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Owning in Mexico

The purchase of real estate in Mexico by foreign citizens is a straightforward and direct process, however is often tainted by inaccurate misconceptions. Within the past twenty years, real estate in Mexico has not only become a desirable lifestyle option for resort ownership, but also a potential alternative for a viable investment strategy mid to long term. Begin by obtaining the facts from a knowledgeable professional. Purchasing property in Mexico is safer and easier than ever before, with U.S. Title Insurance and third-party Escrow the standard. Riviera Partners Realty team can guide you through your transaction, ensuring that the process is done legally, securely and professionally. The following are frequently asked questions and answers concerning the purchase of real estate in Mexico:

 

Q: Can foreigners own property in Mexico?
A:
There are established regulations for non-Mexicans owning land or property within Mexico that make the process safer and easier than ever before. These rules have been put in place to both protect the purchaser’s ownership rights as well as to promote the sale of real estate to foreign investors.

Article 27 of the Mexican Constitution restricts direct ownership of land by non-Mexicans within 100 kilometers of the border and 50 kilometers (about 30 miles) of the coastline. This is a protectionist measure, put in place after foreign invasions repeatedly threatened the country’s sovereignty at the end of the 19th century. Today, foreigners may directly own real property in the interior of Mexico subject to certain limitations on specific agricultural tracts. Modification of this constitutional restriction have been made, and since 1973 foreigners (non-Mexicans) have been able to purchase coastal and border properties through an established and perpetually renewable Mexican property trust called a Fideicomiso. This is a bank trust, much like an estate trust in the U.S., which gives the purchaser all of the rights of ownership.

 

Q: What is this Trust, and how does it work?
A:
Essentially, the bank acts as the “Trustee” for the trust and the purchaser is the “Beneficiary” of the trust. The trust is not an asset of the bank; the bank merely acts as the trustee of the trust, and the trust 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 enjoys all rights of ownership enabling him to occupy, rent, gift, or transfer title to the property to any legally qualified person he may designate. The actual document is a Trust Deed and is public document registered in the local land registry. This is not to be confused with a land lease or anything at all related to a lease—a common misconception. These Trust Deeds have an initial term of 50 years, and are legally renewable in perpetuity at any time or at the end of the 50-year period for a filing fee (less than US$1,000.00) 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.

 

Q: How are these Trusts created?
A:
To establish a property 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 USD$500-$1,000 per year, providing there is no financing involved.

The Trusts are carried as off balance sheet assets by the banks who act as trustees. The Mexican Government specifically set the trust system up to allow non-nationals the security of ownership without having to change their 1917 constitution. The Riviera Partners Realtyteam can refer you to a reputable Mexican bank trust department, which generally have English-speaking personnel, as well as publications, available to answer questions about Trusts.

 

Q: Are there differences in other aspects of property ownership in Mexico?
A:
losing costs to the buyer tend to be higher in Mexico than they are in the U.S. or Canada, averaging 4 to 5 percent of the purchase price. Closing will take from 30 to 60 days depending on contingencies and financing requirements. Escrows are now available via private escrow companies specializing in this function and will run from USD$1,500.00 to USD$1,800.00 per transaction.

In most cases, the buyer and seller need not be present at closing, but may be represented by their sales agent via a power of attorney, or may execute their documents abroad, certifying their signatures with an apostille.

Public Notaries in Mexico are the agents of record for all transactions registered in the Land Registry Office. The notary is also responsible for collecting any taxes that may be due at closing.

 

Q: What about the availability of insurance on the property itself?
A:
Insurance – including property, theft, flood, liability, hurricane, damage, and earthquake – are all readily available in Mexico and policies can be written to pay claims in U.S. dollars.

 

Q: What about taxes? What can I expect to pay in Mexico?
A:
For the buyer, the subject of real estate taxes generally comes as good news, especially in the Punta Mita/Riviera Nayarit area, real estate taxes tend to be low. Known as ‘Predial’, the tax is calculated as a percentage of the assessed value determined at the time of sale, paid every bi-mester. Property taxes have historically been low in Mexico because they have never been considered a source of governmental revenue, however, this is subject to change.

 

Q: What other expenses should I consider on the purchase of property in Mexico?

A: If you are not planning on living full time in Mexico, property maintenance will need to be considered for the time you are away, and preferably a property management company (Riviera Partners Realty have a signature list available). For condominium owners, maintenance and security is handled by the Condominium Owners Association, paid for through monthly fees.

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