(In the coast or near the border)
The number of expats who’ve chosen to buy properties in Mexico is higher than ever before, this may be due to the pandemic and so many companies allowing their employees to do “home office”, the cheaper lifestyle also is a plus, or maybe it’s just getting popular. With that in mind, we want to share with you the “do’s and don’ts” of buying properties in Mexico.
Since having US citizens come to Mexico is very common, locals are very used to dealing with them, and that can be a problem. That familiar feeling can make buyers believe that everybody has the processes and protections that they enjoy in their home countries, which is not necessarily true.
Buy Properties in Mexico
So Before you go ahead with the proces, here are a few things you should know.
There are no restrictions on the ownership of residential property in Mexico, and you can hold the title in your own name, however, if the property is near the coast or an international border special rules will apply.
Mexico has a restricted zone—called the Zona Restringida—that occupies a band within 50 kilometers of the coast or 100 kilometers of an international land border. Non-citizens are not able to hold property in their own name within this zone.
But in order to encourage foreign investment, te government created a workaround, the use of a trust to purchase property within the restricted-zone.
This trust is called a fideicomiso. The fideicomiso allows a buyer to avoid inheritance taxes and to put the property in a will, as well as the obvious rights of real estate ownership including building, developing, renting out or selling the property.
Trusts are intended to allow the use of real estate located in restricted areas to foreigners (individuals or legal entities) or, to Mexican companies with a foreign admission clause, as long as the property is used for residential purposes and for a maximum period of 50 years.
The trust is a legal figure granted by the Ministry of foreign Affairs, and it’s done through a bank that serves to guarantee the operation of the trust.
All requests for permission to establish trusts must be resolved by the Ministry of Foreign Affairs within five business days following the date of the request presentation. The trust agreement must be registered in the public record (Registro Público de la Propiedad)
What documents do you for a fideicomiso?
Mexico has a restricted zone—called the Zona Restringida—that occupies a band within 50 kilometers of the coast or 100 kilometers of an international land border. Non-citizens are not able to hold property in their own name within this zone.
Passport
Immigration status
Payment of rights
Copy of driver’s license
(for the United States and Canada it also serves as proof of address)
Fill out the forms that the bank gives you
“Will i be able to sell it in the future?”
One of the most frequent questions is, “will I be able to sell it in the future?” and the answer is yes, In case the trust property is to be sold, there are two options:
If it is a Mexican, the extinction of the trust is requested
If it is to another foreigner, the rights of the trust can be assigned to the new owner changing the names of the trustees and substitute trustees
When you are selling dont forget to consider capital gains taxes, The process to determine the amount in Mexico is different from the United States.
In Mexico, the gain from the sale of property is treated as ordinary income and taxed at a rate of up to 35%. In order to determine the gain, subtracted from the purchase prices, is the original land cost and depreciated construction cost, based on the number of years the property was held and adjusted for inflation based on the official consumer price index, the cost for additions, modifications and improvements, made on the property excluding maintenance, and commissions paid to real estate broker by the seller, closing costs, including all expenses, taxes and fees paid by the seller. The Notario retains the calculated gain and forwards it to the Mexican tax authorities. The seller is then able to deduct this amount against their annual tax return.
If your are buying from a foreigner, you can transfer the previous owner’s fideicomiso into your name.
This can save you time and money, but a transfer does not reset the 50-year clock, the fideicomiso will need to be renewed 50 years from the time it was originally created.
As a buyer in Mexico, the notary is your representative in the process. He is not an impartial third party, and does not represent the seller. He performs a title search, prepares all the paperwork, processes the real estate transaction, records the new title with the municipality, and collects the taxes and fees.
“We highly recommend hiring a notary who is fluent in English. He and your real estate agent should serve as your translators, and explain what all the documents are saying”
Marcela Felton
Since the official language in Mexico is Spanish, and all official documents are in Spanish, including your sales contract and closing documents. We encourage you to ask your realtor to give you an English version of the sales agreement. This is a great tool for making sure that you and the seller understand the terms of the deal. Keep in mind however, that when there’s a conflict between the English version and the Spanish documents that you signed, the Spanish version will be the official one.
Make sure that any changes made by you and the seller on the English version make it through to the Spanish version at the end of negotiations. At your discretion, you can have some of the official documents translated by a third party.
Closing costs should be around 5% of the purchase price. This includes the notary fee, transfer tax, and a few other odds and ends, including the fideicomiso setup fees.
Your experience buying property in Mexico should be a good one. Make sure you buy from a reputable real estate company. When in doubt, don’t hesitate to call a time-out and ask questions until you’re satisfied. Don’t be afraid to clarify Spanish conversations you’re hearing, or terms that are new to you. In the end, the enjoyment you’ll get from your new property in Mexico will be worth the effort.
It’s very important to always consult with an expert who will guide you and always guarantee the legal security of the properties in which you want to invest.
If you have any questions regarding buying or selling a property in México feel free to contact us and any of our team members will gladly help you.
