations are a key here. We hear stories of bad attorneys in Mexico even more than we hear them in the US! It is very important to have an attorney guide you through the buying process. It’s totally unlike the process in the US and Canada. Like in the States and Canada, there are a number of parties involved in a real estate transaction – the seller, the buyer, the bank, the real estate agent(s), the Notario, a title company if you want title insurance, and attorneys for both buyer and seller. Notarios in Mexico are the keepers of the public record and are generally held in higher regard than attorneys. Most are attorneys that became Notarios.
Do your homework, or make sure your attorney or title company does, when it comes to the title for your property. If you get title insurance, they handle that for you . . . after all they are the ones that will pay if something isn’t right in the future! Just make sure you have clean title, free of liens and other claims.
Generally, most real estate purchases are done in cash. If you are purchasing a place that is already built, you will pay in full.
If you are purchasing a pre-built unit, installment payments are the norm. Expect to make a deposit followed by development progress payments. Word to the wise: Verify progress before you send the next payment. If you cannot make a site visit, at the minimum, I highy recommend pictures or video by more than just the builder or realtor. The problem with pictures or video is that you may not be able to tell if it’s your unit they are taking pictures of and you will not be able to turn on faucets or flip light switches.
If you do not have all the cash upfront available, some realtors may have connections with financial institutions who may be able to help you complete your financing. Mexican banks are now beginning to offer mortgage products although significant deposits are required and interest rates are not as attractive as those in the US, Canada and Europe.
Financing is also available from some specialist US based mortgage companies which may be able to help.
Title Insurance is available in Mexico which will check for liens associated with it as well as if it is “ejido” property. Rates for Title Insurance are around $5.00 US Dollars per $1,000.00 US Dollars of the property’s value payable once at the time of purchase. There are a number if insurance companies which now offer Title Insurance for Mexican property and, as the number of providers increase, rates are becoming more competitive.
What is Ejido Land?
Ejido land is agricultural land is similar to reservation land in the U.S. After the 1910 revolution, communities and peasants were handed strips of land to grow crops and live on. Ejidos are usually owned by a community of local people and the land is passed down from generation to generation within the communities which own the parcels.
You can buy ejido land but the sale requires the agreement of the whole community that ‘owns’ it. Therefore, you are never quite sure you are talking to the correct person who has the authority to make the transaction. This is where it is CRITICAL to know your realtor and insist upon a title search and title insurance BEFORE money is exchanged.
Purchasing ejido land takes longer and can be more expensive due to the need of a legal team. There are firms now which specialize in this area of property law and have a good track record of transferring land from ejido into private ownership.
Homeowners insurance is now available in Mexico as well. Historically, the policies have not been worth purchasing, but with more and more people investing in Mexico, policy performance is swiftly catching up to the U.S. or Canadian standards.
We work specifically with Ace Seguros. Ace Seguros offers all-risk, American style, Mexican home, condominium and townhouse insurance, as well as Renters Liability insurance. If you rent out your home, condominium or townhouse, our policies includes Renter’s Liability coverage at no additional charge.