Every year, more and more Americans are buying property in Mexico, for good reasons. Mexico is culturally rich, the cost of living is low, and many areas are nothing short of paradise.
If you have ever thought of buying property in Mexico, there are some tricky little hoops you need to jump through. Armed with a bit of knowledge, though, you might find a great investment property or a place to spend your retirement.
Can Foreigners Buy Property in Mexico?
Foreigners can buy property in Mexico, but depending on where you want to buy, you could find obstacles. If you are a Mexican citizen, you can buy property pretty much anywhere in the country. If, however, you don’t have citizenship, buying property in Mexico like that beachfront cottage in Puerto Vallarta might present some difficulties.
How to Find Property in Mexico
Finding property in Mexico isn’t quite as easy as in the United States. In the U.S., you can virtually tour the majority of available properties from the comfort of your own home. While they do have online listings in Mexico as well, about half are listed the analog way.
It’s best to engage the services of a real estate agent in your desired area, although even that can be a minefield. Most of Mexico has no MLS (Multiple Listing Service), no licensing requirements for real estate agents, no governmental regulations, few institutionalized lenders, and while some areas have professional organizations for realtors, they are nothing like the United States’ National Association of Realtors. In other words, navigating purchasing property in Mexico is a bit like the Wild West. Still, if you do your homework, it can be done.
Average Costs of Real Estate in Mexico
Like anywhere else, the cost of real estate in Mexico varies, depending on location, size, and quality of the property. Expensive areas of Mexico City, for example, are expensive by any standards, with properties selling in the multiple millions of dollars. On the other hand, there is beachfront property to be found for considerably less than anything comparable in the United States.
Fees vary. Expect to pay an agency/agent fee, which is variable. Lawyer and notary fees are also variable, but taxes are about 16 percent. There is an acquisition tax of between .2 percent and 4.5 percent when buying property in Mexico. Title insurance is about .5 percent of the value of the home. Registration fees can vary from about .2 percent to 1.8 percent. Don’t be afraid to negotiate.
Who is Involved in Real Estate Transactions?
When you purchase property in Mexico, you will deal with the seller, which could be an individual, a trust, or a corporation. You will need a real estate agent to help you find a property and negotiate the deal. You should also hire a lawyer and a title company to ensure that the title is clean and that the deal is legit. If you plan on purchasing in a restricted zone (more on that in a bit), you will need to enlist some legal advice.
Make sure that everyone you hire is bilingual. All legal contracts are in Spanish.
Finding a real estate agent
You should know that unlike in the United States, pretty much anyone in Mexico can call themselves a real estate agent. Your best bet for finding a good real estate agent is with referrals and to let your educated gut be your guide when buying property in Mexico.
Does the agent know the area? This is important because Mexican real estate is localized. Do they answer all your questions? Fees are not standardized, so ask, but don’t necessarily go with the cheapest. There are voluntary real estate associations, like The Asociacion Mexicana de Profesionales Inmobiliarios A.C. (the AMPI). Membership in the AMPI isn’t a guarantee or quality, but it’s a place to start. You may not find AMPI members in more remote areas.
In areas that attract a lot of expats, there are real estate agents that specialize in selling to foreigners. Their agents are bilingual, which is important because Spanish is Mexico’s official language for all legal contracts. Their administrative staff will keep all the contracts in order.
How to avoid getting scammed
Since there are no regulatory bodies for real estate agents in Mexico, scams are common. Here’s how to avoid getting scammed:
Don’t fall for the hard sell
If the seller of a property you are interested in demands a deposit, or pressures you to make a decision now don’t just walk away, run away from the property.
Do your own research
Not all properties are listed online, but many are, and if nothing else, you can get a feel for the market.
Talk to the sellers. Ask about the history of a property. Research the area. A property might look like a bargain on paper, but if it’s in a less than desirable location, you may not be able to recoup your investment.
Most importantly, view the property. You might see a beautiful property online, but pictures can lie. Yes, it’s tempting to arrange housing before moving to Mexico, but you’ll save a lot of headaches by renting or staying in a hotel before you settle down.
Get an inspection
Before signing anything, arrange an inspection. Make sure the home doesn’t have structural issues, or mold, or any other problems that will cost you money down the line.
Hire a real estate lawyer
Even if you find a real estate agent you trust, it’s imperative to hire a lawyer to help you out with the transaction. Illegitimate listings are more common than you might imagine in Mexico. A lawyer will make sure that all of the paperwork is in order and that the property is eligible for sale. A lawyer will also help you transfer money without getting ripped off. Don’t hand over any money or sign anything without your lawyer’s nod of approval.
What is the Restricted Zone?
Many of the most desirable areas of Mexico aren’t exactly off-limits to foreigners, but buying there can be tricky. The area within 100 kilometers (62 miles) of any national border, or within 50 kilometers (31 miles) of an ocean is called a “restricted zone.”
No foreigner can purchase a direct title to land within a restricted zone, but foreigners can buy an indirect title. For that, you have to go through a Mexican corporation or through a bank trust, called a Fideicomiso.
Establishing a real estate trust, or Fideicomiso
Fideicomisos allow foreign investors to purchase real estate in the restricted zones. They are real estate trusts held at Mexican banks. While you have total control over the trust, the bank acts as the trustee. The bank cannot use the money in the trust, though. The trust lasts for 50 years and can be renewed in 50-year increments. The cost to open the trust is approximately $1,500, plus a $500 registration fee. After that, the cost to maintain the trust is $500 per year, and the government indirectly guarantees all funds. Your real estate agent should be able to help you set up the trust.
Setting up a corporation
If you are a real estate investor, and plan to rent at least part of the year, or plan to purchase multiple properties, you might look into setting up a corporation. There are virtually no restrictions on corporations, other than the fact that foreign-owned corporations cannot have Mexican investors.
You can open a Limited Liability Corporation (LLC) or a Limited Liability Partnership (LLP). Both cost around $1,500 to establish, and $100 a month in accounting fees after that. Corporations can purchase property anywhere in Mexico, including in the restricted zone.
How to Get Mortgages for Your Real Estate Transactions
The mortgage process in Mexico is considerably different from here in the United States. While you can go through a bank, their interest rates are through the roof — generally around 10 percent or more. If you need a long-term mortgage, though, you may not have a choice.
Most of the time, foreign investors either pay with cash or finance through a real estate developer. Developers require a hefty downpayment, usually 20 to 50 percent. Most also require that the loan is paid off within 3-5 years and they charge between 7 to 10 percent interest.
Buying Property in Mexico
While all of this might seem daunting, know that unlike a lot of countries, Mexico encourages foreign investment. Still, since the real estate market is mostly unregulated, you have to protect yourself. Do your own research, but back yourself up with a qualified real estate agent and lawyer. If possible, pay with cash.