Buy in Mexico

Q: Can foreigners own property in Mexico?

A: Foreigners may directly own rural or urban land in the interior of
Mexico subject to certain limitations on specific agricultural tracts.
Article 27 of the Mexican Constitution states that foreigners cannot
own property within 100 kilometers of the border and 50 kilometers of
the coastline. This is a protectionist measure, put in place after
foreign invasions repeatedly threatened the country's sovereignty.
As time has passed, and as the Mexican government has come to realize
the benefits of opening these attractive areas up to foreign
investment, they have modified this constitutional restriction. Since
1973 foreigners (non-Mexicans) have been able to purchase coastal and
border properties if done through a Mexican bank trust, known as a
Fideicomiso.

 

Q: What is this Trust, and how does it work?

A: Essentially, it is like a Trust in the United States —the bank
holds the legal title to the property, with all rights and privileges
of ownership, including exclusive use and enjoyment, held by the Trust
beneficiary—the foreigner. The foreign beneficiary enjoys the right to
occupy or rent the property, and may cause the transfer of title or
beneficiary transfer to the property to any legally qualified person
he may designate. Beneficiaries are also allowed to modify their
property in accordance with local zoning regulations.
These Trusts have an initial term of 50 years. They are renewable at
any time or at the end of the 50-year period for a relatively small
fee (less than $1,000 US) for additional 50-year periods. The property
may also be sold to a person legally authorized to own land or to
another foreigner via a Trust, at any time, with the foreign buyer
capturing the amount of the appreciation of the property value. This
process is designed to protect the rights of foreigners, and ensure
the transactions are legal.

 

Q: How are these Trusts created?

A: To establish a real estate Trust, (fideicomiso), banks will charge
a predetermined fee, plus a percentage of the property's value, to
cover the costs of preliminary studies and the drafting of the Trust
agreement. The bank also charges an annual fee for maintaining the
Trust, roughly averaging $500 per year, providing there is no
financing involved.
The Trusts are carried as off balance sheet assets by the banks who
act as trustees. The Mexican Government specifically set the trust
system up to allow non-nationals the security of ownership without
having to change their 1917 constitution.
Most real estate agents can refer you to a reputable Mexican bank
trust department, which generally have English-speaking personnel, as
well as publications, available to answer questions about Trusts.

 

Q: Are there differences in other aspects of property ownership in Mexico?

A: Financing is relatively new in Mexico . If financing is something
one wants or needs, get pre-approved ahead of time, just as you would
in the U.S. or Canada .
Closing costs to the buyer tend to be roughly 2 to 4 times higher in
Mexico than they are in the U.S. or Canada , averaging 4 to 6 percent
of the purchase price. Closing will take from 30 to 60 days depending
on contingencies and financing requirements. Escrows are now starting
to be available via private escrow companies specializing in this
function and will run from $1,500 to $1,800 U.S. per transaction.
The buyer and seller need not be present at closing, but may be
represented by their sales agent via a power of attorney.
Notaries are the agents of record for all transactions registered in
the Land Registry Office.

 

Q: What about the availability of insurance on the transaction (title
insurance), as well as the property itself?

A: To date, there are no home inspection agencies nor home warranty
policies available in Mexico , however in recent years, title
insurance is available on property that is fee simple land held in a
trust. Beginning in 1996, Stewart Title Guaranty Company began
underwriting title insurance for Mexican properties at an approximate
cost of 1% of the insured amount.
Other types of insurance, including property, liability, damage, and
earthquake, are all readily available in Mexico, at low cost, and
policies can be written to pay claims in U.S. dollars.

 

Q: What about taxes? What can I expect to pay in Mexico?

A: For the buyer, the subject of real estate taxes generally comes as
good news, especially in the Puerto Vallarta area, real estate taxes
tend to be low. Known as 'Predial', the tax is calculated as a
percentage of the assessed value, paid every bimester, determined at
the time of sale. Property taxes have historically been low in Mexico
because they have never been considered a source of governmental
revenue.

 

Q: What other expenses should I consider on the purchase of property in Mexico?

A: If you are not planning on living full time in Mexico, property
maintenance will need to be considered for the time you are away.
Homeowners may want to consider a property management company. Many of
the leading real estate companies, especially in Mexico's resort
areas, offer this service, and can also be quite successful in
generating income from vacation rentals, should you be interested in
doing so.

 

Adapted from La Punta Realty FAQ (c) La Punta Realty 2006