Owning investment property in Mexico can be one of the most rewarding experiences of your life – both financially and on a personal level – depending on your needs. In order to buy real estate in Mexico safely and ensure that it’s truly the best option for your unique situation, it’s essential to understand some basic rules and develop a plan, so here are 10 tips designed to help you do just that!
1. Understand the Fideicomiso
At first glance this may seem complicated, but it’s really not. A fideicomiso is simply a 50-year renewable bank trust that must be established when foreigners buy property in Mexico within 100km from the border and/or 50km from the coast. It provides foreigners with irrevocable and absolute ownership rights to the properties they buy, with the bank holding the legal title in the owner’s name, and he or she is the designated beneficiary of the trust.
2. Decide Whether to Set Up a Corporation
If your intent is to conduct the property as a business, it may make sense to invest by establishing a corporation instead. This could apply if you’re buying and selling land in the path of development, renting property as a vacation home, or if you own more than one investment property. There are several different types of Mexican Corporations used for these purposes, with the most common being a limited liability corporation (LLC) and limited liability partnership (LLP). We always connect our clients with an experienced English-speaking Mexican attorney to help determine the best course of action.
3. Watch Out for Ejido Land
The Mexican government is not permitted to seize land that is legally owned by foreigners with a fideicomiso or through a corporation, so If you’ve ever heard a horror story about foreigners having property taken away by the federal government, it was most likely ejido land that was never really for sale in the first place. Only a Mexican person can legally own Ejido land, which is also the only land in Mexico that is untitled. Unfortunately, there are some unscrupulous con artists out there who try to convince foreigners to buy Ejido land, often bringing about disastrous consequences. Avoid this headache by working with an experienced real estate investment advisor you can trust, who comes highly recommended by former clients and has a strong reputation for honesty, with a deep knowledge of the area you are looking to invest in.
4. Team Up with Professionals
In fact, this brings us to one of the most important pieces of advice on this list – to always work with a trusted real estate professional who has a great reputation and extensive local connections. Not only will this ensure that you find the very best investment properties in Mexico for your situation and budget, but it will also protect you from falling prey to a scammer. Take your time and find a team that can take you through every step of the buying process – from finding the best real estate on the market, to ensuring all the paperwork and financial transactions are handled properly – there is no substitute for experience when it comes to buying safely in Mexico!
5. Use an Attorney
If your realtor is good, he or she should also connect you with an experienced English-speaking Mexican attorney who will review the paperwork and ensure that everything is handled properly. For example, the attorney will also draw up the contracts, and review the terms and conditions of the sale. It’s also important to note that foreign attorneys are not permitted to practice law in Mexico, and therefore should not be your source of advice on Mexican law.
6. A Notary Should Authenticate the Documents
In Mexico, a notary is a licensed attorney certified by the state and Federal government to act as its official and unbiased representative, giving them far greater responsibility than notaries in the U.S. In Mexico, notaries are government officials who authenticate legal documents and are responsible for ratifying ALL real estate transactions. They are equally responsible to buyers and sellers to ensure the legality of the transfer of title, to calculate and retain capital gains on behalf of the government and coordinate appraisals, as well as provide certificates of no liens, no debt and all corresponding permits.
7. Understand Title Insurance
Title insurance is available in Mexico, but its purchase is optional and it is considered an insurance policy for property ownership. Similar to a U.S. contract of indemnity, title insurance in Mexico basically guarantees the property is free and clear of any claims, judgements, liens or legal issues, providing extra assurance that ownership rights are held by the fideicomiso. As with all of the other steps to safely buying real estate in Mexico, your realtor should be able to help you through the process of obtaining Title Insurance.
8. Determine Closing Costs
In Mexico, total closing costs are usually between 5-7 percent and include all taxes, notary fees, escrow fees, appraisal fees, application fees and costs associated with setting up the bank trust (fideicomiso) or corporation. Most real estate transactions in Mexico are cash purchases, but if you have been approved for financing the closing costs will likely be more like 7-10 percent.
9. Consider Mayan Land
As one of the world’s largest untapped real estate investment markets, Mayan land in Mexico’s Riviera Maya region is positioned for outstanding growth and is available for purchase with qualified legal assistance. The beauty of this under-utilized real estate investment opportunity is that it permits you to buy land directly from Mayans at wholesale prices that are well below retail value. The entitlement process is simple but does require time to complete – usually between 24-60 months – so be sure to ask your real estate investment advisor about this exciting investment opportunity.
10. Buy Real Estate Using Your IRA
No cash on hand? No problem! It is perfectly legal to buy investment properties using assets in your IRA account. This smart real estate investment strategy also offers a hedge against inflation and the opportunity to enjoy tax-deferred income. It’s also a fantastic way to protect your assets from stock market volatility and ensure that you have secure retirement income available.
What type of investment property are you looking for? Tell us in the comments!
Want to learn more? Check out Vacation Home Rental Income and Mexico Tax Laws: What You Need to Know