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A Guide to Buying Property in Mexico

You Don't Have to Live in Mexico to Own a Home in Mexico

It doesn't matter what country you currently call home - Mexico is a great place to own real estate. Beautiful weather, waterfront locales and amenity-rich developments all at prices 20%-50% of what you'd pay for comparable property in the U.S. make it the ideal place to own a second home.

Whether your interest lies in having a vacation home or an affordable place to retire, Mexico deserves your consideration.

Best of all, you don't need be a resident of Mexico to own property there; no immigration requirements need to be met.

The History of Property Ownership in Mexico

While foreigners were always allowed to own property in Mexico, there were restrictions. Previously, the Mexican constitution banned foreigners from owning property within 62 miles of any Mexican land border and 31 miles of any coastline. These areas are known as the "restricted zone." Yet most vacation properties were built on prime land that fell into these restricted zones.

Since these restrictions were written into the Mexican constitution, and could not be changed, the Mexican government created a way to work around the system called "fideicomiso" (pronounced: FEE-DAY-E-CO-ME-SO). Roughly translated, the word means "real estate trust." By placing property in this trust, foreigners are allowed to own property within the restricted zones.

In essence, the trust holds the deed to the property while the buyer, and others whom the buyer specifies, are beneficiaries of the trust (and, of course, the property). The beneficiary has full control over the property and can rent, sell, improve and even give the property away if they so choose.

How a Mexican Trust Works

A trust is created with a Mexican bank and the title is submitted into the trust. The bank acts as a trustee in this case and the trust is formalized after receiving a permit from Mexico's Ministry of Foreign Affairs. The buyer is named as the beneficiary of the trust, and the beneficiary's rights are recorded by a notary public.

Banks charge around $500 USD to set up the initial trust - which involves establishing the trust and writing the trust agreement. Then, a percentage of the value of the property is added on. As well, a small annual fee is charged by the bank to covers its services as trustee.

Within the trust deed, the current owner of the Mexican property acts as the settlor and conveys the title of the property to the trustee who will then hold the title for the life of the trust - 50 years, renewable in an indefinite amount of 50-year periods.

The trust may be transferred or sold like any interest in real estate. If the property in Mexico is sold to another foreigner, the Secretary Foreign Relations in Mexico must, by law, issue a new trust permit to the buyer. If the property in Mexico is sold to a Mexican national, the trust can be dissolved.

Buying Property in Mexico

Buying real estate in Mexico is very similar to how one would buy property in the U.S. Lawyers, real estate agents, notary publics and banks all play a part in the buying process.

Required documents include a certificate indicating a title free and clear of any liens, statements from the local Mexican municipality outlining property assessments, water bills and other tax information, and finally a property appraisal to determine the property's value for tax purposes.

It's common for the buyer of property in Mexico to pay all closing costs, including the transfer of acquisition tax. As in the U.S., the seller pays capital gains tax and real estate brokers' fees.

The transfer tax is typically between 1% and 4% of the property's appraised value - which is quite often less than the sale price. Closing costs (not including transfer tax) range from 3% to 5% of the appraised tax value. These percentages are applied to whichever is greatest:

  • The property's sale price
  • The official appraised value for taxes
  • The value of the property as determined by the assessment authorities

Title Insurance Is Worth Every Peso

Title insurance for property is the responsibility of the buyer and is highly recommended, just to be safe. The title insurance company in Mexico will research the title and make certain that it is free and clear. If the title is ever disputed in the future, the insurance company will defend, and advocate for, the buyer in court if necessary.

Rates typically costs between $5 and $7 per $1,000 of coverage depending on the insurance company and the value of the property.

Financing Options for Real Estate in Mexico

As a foreigner purchasing property in Mexico, financing is readily available though Mexican lending institutions and banks. Many developers in Mexico work with specific companies and even offer incentives to buyers for working with preferred lenders.

U.S. lending institutions are starting to work their way into the Mexican real estate market, which should make it even easier for foreigners to get financing.

Finding a Lawyer

An attorney based in Mexico should be hired to write contracts and review all of the conditions and terms regarding the sale of property in Mexico. Also, the attorney is capable of doing a title search and point out any issues or areas of possible concern.

To protect their own best interests, buyers should have their own attorney and should be dissuaded from using the attorney of the seller simply because that lawyer's services were offered for free as an incentive.

All attorneys licensed in Mexico should be able to produce a "cédula profesional" - a document signifying a registered license to practice law in the document includes a photo of the attorney and his signature.

To ensure an attorney is licensed to practice in Mexico, a foreign buyer should request to see the attorney's license, and have the attorney's license number added into any retainer agreement before employing any services.

Living Year-round in Mexico - Legally

If you've decided to purchase real estate and live in Mexico for more than six months at a time (or permanently) you must apply for your FM3 immigration papers.

The FM3 is very easy to obtain, and you can complete most of the paperwork on your own.

The FM3 grants you non-immigrant status. You apply for it through the local immigration office. The FM3 must be renewed on a regular basis.

After you've held your FM3 for a minimum of five years, you are eligible to apply for your FM2. The FM2 grants you immigrant status and is applied for via the Mexico City immigration office.

Need More Information?

If you have more questions about purchasing property in Mexico, don't hesitate to contact us. We have the knowledge, the contacts and the integrity to answer all your questions and handle your real estate needs.

(954) 450-1929

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