Property values in Mexico, as in the United States, tend
to increase year after year. As the demand for
oceanfront property in the U.S. has outstripped supply,
it has become unobtainable for the average person.
However, in Mexico, there are numerous locations where
one can still afford oceanfront or ocean view
properties, as prices start at a much lower point. The
increase in value of Mexican oceanfront and ocean view
land over the last few years has, for the most part,
eliminated what we would refer to as “cheap”.
Fortunately, one can still enjoy a price differential of
four to ten times that of similar properties in the
United States. As with all property, the relative value
and appeal of land in Mexico comes down to three key
factors: location, amenities, and accessibility to the
United States.
In addition to Mexico’s lower land costs,
construction costs are lower, maintenance is
inexpensive, and ownership costs (taxes and utilities)
are extremely low. A person can live comfortably on the
savings from property taxes alone.
For example, in most areas of Mexico, property taxes
are approximately 0.1% so, for a $1,000,000 home, one
would pay about $1,000 per year. In Florida, property
taxes are about 2.5% or $25,000 on a million dollar
home. So, with the $24,000 annual difference in
property taxes, one could hire a maid, pay the
utilities, buy groceries, and still have money
remaining.
Purchasing property anywhere requires an extensive
amount of research, planning, and preparation. Mexico
is no exception. A person should research and understand
the laws, and work with true professionals who can guide
one to a safe and successful property purchase in
Mexico. The process is relatively similar to that of
the United States and equally as safe. Today,
multinational financial institutions such as GE Capital
provide 30 year financing in Mexico. First American
Title Insurance Company, America’s largest title
insurance provider, can offer you title insurance to
ensure the safety of your transaction.
Buying real estate in Mexico has become safer than
ever since the advent of title insurance offered by major international
insurers. While the interior of Mexico is not affected by the restricted
areas or federal zones, the coastlines and border areas can only be
purchased through the creation of a bank trust.
As the trustee, the bank holds the deed for the
purchasers, or beneficiaries, of the property, but this property is
never part of the assets of the bank and not subject to any lien or
obligations of the bank itself. The banks allowed to set up the
trusteeship are tightly regulated and monitored by the Mexican Banking
Commission and other federal regulating boards to protect the
beneficiaries. The bank trust is not a lease, so the beneficiary has all
rights to live in, rent or sell the property and to claim all profits
from such a sale. Beneficiaries have ownership rights and may also pass
the property on to their heirs at their will in a legal process.
The trust is customarily set up for 50 years and can
be renewed indefinitely. When you purchase property already under an
existing trusteeship, you have the option of continuing under the
original trust or establishing a new one. In any case, the trust is
renewable through a simple bank application. The properties held in
trust are considered as property of the beneficiary and have never been
the object of reverting back to the government. The trust was simply
created to allow legal foreign ownership in the federal zone declared
under the Mexican constitution.
In the growing focus on tourism in Mexico, rental
potential has never been better. Every area has its own statistics, but
net yields of 15 percent based on 40 to 50 percent occupancy are not
unusual in some key investment areas. Consider the additional 12-20
percent annual property value increase and it makes for a very good
investment indeed.
Another security measure for investors in property is
the taxation treaty that exists between Mexico and the U.S. While it’s
highly recommended that you refer specific questions on taxation issues
to tax professionals, the treaty ensure that you are not taxed by both
governments for your property.
Mortgages are available to foreign buyers,
including Americans and Canadians, wishing to purchase property
in Mexico. Here are 3 of our strategic alliances that we
recommend. Please click each link to follow to their home page.
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Financial Management and Tax Planning
"Proactive Income and Estate Tax Planning are Essential to
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International Tax Planning
GLAZER FINANCIAL NETWORK CUSTOMIZES A STRATEGY TO SUIT YOU, YOUR
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Contact us for a
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(972) 385-0007 or (800) 999-8931
Title Insurance
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.
Rates range from about $5 to $7 per $1,000 of coverage, depending on
the value of your property and the firm you hire. Two firms offering
title insurance in Mexico are:
First American Title Insurance (Turalu Brady Murdock, Vice
President/Counsel, Caribbean/Latin America Division); Sunrise, FL,
office tel. (954)839-2900, ext. 188; toll-free tel. (877)641-6767; fax
(954)838-9228; e-mail:
tmurdock@firstam.com; website:
www.firstam.com;
(and David Wiesley, Vice President-Mexico Operations); Dallas, TX,
office tel. (214)979-0003; fax (214)303-0935; e-mail:
dwiesley@firstam.com; website:
www.firstam.com.
Stewart Title and Guarantee Company (Mitch Creekmore, Vice
President & Director of Mexico Business Development); Houston, TX,
office tel. (713) 625-8753; toll-free tel. (800)729-1900; fax
(713)629-2321; e-mail:
mcreekmo@stewart.com; website:
www.stewart.com.
These title insurance companies offer escrow services to buyers of
property in Mexico. As we explained earlier, a real estate agency will
often keep your initial payment in an account for you and hold onto it
until the closing, essentially acting as escrow agent. While this is
likely to be safer than giving the payment to a property owner directly,
there is no guarantee you'll get that money back should something go
wrong. We trust the realtors we recommend, but we want to remind you
that not all realtors or property owners you'll meet in Mexico (or
anywhere for that matter) are to be trusted. If you're at all
uncomfortable, buy title insurance and use an escrow service. It's a
small price to pay for peace of mind-and a guarantee that your
investment is safe.
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What is Mexico’s Federal, or Restricted Zone?
The Mexican constitution allows that the area
within 100 kilometers (about 60 miles) of any border and 50
kilometers (about 30 miles) of any coastline, waterway or
riverbank is a federal, or “restricted zone.” What that means is
that a non-national, or non-Mexican, is not allowed to buy or
own this area except through a bank trust. Last mid-century the
government created a system wherein a fideicomiso is set up to
acquire property in these areas.
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What actually is a fideicomiso? (fi-day-co-mi-so)
The fideicomiso is the legal format that
allows non-nationals to purchase and own real estate in any
restricted zone as outlined above. This recorded document is a
contract created in conjunction with a bank for a purchaser
and/or beneficiary. Similar to trusts in the U.S. and Canada for
holding real estate property, it is different than fee simple
ownership only in form.
The first step in establishing the
fideicomiso, or trust, is securing a permit from the Secretary
of Foreign Relations. Issued for fifty years, this trust may be
renewed for another fifty years. This form of ownership allows
real property to be transferred for the sole purpose of the
beneficiary. Contrary to misconceptions, the fideicomiso is not
a lease. Property can be transferred to whomever is chosen by
the beneficiary.
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What parties are involved in the fideicomiso?
The trustor is the entity or individual
creating the trust, most commonly the original seller or
landowner. Since the trust is irrevocable, one it’s
incorporated, the trustor has no power to change any part of it
or participate in it.
The Mexican bank authorized to act in the
capacity of a trust under the Mexican General Law of Credit
Institutions is the trustee. These banks are highly regulated
and monitored by the Ministry of Finance and Public Credit, the
Bank of Mexico and the National Banking Commission. As such, the
trustee cannot participate as beneficiary of the trust. In fact,
all instructions come from the trustee with empowerment of
rights to achieve objectives outlined in the same trust
agreement, acting simultaneously on behalf of the foreign
beneficiary in all transactions held under that trust.
The purchaser is usually
the beneficiary of the trust, with all advantages of ownership:
use and improvement of the property, enjoyment of it, ability to
use it as collateral, and, finally, selling or renting the
property at a profit. Basically, to the lay person, there is no
difference between a trust and simple ownership in use, benefits
or appreciation of the property.
Upon the death of the primary beneficiary, or
owner, the beneficiary rights are transferred to the substitute
beneficiary. It is a much simpler process if the heirs are
listed in the trust document itself than acquiring the rights
through legal channels. In that way, the trust document also
functions as a will of property.
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Taxes that are applicable on a property
While extremely low in comparison to property
taxes in the U.S. or Canada, property taxes in Mexico are paid
on a yearly basis in advance of the year in question. All
property taxes prior to the sale are the responsibility of the
seller up to the actual closing date.
A transfer tax, or property acquisition tax,
is currently 2% of the declared value of the transaction, the
amount to be paid by the buyer.
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Certificate of No-Liens or no encumbrance
This certificate, issued by the Public
Registry Office, certifies the current legal status of the
property.
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Foreign Relations Permit
The permit obtained from the Secretary of
Foreign Relations to establish a trust, the application must
also state the indicated usage of the property. If it’s still a
vacant lot, there should be included a development plan in
addition to the amount of the proposed investment and the
timeframe for completing the project. The Notary will obtain
this permit in lieu of the buyer.
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Bank Administration Fees
Annual administration fees are levied on all
bank trusts with additional fees for changing the primary
beneficiary or establishing a new trust. Fees range in the
neighborhood of $500 USD per year.
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Public Deed (Escritura Pública)
The deed is recorded and formalized when
completed at the Property Tax Office and the Public Property
Registry Office, attesting to the transfer of the property. Only
the Mexican Notario Público can issue the deed.
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Documents required for the above transactions
As an individual, the documents required when
acquiring property are:
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Complete names of beneficiaries
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Complete names of substitute beneficiaries
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Foreign address and telephone numbers for all
beneficiaries
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Official photo identification of all beneficiaries
(passport)
As a corporation, the documents required are:
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Exact name and denomination of corporation
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Certified copy of corporate bylaws and articles of
incorporation translated into Spanish.
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Notario Público (Notary Public)
The Notario Público is a special position by
appointment of the state governor of an attorney who has
practiced his profession for a minimum of five years. The
position is closely regulated as the notario público represents
the public interest instead of private interests. Responsible
for performing all recordings related to deeds and property as
well as the title search in all real estate transactions, the
role is crucial in the industry. The notario público drafts the
public deed and verifies the signatures in each closing. His
additional duties include:
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verifying the validity and legitimacy of each
document of the selling party
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verifying the title of said property
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verifying the status of the seller’s title by
searching public documents for existence of liens
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calculating and handling payment of both buyer’s and
seller’s taxes
Usually the entire process takes around two
weeks once the documents are in the possession of the notario
público.
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A title search
The title search or investigation requires
examination of all recorded public documents and any property.
The search should uncover any existing liens against the
property, the history of the property, and any details
pertaining to the property such as easements. While prices vary,
they can be expected to be in the neighborhood of .065% of the
purchase price. |
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