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.
The time is right for Mexico….
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 easier 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. The annual Global Retirement Index 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.
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.
Choose Your Spot in Mexico
If you’re looking to buy a property in Mexico, here are some of the top locations to consider…
Mexico Real Estate: Riviera Maya
Picture swaying palm trees, cool powder-sand beaches rimming bright turquoise sea, and that’s the Riviera Maya—a postcard-perfect destination.
In the late 1960s, this part of Mexico was undeveloped, home to coconut plantations and rustic fishing villages. But the Mexican government wanted to take advantage of the advent of affordable jet travel, rightly figuring that tourist numbers were set to explode. They built an international airport, one of the busiest in the region, put in roads and utilities, and embarked on a campaign to woo tourists. It paid off. In 2018, Cancun international airport saw more than 25 million passengers.
Today, you can party and shop in the chic city of Playa del Carmen…swim with sea turtles in the tranquil beach town of Akumal…dine on gourmet food in the hipster haven that is Tulum. Each of these three locales has its own unique vibe, but they all have beautiful Caribbean beaches in common. Back from the coast, you’ll find Mayan ruins, water parks, jungle and wildlife.
Tourists come here from across the world. Europeans visit in summer, North Americans in winter, wealthy Mexicans at Easter…along with visitors from South America, Australia and even Russia.
Own a modern, comfortable two-bed condo in the right location in Playa, Akumal and Tulum, and you can generate attractive rental income by renting your place to these tourists when you’re not staying there yourself. You can expect around $20,000 a year gross in Akumal, $30,000 to $35,000 gross in Akumal and even north of $40,000 in Playa del Carmen….and still get plenty of time to enjoy your home yourself.
Property samples in the Riviera Maya:
- A 2-bed 2-bath condo in the heart of Playa del Carmen in a building with underground parking, co-working space, rooftop social area and infinity pool. Price: $246,000.
- A spacious three-bed three-bath condo in Akumal just steps from the beach and a private beach club. The rooftop deck offers tree line and ocean views and makes the ideal spot for entertaining. Price: $499,000.
- A two-bed two-bath condo in Aldea Zama, a master planned community in Tulum. The condo has a lock-off feature, giving you maximum flexibility and profit potential from renting. Price: $224,700.
Mexico Real Estate: 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 175,000 people has been attracting an artsy crowd since the early 1950s. Artists, artisans, writers, and musicians flock here… and you can furnish an entire home with the high-quality, varied, handmade goods you find here, from light fixtures in metal to wood furniture to colorful textiles.
Not surprisingly, San Miguel today has one of the largest snowbird and expat communities in Mexico—as many as 10,000 living here full- or part-time. As a result, you can get by 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 historic Centro itself are pricey—but go 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 huge home smack in the historic center, only two blocks from the Jardin and the famous rose-pink Parroquia church. It’s on Aldama Street, named one of the most beautiful streets in the world by Architectural Digest. The house has many traditional features, including a garden courtyard and a carved stone fireplace in the living room—and some modern ones, too, like the swimming pool. Price: $1.25 million.
- 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.
Mexico Real Estate: Los Cabos
Travel + Leisure named Los Cabos one of the best places to visit in 2019. Lonely Planet says it’s “made for decadence.” Fodor’s ranks it as “Mexico’s ultimate seaside escape.”
With a stunning desert landscape that meets the Sea of Cortez on one side and the deep Pacific Ocean on the other, Cabo boasts a warm, dry climate with low humidity.
In the 1940s, when Hollywood stars like Clark Gable and Henry Fonda wanted to escape the paparazzi, they went to Los Cabos, on Mexico’s Pacific coast.
At that time, the only way to get to Los Cabos was in a private plane or boat. Those movie stars came to enjoy some fun in the sun…fishing, sunbathing, sipping cocktails by the pool. They were joined by presidents, wealthy businessmen and the international jet set.
They gave Los Cabos a reputation for exclusivity and glamor, a reputation it still holds today.
Fine dining, luxurious spas, yacht trips, world class golf…Cabo has it all. And today it’s attracting more than just the jet set. Lots of ordinary folk are vacationing here, buying second homes and riding out the cold winters back home in Los Cabos.
Property samples in Los Cabos:
- A three-bed three-bath house close to downtown Cabo, in a small community with only 18 homes. The house has tile floors, hardwood cabinetry, granite counters and a terrace for entertaining. Price: $268,000.
- A two-bed two-bath penthouse condo with an ocean-view terrace covering more than 1700 square feet. The community has swimming pools and a swim-up bar as well as private beach access. Price: $549,000.
Can North 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 for foreigners to buy and own in Mexico.
Let’s 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 property 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 a commercial property or one used purely as an investment, it should be held in a fideicomiso.
In the restricted zones, if a foreigner buys, the property title is held within a bank trust or a Mexican corporation—not directly. The 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 Title 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 fideicomisos/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, and they don’t even need to be in Mexico for this. 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—can be repossessed by the Mexican government.
There have been cases—such as in Baja California some years ago—when the Mexican government ‘repossessed’ property from foreigners. But when you dig a little deeper, it turns out the property titles 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 the property to the rightful owners.
“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.
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.
A Step-by-Step Guide to Buying Property in Mexico
Step 1: Make an Offer
This is usually done in the form of a “promissory agreement” (contrato de promesa), which your attorney will draw up.
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% to 20% ) of the purchase price aside as earnest money. This should be held in escrow with a third party. Whatever you do, don’t give this money to the seller. Notarios—while they might be the logical, neutral third party to hold this money—won’t hold deposits in their bank accounts, as they don’t want the tax liability on the funds. If you’re working with an attorney or real estate agent, they will likely have a system in place they can recommend.
One arrangement is for the deposit to be held in escrow in dollars in the United States. When the deal nears closing, the deposit is transferred t 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 and then the deal falls apart, someone will have to eat the currency fluctuations and the cost of the exchange…twice. And it will probably be you, the buyer. Another option is for you to have a cashier’s check drawn up in the seller’s name and have your notario attorney or a trusted third party keep it. If you are working with a title insurance company they 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. 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 get title insurance for your property, if you can. 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 search tells you that title is not clear, don’t buy the property.
Sometimes brokers, and even attorneys will tell you that title insurance is not necessary. We, however, recommend that you buy title insurance if it is available. While most likely you’ll never need it, you just never know. Title insurance will cover you if anyone else claims your property, by either reimbursing you or fighting your case in court. 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 and take a very long time.
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 (contrato de compraventa) drawn up at this point. Normally, you’d have your attorney do this. The legally binding version of the contract is Spanish. Even if you have a side-by-side translation to English, it may not be accurate. So, have your attorney check the Spanish version and explain it to you. 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 title deed and also documents such as the lien certificate (certificado de libertad de gravamenes), 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 adeudo), which, if issued, will show that either no taxes are due or will reveal unpaid back taxes. In addition, they will make sure that no other property-related bills such as water or electricity are outstanding. You can also have the property appraised at this stage 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. This applies to unpaid mortgages, too, so make sure that any mortgage debt is paid off by the seller before the property title transfers to you. 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. If you want to keep them on, start afresh with a new employment contract drawn up by your attorney.
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 to ensure this has been done.
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. You can save them the torment, time, and expense by having your attorney draw up a Mexican will in Spanish that disposes of your Mexican possessions and property.
Step 8: Don’t Forget the Ministry of Foreign Affairs
No matter how you plan to hold your 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. You should know though that under Mexican law, using an assessed value less than the actual commercial value for tax purposes is illegal. And, it means you’ll likely pay more capital gains tax when you sell.
Rental Income Tax
If you do not reside in Mexico, but rent out your Mexican property, your rental income is subject to tax at a rate of 25%. 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 up to 35% of the profit, but can be lowered based on how long you have held the property, authorized deductions, etc.
To ensure that capital improvements you make to a property can be deducted, make sure you get the correct 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.
The closing costs in Mexico are usually paid by the buyer. Fees for closing, in a regular transaction, usually come to between 5% and 8% 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.
Ownership Issues in Mexico
As a foreign buyer, you cannot hold property that lies within 50 kilometers of the high tide line, or within 100 kilometers of Mexico’s international borders, directly in your own name. It needs to be held via a Mexican corporation or fideicomiso (bank trust).
And, 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. 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 with an ejidal property. You may be tempted by a low price or a promise that nothing will go wrong but ignore it—just don’t buy 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. And if the title insurer you’ve hired says he will not insure the property…ask why. If it’s because the title isn’t clear, don’t buy it.
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