Hi All,Over the last few months I’ve had more and more inquires in regards to financing here in Mexico. So let’s get it all on the table for those of you who are looking to leverage your money and are searching for options available to you.
Traditional financing through a bank here in Mexico for a foreigner is very difficult to obtain. If you can find the rare occasion where you have a FM3/FM2 (what is now a Permanent/Temporary Visa) and you qualify for a bank loan you will be looking at interests rate ranging from 9-12%. Considering the fact that many of our buyers originate from the U.S. or Canada those interests rate quickly turn them off. Most of us are used to 30 year fixed loans at 1.5-3% interest in their home country. This is the biggest hurdle you need to overcome when looking to purchase real estate abroad. One needs to understand the rules are a bit different down here. One thing to remember is this is a CASH MARKET,95% of foreign real estate deals are done with cash, which when you step back and look at the big picture tends to make for a very conservative market. Now, not everyone has 250-500k cash to throw into their second home or if you do many times you would like to leverage your money a bit and not tie it up all in one asset. If this is the case I have 2 options for you:
1) Owner Financing: This is becoming Investment Properties Mexico bread and butter. It works in the favor of both the buyers and the sellers alike. This is the most sought after way of financing here in Mexico. Us here at IPM are actively recruiting sellers that are open to owner financing. It is in the sellers’ interest for a few different reasons. The shelf life of their property on the market is cut in half ranging anywhere from 30 days to 3 months. Second they get to act as the bank and charge a small interest rate for term of the loan and finally they receive a cash lump sum up front. Typically an owner financing deal will consist of 30% down with a term from 3-8 years and anywhere from 5-7% accrued interest. I see these deals working great for a wide range buyers like those who are waiting to cash out of their 401k once they retire, people who are waiting to liquidate stock options, wanting to leverage their money short term, or people who need time to liquidate their assets while making the move south solidifying their retirement exit strategy.
**Key note: The new owner is allowed to do what they choose with the property while in term. Ex) I have clients who are planning to retire in 5 years and while they are still working in the US they rent out their unit for vacation/long term rentals, covering their overhead and putting the remaining profits towards the principal balance or interest.
2) Developer Financing: DF is becoming more popular with the larger banks that are backing commercial development projects. Some of Spain’s largest banks offer developer financing for their projects here in the Riviera Maya. The loan is secured by a large bank and typically has lower interest rates than traditional financing and longer terms than owner financing. There are limited development projects that offer this type of financing but we are always seeking for these types of deals for our clients.
a) Another type of developer financing deal would be with the smaller developers who will extend financing for their pre-sale developments interest free. What this means is that you can put down anywhere from 10-30% on the purchase price of the unit. The developer will allow you to either pay incremental payments as the structure is being built or have a balloon payment once your unit is ready to be delivered. Typical construction time ranges from 1-2 years. In some instances you can even negotiate for the developer to hold your note another year or so longer after the development is delivered with minimum interest.
** Key note: Tulum has a few great owner financing deals with their new projects in the Aldea Zama community. This is where I suggest any savvy investor looking for growth, appreciation, and cash flow concentrates his efforts. For more information on what is happening in Tulum please contact me directly.