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This was written as a primer for those considering a purchase of Mexico Real Estate. This is in no way comprehensive and is not meant as legal advice. Please consultwith a QUALIFIED Realtor® or attorney before you even start the process. Aknowledgeable Mexico real estate expert will assist you in many more ways than just buying a property. They will even be able to help you with a plan to lower yourcapital gains for when you decide to sell...that's forward thinking on your part!-----------------------------------------------------------------------------------------------
Mexico Property Ownership – The Safe WayBuying in paradise does not mean having to roll the dice!By John Forget
I am often asked “Can foreigners really own property in Mexico?” The answer is aresounding yes – but only if you use the same common sense you would use inCanada or the U.S., use a qualified real estate professional and have competentlegal representation. Follow this formula and you and your family will have a safeinvestment that you can enjoy and benefit from for many, many years.Although there is no way to explain the intricacies of real estate in Mexico in thisformat, I will try to give a reasonable understanding of the process - and give yousome tips on protecting your investment and interests. I strongly recommendseeking professional guidance. More often than not, it costs you nothing but it cansave you headaches, time, money…or even your entire investment!It doesn’t surprise me that people visit this wonderful country called Mexico and fallin love with her charm and beauty. It doesn’t surprise me when folks say that theycan’t believe how friendly the people are or how affordable everything is. I’m noteven surprised when someone says they want to live here part-time, or evenpermanently. I am amazed, however, when they decide to invest in real estate andwork with the first person they meet that says they “sell” real estate. There are literally millions of folks in Mexico that say they sell real estate. Very fewof them do this as their fulltime job and even fewer are trained in theBASICS! Would you allow a taxi driver to give you a root canal? How about gettingbrain surgery from a waiter? Of course you wouldn’t! You don’t risk what isimportant to you with someone without the knowledge to help you…period! There is plenty of misinformation when it comes to owning property in Mexico. It isalso the case that a little information can be dangerous (do any of you have a know-it-all in-law?). Please use this basic primer for general information purposes only andseek professional representation to buy real estate in Mexico. If you are consideringa pre-construction project, I stress this point even more - there are very few legalprotections with this type of investment...no matter what the nice salesman toldyou!
How Foreigners Own Real Estate in Mexico
The Mexican constitution states that foreigners may not directly own land in the“restricted zone”. Although this name sounds ominous, the restricted zone is simplyall the land up to 100 km (around 60 miles) from the borders, all the land up to 50km (around 30 miles) from the Mexican coastline, and the entire Baja. All otherMexican lands may be owned outright (fee simple) by foreigners. To save theproblem of having to change the constitution (a bad proposition for any politician),but still allow secure foreign investment, the Mexican government introduced a landtrust system called a
fideicomiso
(pronounced “fee-day-ee-co-me-so”). The fideicomiso is created through a Mexican financial institution (bank) and thisbank holds the deed to the property…in trust. You and/or other persons that youspecify are sole beneficiaries to the trust (and therefore the property). You have fullrights to do whatever you like with your property: it can be developed (within thelaw), rented, leased, sold, or given away. In other words, fee simple ownership in allbut name. The great news is that the property is not an asset of the bank. If thebank fails...the trust is transferred to another financial institution.
THE PROCESSFind Your Agent
- A good rule of thumb is to make sure your agent has 1-2 yearsexperience practicing real estate in Mexico, a minimum of 10 completedtransactions, CONOCER certification (a standards based competency certificationgiven by the Mexican government), and belong to Mexico’s professional real estateassociation, A.M.P.I. - ASK FOR THE PROOF! You do not need a license to sell real estate in Mexico. If that last sentence doesn’tconcern you, read it again.
Financing
– If you need it…get it now! Nothing is worse than finding the perfectMexican property and losing it to someone else because the other person had theirducks in a row before you. Most sellers in Mexico will not accept a “subject tofinancing” in the agreement. Your agent should be able to connect you to somelenders. An ethical agent will also disclose if he will receive a commission for thisservice. Ask the question so you know who your agent is really working for.
Find the Property
- If you are in a market that has an MLS, use it. Your agentshould have asked you a million questions by now to make sure that the propertiesthey will show you will actually meet your criteria. If you feel that the agent is notlistening to you…find a new one - quick! Don't be surprised if you ask for a 3bedroom condominium, with a pool, and close to the beach and they come backwith a 1 bedroom house on a mountain with no running water (ok, that may be anextreme example but it's pretty darn close).
You Found the Place of Your Dreams
– The agent will put together the salesagreement and, if he/she is a true professional, have it checked by a licensed realestate attorney. Your agent’s fiduciary (first) responsibility is to protect you and yourrights (whether your agent knows that will depend on how well you interviewedhim/her). One other thing to consider – make sure you are working with an agentthat knows the property’s true market value and can negotiate. Just becausesomething seems like a good value doesn’t mean that is what it is worth. It’s onlymoney but it’s your money, right?After the Sales Agreement Is Accepted - Your agent should give you an estimate of closing expenses - based upon the actual accepted purchase price. Closingexpenses can be anywhere from 4 – 10 percent of the purchase price (more if financing is involved). Some expenses are fixed and some are percentages of thepurchase price. The fixed expenses can be the same whether the property is 150K USD or 950K USD and that is the reason for the spread. Generally, the moreexpensive the property, the lower the percentage of the sale price the closingexpenses will be. These costs will cover setting up the trust, the first year’s trustfee, permits, the property acquisition tax, legal expenses, and more. None of this ispaid to the agent or the seller, only the Notario’s office (more on him later) and thegovernment. A quick side note – if the seller or agent asks you to declare a loweramount for the property than was agreed to…run away.
Set Up An Escrow Account
– Your agent should ALWAYS recommend you set upan escrow account for the purchase. It is around $550-$650 USD but it is the safestway to buy and probably the best money you will ever spend. The agent will set upthis account for you. Americans are very familiar with the escrow concept but it ismostly unknown to Canadians. In a nutshell, the initial deposit and remainingpurchase amount are deposited into a U.S. escrow account. The money is onlydisbursed when the buyer, seller and Notario agree that all conditions have beenmet and there is a legal sale at the closing. Before the close, if a seller or agent askyou to give them any of the purchase amount to hold in trust in their "trustaccount"…run away.
Title Insurance
– Depending on the circumstances of the sale or property, titleinsurance may be a good idea. Title insurance rates are in the $5-$6USD / $1,000 of the property’s value. Talk to your agent about the value of title insurance.Until the closing, there is not much else to do. The Notario or attorney will ask youto complete a beneficiary statement (a great concept as it avoids estate taxesand/or probate...if you happen to leave this world) and ask for assorted paperworkand I.D.s. You will also have to decide if you are going to be in Mexico for the closingbecause, if not, a power of attorney may be needed so someone can sign on yourbehalf. Closings generally take 30-60 days on a cash sale and 60-90 on financing.
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