Mexico Real Estate has a lot to offer in terms of great weather, beautiful scenery, and authentic Latin American culture; plus, you will find lots of affordable real estate in Mexico. It is perfectly legal for foreigners to own Mexican real estate.
The time is right for Mexico….
It is the United States’ closest neighbor to the south, and at no other time in the long history of that relationship have the benefits of living and investing in Mexico been more apparent…and easier to take advantage of. Not just for U.S. citizens, but for Canadians, Europeans, South Americans…anyone looking for great weather, low prices, rich culture, and potential profits.
Mexico is also one of International Living’s top retirement destinations. The annual Global Retirement Index looks at the best opportunities worldwide for retirement living. Mexico is regularly in the top 10.
Mexico has it all…rich culture, perfect climate…affordable living…not to mention mountains, beaches, deserts, and just about everything in between.
Whether you dream of a colonial home with graceful arches, thick walls, and a garden overflowing with pink bougainvillea; a lazy beachfront retreat where you can sit on your front porch with your feet propped up and watch the Caribbean roll up on the sand; or a dramatic Pacific coast lookout where the waters crash against the cliffs below and you can watch the sun set behind a watery horizon—you can find your dream home in Mexico.
Can North Americans Own Property in Mexico?
It’s time to put an end to the most enduring myths about buying property in Mexico. Whether you’re in the market for a home you can move into full-time…a vacation retreat you can visit a few weeks a year…a beachfront lot you hope to resell at a profit…or your own slice of sand to build your dream home on…you can find it in Mexico. And, despite what you may hear, it’s perfectly legal for foreigners to buy and own in Mexico.
Let’s take a look at three of the most common myths surrounding buying property in Mexico—and the truth behind them.
Myth #1: Foreigners Can’t Buy Property in Mexico
Foreigners can own property in Mexico. It’s perfectly legal. Outside the restricted zones—50 kilometers (about 31 miles) from shorelines and 100 kilometers (about 62 miles) from international borders—foreigners can hold direct deed to property with the same rights and responsibilities as Mexican nationals. And inside the restricted zones, foreigners can control land through fideicomisos (bank trust agreements) again with the same rights and responsibilities as Mexican nationals. Alternatively, foreigners can hold land in these areas through a Mexican corporation. However, if it’s a residential property that the foreigner plans to use personally, rather than a commercial property or one used purely as an investment, it should be held in a fideicomiso.
In the restricted zones, if a foreigner buys, the property title is held within a bank trust or a Mexican corporation—not directly. The trust is easily transferrable when an owner is ready to sell. This is a safe, legal, and extremely common vehicle for foreign ownership in Mexico.
Myth #2: It’s Best to Hold Title in Your Own Name
An article in the Mexican Constitution of 1917 states that no foreigner can own property in Mexico’s “restricted zone.” In 1973, however, the government saw the economic wisdom of allowing foreign investment in the “restricted zones” and established the fideicomiso, or bank trust, as an instrument to allow such investment in residential real estate.
Since 1973, most foreigners who have bought residential property in “restricted zones” have therefore done so through a fideicomiso. This sort of bank trust grants the title for a piece of property to the bank (the trustee), which in turn is obliged to follow any instructions given by the trust’s beneficiary—you, the foreign owner. You retain use and control of the trust and make all investment decisions regarding the property: that is, to sell it, rent it, build on it, live on it, or pass it down to your heirs.
The fideicomiso is very secure—only banking institutions authorized and regulated under Mexican banking laws can serve as fideicomiso trustees. And with the fideicomiso you effectively have all the rights you’d have if you owned the property via direct deed. Fideicomisos do add some time and cost to the buying process. But they are a useful instrument, and many people buying outside the restricted zone— such as expats in the colonial cities, for instance—have chosen to own their property through fideicomisos/bank trusts.
Owning property through a trust deed offers several advantages. First, you can list more than one person as beneficiary. This means, for example, that a husband and wife can essentially be “co-owners.” You can and should structure this in such a way that if one partner dies, the other has immediate, 100% control over the property. Second, you can list an “heir.” This means that, should both co-owners die, a new beneficiary is already in place—a beneficiary who, incidentally, needn’t be related to the original co-owners. Essentially, you write a letter of instruction to the bank naming this heir. When presented with the death certificate(s), the bank immediately and seamlessly passes title to him or her, and they don’t even need to be in Mexico for this. For gay couples, friends who own a property jointly, or for couples in a second marriage with different children, this is a very desirable option.
All this is important because it allows the simple and easy transfer of control over the property and avoids the messiness of sorting out ownership in the Mexican courts. Plus, it allows you to avoid inheritance taxes. Trusts are issued for renewable 50-year periods. If you are buying property currently held in a trust, you can either establish a new trust for the next 50-year period or take over the existing trust deed. Trusts are renewable at any time by simple application. Maintenance fees for this kind of trust are typically $700 to $800 per year. Initial set-up may run a few thousand dollars.
Myth #3: The Government Can Just Take Your Land
This is simply untrue. No property controlled by foreigners through a properly constituted fideicomiso bank trust—the instrument used by foreigners to hold beachfront residential property in Mexico—can be repossessed by the Mexican government.
There have been cases—such as in Baja California some years ago—when the Mexican government ‘repossessed’ property from foreigners. But when you dig a little deeper, it turns out the property titles didn’t hold up to scrutiny—they were essentially fraudulent. Yes, these expats were defrauded, but not by the government; the government was simply correcting the fraud, applying the law, and returning the property to the rightful owners.
“Cases like these are good reminders that you need a competent, honest lawyer protecting your interests in a real estate deal…someone who can make sure a property title is legal, clear, and unencumbered. But IF there is a problem, you are protected as fully under the law as a Mexican citizen would be. Mexico’s legal system does work, despite bureaucracy and the occasional corruption.
Property Taxes in Mexico
Transfer Tax
A 2% acquisition tax is payable by the buyer when property changes hands.
Inheritance/Gift Tax
Although Mexico does not impose an estate or inheritance tax, there is a tax on certain gifts involving real estate (payable by the recipient). Gifts between spouses and direct family members are not taxable.
Property Tax
The property tax on Mexican real estate is called predial. Compared with property taxes in the U.S., the cost of the predial is quite reasonable. It is a local tax and in most areas is payable quarterly. The average is approximately 0.1% of the assessed value of the property at time of sale.
It is very common in many communities in Mexico to use the “assessed” value of the property as the basis for these taxes, and the official assessment can be considerably lower than the market value of the home—often only 30% or 40% of the actual sale price. You should know though that under Mexican law, using an assessed value less than the actual commercial value for tax purposes is illegal. And, it means you’ll likely pay more capital gains tax when you sell.
Rental Income Tax
If you do not reside in Mexico, but rent out your Mexican property, your rental income is subject to tax at a rate of 25%. For residents, rental income is taxable at the regular income tax rates.
Capital Gains Tax
If you sell the property, you’ll owe capital gains tax. This can be up to 35% of the profit, but can be lowered based on how long you have held the property, authorized deductions, etc.
To ensure that capital improvements you make to a property can be deducted, make sure you get the correct receipts. In Mexico, you can only claim deductions for services and materials that are recorded on official receipts and invoices called facturas. Facturas must be printed on a government-authorized press and have the tax ID number (RFC number) of the company or individual issuing the receipt. No factura, no tax deduction.
The closing costs in Mexico are usually paid by the buyer. Fees for closing, in a regular transaction, usually come to between 5% and 8% of the cost of the property. The fees will cover an acquisition tax, property-registration fee, a fee for the tax certificate, the title-search fee, the property-appraisal fee, the notary’s fee, and any miscellaneous clerical fees, as well as a value-added tax on anyone whose services were engaged in facilitating the transaction (the appraiser, the notary, etc.). You can get an estimate of these fees from your notary and/or real estate agent when you make your offer.
The seller pays the real estate agent’s fee—usually somewhere between 6% and 10% of the sale price.
Ownership Issues in Mexico
As a foreign buyer, you cannot hold property that lies within 50 kilometers of the high tide line, or within 100 kilometers of Mexico’s international borders, directly in your own name. It needs to be held via a Mexican corporation or fideicomiso (bank trust).
And, you cannot own ejido land. This type of land was established in 1917 as a result of the Mexican revolution. It is not private property; it is government land granted for use by members of local ejidals, something like Native American land in the U.S. and Canada. This land can be converted into private property, but the process is long and complicated. We recommend that you don’t even consider the purchase of ejidal land. One of the most important aspects of title research is making sure the plot you’re interested in has never been ejidal land or, if it was, that it was successfully privatized a long time ago and never challenged. Too much can go wrong with an ejidal property. You may be tempted by a low price or a promise that nothing will go wrong but ignore it—just don’t buy it.
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. And if the title insurer you’ve hired says he will not insure the property…ask why. If it’s because the title isn’t clear, don’t buy it.
Source: https://internationalliving.com/countries/mexico/mexico-real-estate/
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