Mexico Real Estate has a lot to offer in terms of great weather, beautiful scenery, and authentic Latin American culture.
Mexico Real Estate has a lot to offer in terms of great weather, beautiful scenery, and authentic Latin American culture; plus, you will find lots of affordable real estate in Mexico. It is perfectly legal for foreigners to own Mexican real estate, including land and properties located in the restricted zones: within 50 kilometers of the coast, and within 100 kilometers of international borders.
Can Americans Own Property in Mexico?
It’s time to put an end to the most enduring myths about buying property in Mexico. Whether you’re in the market for a home you can move into full-time…a vacation retreat you can visit a few weeks a year…a beachfront lot you hope to resell at a profit…or your own slice of sand to build your dream home on…you can find it in Mexico. And, despite what you may hear, it’s perfectly legal to buy.
You can own property in Mexico in three ways. The kind of structure you use will depend on various factors, not least of which are the location and size of the property and how you plan to use it.
In this article, we take a look at three of the most common myths surrounding buying property in Mexico—and the truth behind them.
Myth #1: Foreigners Can’t Buy Property in Mexico
Foreigners can own land in Mexico. It’s perfectly legal. Outside the restricted zones—50 kilometers (about 31 miles) from shorelines and 100 kilometers (about 62 miles) from international borders—foreigners can hold direct deed to property with the same rights and responsibilities as Mexican nationals. And inside the restricted zones, foreigners can control land through fideicomisos—bank trust agreements—again with the same rights and responsibilities as Mexican nationals. Alternatively, foreigners can hold land in these areas through a Mexican corporation. However, if it’s a residential property that the foreigner plans to use personally, rather than as an investment, it should be held in a fideicomiso.
It’s simply that the title must be held within a bank trust or a Mexican corporation—not directly. That trust is easily transferrable when an owner is ready to sell. This is a safe, legal, and extremely common vehicle for foreign ownership in Mexico.
Myth #2: It’s Best to Hold Tittle in Your Own Name
An article in the Mexican Constitution of 1917 states that no foreigner can own property in Mexico’s “restricted zone.” In 1973, however, the government saw the economic wisdom of allowing foreign investment in the “restricted zones” and established the fideicomiso, or bank trust, as an instrument to allow such investment in residential real estate.
Since 1973, most foreigners who have bought residential property in “restricted zones” have therefore done so through a fideicomiso. This sort of bank trust grants the title for a piece of property to the bank (the trustee), which in turn is obliged to follow any instructions given by the trust’s beneficiary—you, the foreign owner. You retain use and control of the trust and make all investment decisions regarding the property: that is, to sell it, rent it, build on it, live on it, or pass it down to your heirs.
The fideicomiso is very secure—only banking institutions authorized and regulated under Mexican banking laws can serve as fideicomiso trustees. And with the fideicomiso you effectively have all the rights you’d have if you owned the property via direct deed. Fideicomisos do add some time and cost to the buying process. But they are a useful instrument, and many people buying outside the restricted zone— such as expats in the colonial cities, for instance—have chosen to own their property through bank trusts.
Owning property through a trust deed offers several advantages. First, you can list more than one person as beneficiary. This means, for example, that a husband and wife can essentially be “co-owners.” You can and should structure this in such a way that if one partner dies, the other has immediate, 100% control over the property. Second, you can list an “heir.” This means that, should both co-owners die, a new beneficiary is already in place—a beneficiary who, incidentally, needn’t be related to the original co-owners. Essentially, you write a letter of instruction to the bank naming this heir. When presented with the death certificate(s), the bank immediately and seamlessly passes title to him or her without his having to be in Mexico. For gay couples, friends who own a property jointly, or for couples in a second marriage with different children, this is a very desirable option.
All this is important because it allows the simple and easy transfer of control over the property and avoids the messiness of sorting out ownership in the Mexican courts. Plus, it allows you to avoid inheritance taxes. Trusts are issued for renewable 50-year periods. If you are buying property currently held in a trust, you can either establish a new trust for the next 50-year period or take over the existing trust deed. Trusts are renewable at any time by simple application. Maintenance fees for this kind of trust are typically $700 to $800 per year. Initial set-up may run a few thousand dollars.
Myth #3: The Government Can Just Take Your Land
This is simply untrue. No property controlled by foreigners through a properly constituted fideicomiso bank trust—the instrument used by foreigners to hold beachfront residential property in Mexico—has ever been repossessed by the Mexican government.
“Yes, there have been cases—such as in Baja California a number of years ago—when the Mexican government has ‘repossessed’ property from foreigners,” notes IL Mexico Editor Glynna Prentice. “But in these instances, the property titles these expats held didn’t hold up to scrutiny—they were essentially fraudulent. Yes, these expats were defrauded, but not by the government; the government was simply correcting the fraud, applying the law, and returning title to the rightful owners.
“But cases like these are good reminders that you need a competent, honest lawyer protecting your interests in a real estate deal…someone who can make sure a property title is legal, clear, and unencumbered. But IF there is a problem, you are protected as fully under the law as a Mexican citizen would be. Mexico’s legal system does work, despite bureaucracy and the occasional corruption. There is a saying in Spanish, ‘The mills of justice grind slowly, but very, very fine.’ This pretty much sums up Mexico’s legal system.”
How to Own and Purchase Real Estate in Mexico
There are three ways of owning Mexican property: via direct deed (all property in the interior), through a Mexican corporation (commercial property), or through a bank trust called a fideicomiso, for residential property in the restricted zones. All three ways of property ownership are safe.
Choose From the Wide Variety of Mexican Real Estate for Sale
Mexico Real Estate: Lake Chapala
The area around Lake Chapala, in central Mexico, is home to the largest North American expat community in the world. Obviously, it’s doing something right.
The lake itself, the largest in Mexico, makes a scenic backdrop to the villages along the shore. Lakeside, as this area is called, usually refers to the villages along Lake Chapala’s north shore: Ajijic, Chapala, Jocotepec, San Juan Cosala, and San Antonio. As many as 15,000 expats live full or part-time on the lake’s north shore; up to 40,000 live in the state of Jalisco.
With so many expats in the area, you’ll find plenty of English speakers (as well as several local English-language newspapers and magazines). You’ll also find plenty of U.S. and Canadian-style amenities. There’s no shortage of activities. Over 80 special groups are active in the Lakeside area that you can get involved with. These include everything from orchid growing to Scrabble…from writers’ groups to Francophiles…and from non-profit organizations to line dancing and yoga.
Property samples in Lake Chapala:
- Typical of low real estate prices is a 2,475-square-foot house recently for sale in Lakeside. Furnished, it has two bedrooms, 2.5 bathrooms, gated parking, and a large terrace for entertaining. Price: $109,000.
- A three-bedroom, 2.5-bathroom house in a gated community in Jocotepec, at the western end of Lake Chapala. Completely furnished, and renovated in 2005, it has two master bedroom suites, slanted boveda ceilings and a sun room. Price: $159,000.
Real Estate in San Miguel de Allende
Many people consider San Miguel de Allende the prettiest colonial town in Mexico. About three hours north of Mexico City, in the Colonial Highlands region, San Miguel is a feast for the eyes. Streets of colorfully-painted colonial houses… small, intimate plazas…quiet street corners with tinkling fountains…lush tropical flowers tumbling down stone walls…you’ll find it all in San Miguel.
This city of about 80,000 people has been attracting an artsy crowd for over 50 years. Artists, artisans, writers, and musicians flock here… and you can furnish an entire home with the high-quality, varied, handmade goods you find here. Not surprisingly, San Miguel today has one of the largest expat communities in Mexico—as many as 10,000 living here full- or part-time. As a result, you can get by easily in English in this oh-so-Mexican town.
In San Miguel you can find a full range of amenities expats love, from chic restaurants and bars to a plethora of shops and good supermarkets. Its location, in the mountainous high-desert Highlands, gives it a dry climate that is generally temperate. You usually don’t need more than a light jacket in winter, and few bother with air conditioning in summer.
Real estate prices here dropped dramatically in the wake of the 2008 global recession. But they’ve been bouncing back since 2012. Houses in the centro itself are pricey—you’ll start around $300,000—but get just a short walk away and prices are lower. Here are some samples of what you can find:
Property samples in San Miguel de Allende:
- A furnished two-bedroom, two-bath house, with a rooftop terrace, a fireplace, and other Mexican touches, was recently for sale. It’s a 15-minute walk from centro. Price: $185,000.
- A contemporary Mexican home with two bedrooms, two full baths plus two half-baths in 2,583 square feet, is for sale. A two-story house, it has lots of natural light and views and is walking distance to centro. Price: $359,000.
The time is right for Mexico. We’ve been hearing that ever since we moved here in 2002, and we agree wholeheartedly.
It is the United States’ closest neighbor to the south, and at no other time in the long history of that relationship have the benefits of living and investing in Mexico been more apparent…and more easy to take advantage of. Not just for U.S. citizens, but for Canadians, Europeans, South Americans…anyone looking for great weather, low prices, rich culture, and potential profits.
Mexico is also one of International Living’s top retirement destinations. Once a year we publish our Global Retirement Index, which looks at the best opportunities worldwide for retirement living. Mexico is regularly in the top 10.
Mexico has it all…rich culture, perfect climate…affordable living…not to mention mountains, beaches, deserts, and just about everything in between.
With its growing GDP, a higher level of foreign direct investment than any other Latin country, and a current political climate that is more pluralistic and open to investment than any other of the last seven decades, investing in Mexico today offers high rewards with limited risk.
The peso is strong. Direct foreign investment is at an all-time high. The July 2000 election of Vicente Fox as president and the 2006 election of Felipe Calderón boosted the country’s economic status even further. Committed to enhancing foreign trade and investment, reforming fiscal policies, and attacking corruption and crime, Fox and Calderón have shored up foreign confidence in their country.
Mexico is all about attracting foreign investors, and no politician here wants that to change. Mexico’s economy is growing strongly, and this bodes well for your own investment here. You don’t have to worry about radical revaluation of the currency, or that social unrest will unseat the government. Mexico is well positioned for growth.
Whether you dream of a colonial home with graceful arches, thick walls, and a garden overflowing with pink bougainvillea; a lazy beachfront retreat where you can sit on your front porch with your feet propped up and watch the Caribbean roll up on the sand; or a dramatic Pacific coast lookout where the waters crash against the cliffs below and you can watch the sun set behind a watery horizon—you can find your dream home in Mexico.
A Step-by-Step Guide to Buying Property in Mexico
Step 1: Make an Offer
This is usually done in the form of an “offer to purchase agreement” (oferta) or a “promissory agreement” (contrado de promesa), which your attorney or the real estate agent you’re working with draws up. Most real estate agents will have a standard form they use for this purpose. (When your offer has been accepted, you should ask your real estate agent and the notary to estimate the closing costs for you.)
Step 2: Set Aside 10% as Earnest Money in Escrow
Once your offer is accepted in writing, you’ll need to put a certain amount (usually 10%) of the purchase price aside as earnest money (depositos condicionales) in escrow with a third party. Whatever you do, don’t give this money to the seller. There aren’t any official escrow accounts in Mexico. Notarios—while they might be the logical, neutral third party to hold this money—won’t keep it in their bank accounts, as they don’t want the tax liability on the funds. If you’re working with a real estate agent, that agent will likely have a system in place in which he acts as the escrow agent.
One typical arrangement is for the agent to hold the deposit in dollars in the United States. When the deal nears closing, the agent transfers the money to his own Mexican bank at the current rate of exchange. This avoids the exchange rate problem—if the earnest money is transferred immediately into pesos and sits around several months until the deal falls apart, someone eats the currency fluctuations and the cost of the exchange…twice. And it will probably be you. Another option is for you to have a cashier’s check drawn up in the seller’s name and have your notario, broker, or a trusted third party keep it at his office. Also, the title insurance company you work with will usually provide escrow services.
IL tip: Buyer beware. In the U.S., escrow agents are licensed and legally responsible to see that the conditions of a contract are met before money is released. That is not the case in Mexico. Consider asking your title insurer to keep the escrow account. That way you can be sure you’ll get your money back if the deal falls through. If the real estate agent you’re working with is acting as escrow agent and he’s honest, there probably won’t be any trouble. But if he runs off with your funds, there won’t be much you can do about it.
Step 3: Inquire About Title Insurance
We suggest you call about title insurance for your property. Though a notary will investigate a property’s title to be sure it is free from immediate encumbrances and that the taxes are paid, that research may not extend back through the entire chain of ownership. A title insurance company, however, will dig to be sure that there are no surprises lurking. If the title is not clear, don’t buy the property. You need to make your own decision about title insurance. Sometimes brokers, especially in inland locations, don’t feel it’s necessary. We, however, do recommend it. In our view, it doesn’t just buy you peace of mind, it buys you insurance. While most likely you’ll never need it, you just never know…and that’s what insurance is all about. Should there ever be any challenge to your title, your title insurer will be there to fight your case in the local language in the local courts. If you don’t have title insurance and something goes wrong, you have little recourse…and what recourse you have will likely be very expensive.
Step 4: Wait While the Notary Investigates the Title, Gets an Appraisal, and Puts the Closing Papers in Order
You need to have a purchase sales agreement (contrado de compraventa) drawn up at this point. Normally, you’d have your attorney do this. But if you are working with a real estate agent, then his office may be able to take care of this for you. It should be in English for you and in Spanish for the Mexican authorities. Whatever you do, don’t let a seller’s attorney draw this up. You want to be absolutely sure your interests are not compromised. Depending on the way that you’re purchasing the property, your attorney can draw up the papers for a direct deed or help you form a Mexican corporation or create a bank trust, and he’ll get the papers in order to register your purchase with the Ministry of Foreign Affairs.
In the meantime, your title insurer and the notary will verify the property’s title. In doing so, they will request a copy of the lien certificate (certificado de libertad de gravamen) from the land registry, which will show the name of the owner of record as well as the details of the property, including the lay of the land (its size) and its status (commercial or residential, for example). They will also request from the local tax authority a non-lien certificate (certificado de no aduedo), which, if issued, will show that no taxes are due or reveal unpaid back taxes. In addition, they will make sure that no other property-related bills such as water or electricity are outstanding. And they will have the property appraised to establish its assessed value.
Other Papers You Should Have in Hand
If you are purchasing a home, make sure you have copies of the paid water, electricity, telephone, homeowner’s association, cable, and other utility bills from the seller. Unpaid bills remain attached to an address. They will be your responsibility—not that of the prior owner. If the seller had household help—a maid or gardener, any others—then you should have from each a signed letter stating that they have received their severance pay and that their rights have been satisfied.
Step 5: Close on the Property
Once you have assurances from your attorney, notary, and title insurer that the property’s title is good, and the purchase of sales agreement is ready for you to sign, you’ll meet with the notary, the seller, and your attorney or broker for the closing. You get the deed (escritura), and you either bring a check for the remainder of the payment or have the funds transferred into the escrow account and have whoever is acting as escrow agent release them once you have the deed in hand.
Step 6: The Notario Registers Your Ownership
Though you’ll have a copy of all the paperwork associated with the property, the transaction isn’t really complete until the notary registers your deed with the land registry office. We’ve heard all sorts of horror stories over the years (from all over the world) about notarios not completing this last step properly. So you must follow up with the notario or your real estate agent.
When you have your (presumably registered) deed in hand, look for a seal on each page and for a certificate of registration, which should be included with the documents. With these papers in hand, you can go to the land registry office, where they will look at the registration number on the certificate and show you how the transaction has been listed in their books.
Step 7: Have Your Attorney Draw up a Mexican Will for You
IL tip: While your Mexican property can be transferred to your heirs as requested in your U.S. or Canadian will, it is by far the least desirable way to ensure they’ll get it. Guaranteed, if other arrangements have not been made, your heirs will spend months, if not years, wrangling with Mexico’s bureaucracy over your estate. Save them the torment, time, and expense. Have your attorney draw up a Mexican will in Spanish that disposes of your Mexican possessions and property. It will simplify matters immensely.
Step 8: Don’t Forget the Ministry of Foreign Affairs
No matter how you plan to buy property in Mexico, you’ll need to alert the Ministry of Foreign Affairs that you intend to make a purchase. As we mentioned before, it is usually your attorney or the notary who applies for the permit on your behalf before the closing. It’s standard practice to issue these permits, so you needn’t worry that you’ll be waiting months for the paperwork to go through. In fact, the government pledges to have them issued within a few days.
If you’re buying through a trust and you apply for your permit through the ministry’s central office in Mexico City, you’ll have it within five working days. If you apply at one of the state offices, the permit must be granted within 30 days. If you’re forming a Mexican corporation that will hold title to the property, you need to register that company with the Ministry of Foreign Affairs. The Ministry has 15 days to get the registration done. In any of those cases, if the ministry’s deadline passes and you still have heard nothing, then the trust permit or the registration are automatically considered authorized.
Property Taxes in Mexico
A 2% acquisition tax is payable by the buyer when property changes hands.
Although Mexico does not impose an estate or inheritance tax, there is a tax on certain gifts involving real estate (payable by the recipient). Gifts between spouses and direct family members are not taxable.
The property tax on Mexican real estate is called predial. Compared with property taxes in the U.S., the cost of the predial is quite reasonable. It is a local tax and in most areas is payable quarterly. The average is approximately 0.1% of the assessed value of the property at time of sale.
It is very common in many communities in Mexico to use the “assessed” value of the property as the basis for these taxes, and the official assessment can be considerably lower than the market value of the home—often only 30% or 40% of the actual sale price. So on a $100,000 home that has an official “assessed” value of $40,000, you’ll pay $800 in acquisition tax and something between $50 and $150 annually for your property tax. You should know though that under Mexican law, using an assessed value less than the actual commercial value for tax purposes is technically illegal. But we don’t know anyone who doesn’t do it.
Rental Income Tax
If you do not reside in Mexico, but rent out your Mexican property, your rental income is subject to withholding tax at a rate of 21%. For residents, rental income is taxable at the regular income tax rates.
Capital Gains Tax
If you sell the property, you’ll owe capital gains tax. This can be figured two ways in Mexico:
1) You can pay 25% of the declared value of the transaction, or
2) You can pay 30% of net value—the difference between the assessed values at the time you bought the property and when you sell it, taking into consideration the time the property was held, any improvements made, any commissions paid and other allowable expenses. (If there is a significant difference between the assessed value recorded for the property when you bought it and the value you claim when you sell it, you could be in for a big tax bite.)
You should calculate your capital gains tax both ways with the help of an accountant or notario, and pay the lower one.
To ensure that capital improvements you make to a property can be deducted, make sure you get the correct type of receipts. In Mexico, you can only claim deductions for services and materials that are recorded on official receipts and invoices called facturas. Facturas must be printed on a government-authorized press and have the tax ID number (RFC number) of the company or individual issuing the receipt. No factura, no tax deduction.
Again, it is important to have a good attorney on your side and to understand that the laws are changing in Mexico. Sometimes laws are interpreted differently by different attorneys. Our advice: if you get an answer you don’t like, ask another attorney.
The closing costs in Mexico are usually paid by the buyer. Fees for closing, in a regular transaction, usually come to between 6% and 7% of the cost of the property. The fees will cover an acquisition tax, property-registration fee, a fee for the tax certificate, the title-search fee, the property-appraisal fee, the notary’s fee, and any miscellaneous clerical fees, as well as a value-added tax on anyone whose services were engaged in facilitating the transaction (the appraiser, the notary, etc.). You can get an estimate of these fees from your notary and/or real estate agent when you make your offer.
The seller pays the real estate agent’s fee—usually somewhere between 6% and 10% of the sale price. If the real estate agent has kept the escrow account, it is usually taken from those funds.
Ownership Issues in Mexico
Technically, as a foreign buyer, you cannot buy property that lies within 50 kilometers of the high tide line, or within 100 kilometers of an international border.
Second, you cannot own ejido land. This type of land was established in 1917 as a result of the Mexican revolution. It is not private property; it is government land granted for use by members of local ejidals, something like Native American land in the U.S. and Canada. This land can be converted into private property, but the process is long and complicated. It is outright illegal to own ejido land in the restricted zones (50 kilometers from beachfront and 100 kilometers from international borders), and it’s risky elsewhere.
We recommend that you don’t even consider the purchase of ejidal land. One of the most important aspects of title research is making sure the plot you’re interested in has never been ejidal land or, if it was, that it was successfully privatized a long time ago and never challenged. Too much can go wrong. Just don’t do it.
By purchasing title insurance, you make sure you hold clear title to your property and that, should anybody dispute that title, you’ll have an advocate who will defend your claim in the local courts. We highly recommend you buy title insurance, particularly for undeveloped land. And if the title insurer you’ve hired says he will not insure the property…don’t buy it.
What could go wrong? An all-too-common and potentially costly problem involves developers who do not get the proper zoning and subdivision permission to develop their land for resale. They might be marketing a project that appears to be above board. You might see survey stakes marking the lot lines and have in hand a glossy brochure with drawings of what the plans entail. But unless you can be absolutely sure you’ll get your own independent title to your lot, don’t buy. And the only way to be sure is to have a title insurance company investigate the project for you.
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