| Buyer Information |
PURCHASING REAL ESTATE IN MEXICO
Purchasing property in Mexico should be a very exciting and satisfying experience, however sometimes it can be confusing and frustrating because it requires an extensive amount of research, planning and preparation. And this is even more the case in México. It is important to understand the laws, perform significant due diligence and work with true and experienced professionals who can guide you to a successful, property ownership transaction in México.
In our experience these are the most common questions prospective buyers ask. We hope that these answers will give you a better understanding about investing and purchasing a home in Mexico.
Can I as a Foreigner own real estate in Mexico?
Yes, you can. It is perfectly legal for a foreigner or for a foreign corporation to acquire any type of real estate, holding the property as a direct owner. Within the Restricted Zone (as described below), foreigners can not obtain direct title to land or property. In areas outside the restricted zone, foreigners can receive fee simple title to the property. In 1971, in an effort to increase tourism and foreign investment Mexico created a legal structure that enables foreigners to own the land through a “Fideicomiso”, which is very similar to a living trust in the United States.
So even though the Mexican Constitution still technically prohibits direct ownership by foreigners of real estate within 100 kilometers of any border, and within 50 kilometers of any coastline, the Mexican government has introduced a system of land trusts so that foreign nationals can now invest in a property inside the so-called restricted zones, and enjoy all of the legal and beneficial benefits of ownership.
What is a Fideicomiso?
This is a Mexican Trust. While the bank holds the legal title to the property, all rights and privileges of ownership, including exclusive use and enjoyment, are held by the Trust beneficiary-the foreigner. The beneficiary has the right to transfer the title another party, and can occupy, rent, gift/will or transfer title to the property to any person or entity. The actual document is a Trust Deed and is public document registered in the local land registry. It provides all of the incidences of ownership, other than owning the property in fee simple. The Fideicomiso can be established for an initial term of 50 years and can be automatically renewed for another 50 year period. They are legally renewable in perpetuity at any time or at the end of the 50-year period for a filing fee (less than $1,000 US) for additional 50-year periods. The property may be sold at any time, with the seller being responsible for paying his capital gains taxes on the appreciated value. This process is designed to protect the rights of foreigners, and ensure that property transfers are made in a legal manner.
How is a Trust created?
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..
How about Financing?
Although financing is relatively new in Mexico its availability is increasing and there are now several local and foreign banks that offer financing. We work closely with Stewart Title International which provides not only title insurance but also mortgage financing. The terms are generally similar to what is available in the US and the loan is fully secured by the Mexican property.
What about Closing Costs?
It is common practice that the buyer pays the transfer of acquisition tax and all other closing costs, including the Notary´s (Notario) fees and expenses. The seller pays his capital gains and brokers commission´. It is highly recommended that an escrow account should be established and used for the transfer of funds in a real estate transaction. Title companies offer this service for a relatively nominal fee.
Closing costs average between 4 and 5 percent of the purchase price. Closing will take approximately 45 days depending on contingencies and financing requirements. Escrows are now starting to be available thru private escrow companies specializing in this and will run from $1,500 to $1,800 U.S. per transaction.
The Buyer & Seller do not need to be present at the closing. They can be represented by their Attorney who handles the closing or by the Sales Agent thru Power of Attorney.
A Public Notary is a government appointed lawyer who processes and certifies all real estate transactions. The notary is also responsible for collecting any taxes that may be due.
Title Insurance?
By purchasing title insurance, you as the buyer 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 title claim in the local courts. We highly recommend title insurance .Two U.S. firms offering title insurance in Mexico are First American Title Insurance and Stewart Title International, both with offices in Puerto Vallarta.
What other expenses should I consider on the purchase of property in Mexico?
Property Taxes. They tend to be low here in Mexico (0.01% of the purchase price). Known as 'Predial', the tax is calculated as a percentage of the assessed value determined at the time of sale, and is paid every 6 months. Property taxes have historically been low in Mexico because they have never been considered a source of governmental revenue. |
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