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Property in Mexico

FAQ for Buying and Selling Real Estate in Mexico

Purchasing property in any overseas location requires a extensive amount of research, planning and preparation, and Mexico is no exception. You will also need to hook up with the right professionals who can guide you through to a successful property transfer in Mexico.

This guide will give you a comprehensive overview of the key facts and considerations you need to take into account on your journey to property ownership in Mexico.

Property in Mexico

Buying property in Mexico, whether its land, a serviced apartment or a house, can offer good value for money in comparison to prices in the US and Europe, although prices in some areas have risen dramatically in recent years and care should be taken in assessing a property's true value. Mexico's land costs can be lower, building and maintenance is cheaper, cost of ownership (taxes, utilities) is very low, and although there are 'horror stories' associated with buying property here (as in every country in the world?), the overwhelming majority of all real estate deals go through legally and smoothly.

The reasons to buy property in Mexico come down to a personal choice, and depend on your individual circumstances. Perhaps you will be living in Mexico for some years and you see long term rental as "wasted" money, or perhaps you're looking for an overseas property investment that will surrender a rental income, while providing you with a place to stay on holiday when you visit...

Property values in Mexico tend to increase year-on-year, as they do in most places, but in many places (with notable exceptions in popular cities and coastal areas) not as significantly as prices have risen in the US and Europe in the last few years. And as with all property, the relative value and appeal of land and property in Mexico comes down to the three key factors: location, location, location.

If you're considering the purchase of property in Mexico, you will need to undertake extensive research, choose your location and property very carefully, and ensure that you hire the right professionals and that the letter of the law is followed. Thousands and thousands of foreigners have successfully purchased land and property in Mexico. With the right approach and plenty of homework, there is no reason why you should not become one of them if you want to.

Financing Mexican Real Estate

It's important to think carefully beforehand about how you are going to finance your property in Mexico. A Realtor in Mexico may be able to advise you, and some even have connections with financial institutions (banks, mortgage brokers) who may proffer financial solutions, depending on your personal circumstances, to help you complete your property investment in Mexico. Historically, the overwhelming number of real-estate deals in Mexico have been settled in cash. However, with the stabilization of currency markets across the world, Mexican banks are now beginning to offer mortgage products for the purchase of real-estate in Mexico, although significant deposits are required and interest rates are not as attractive as those in the US, Canada and Europe.

Financing is also available from some specialist US-based mortgage companies which offer Dollar denominated finance products for the purchase of real estate in Mexico. We've create a detailed guide which explains the various financing options including peso-based mortgages, dollar-based mortgages, charges and financial considerations to take into account.

Real Estate Developments in Mexico

One of the easiest ways to invest in Mexican real estate is through a Real Estate Development project.

Real Estate Developments are managed by companies who buy large parcels of land, obtain all of the necessary permits, connect up principal utilities such as water, electric and telephone and sell either plots of land and/or houses, condos, etc.

Mexican Law: Property Ownership

Mexican Law provides for private ownership of land by foreigners, and its law is very specific about the way in which land rights should be transferred from seller to buyer, and also what type of lands are not eligible for public ownership. A Notary Public will guide you through the details of these, but generally:
  • Property may be purchased and owned outright for residential use by foreign nationals outside of the 100km restricted land border zone, or outside of the 50km coastal zone;
  • Inside of the restricted border/coastal zones, foreign nationals may own land through a fidecomiso (a trust) which is set up through a bank and provides for ownership of the land and property in all but name.
The Mexican Constitution previously banned foreign nationals from owning property that was within the restricted border zones. This old law was intended to protect Mexican soil from foreign invasion.

Because the Constitution cannot be altered in this respect, the Government introduced a system of land trusts, so that foreign nationals could invest in property inside of the 'restricted' zones. So now, if you as a foreigner want to buy a dream home with a Pacific beach view, you now can, except that it will be by means of a trust, set up through one of the main banks in Mexico.

The trust holds the deeds to the property, and you and/or other named persons whom you specify are sole beneficiaries to the trust (and therefore the property). You have full rights to do whatever you like with your property: it can be developed (in accordance with local planning regulations), rented, leased, sold, or given away. In other words, you own the property in all but name.

The trust enables you to name a beneficiary upon your death, and you do not need to have a Mexican Will in order for your wishes in regard to the trust to be executed.

You do not have to be resident in Mexico to own property there, so there is no need to qualify for resident status under immigration laws in order to have a property investment in Mexico.

Title Insurance in Mexico

When you buy real estate in Mexico, you would do well to consider taking out Title Insurance on the property. Title Insurance covers you should the property you buy subsequently turn out to have liens associated with it. This especially relevant if the property you are buying has been privatized, having previously been classified as being "Ejido" lands (see below), but even if this is not the case, Title Insurance will protect you if any other previously unforeseen lien or charge is brought against the property before you took possession of the Title Deed. Rates for Title Insurance are around US$5-US$5.50 per US$1,000 of the property's value; pay-able once only at the point of purchase. A good Estate Agent in Mexico will be able to advise you further about Title Insurance.

Ejido (Agricultural) Lands in Mexico

Ejido (Agricultural) Lands Ejido lands have a long history in how they came into being. Essentially, they are similar to "commons land"; after the revolution, communities and peasants were handed strips of land, in the main, to grow crops on, and they are called "Ejidos".

You CAN buy Ejido land, but the sale requires the agreement of the whole community that 'own' it, the process is arduous and risky. Some big property developers may negotiate to buy a big plot of Ejido land, with a view to "fractionalizing" it (usually introducing mains water, sewerage and electric to the land as well), to develop property and/or to sell off the individual plots to small property investors. Under these schemes, the land is often re-classified and made available for private ownership. The process is usually undertaken by professionals who understand Mexican property law intimately and the procedures can go on from a year to several years. The current advice is: double check to make sure that the land you are buying is not Ejido land and if it is, avoid it.

Note: It is advisable to purchase Title Insurance if the property you are purchasing is ex-ejido land (although regardless of the type of property, Title Insurance is a shrewd investment). Read more about Title Insurance under the heading of Title Insurance, above.

The Role of the Notary Public in Mexico

The Notary Public is the most important person you will deal with when you make a property investment in Mexico. Do not confuse the role of the Notary Public in the US or UK with its counterpart in Mexico: they are quite different. In the UK for example, almost anyone can become a Notary Public. Not so in Mexico, where the role is appointed directly by the State Governor (the highest seat in State Public Office).

The Notary Public has the power to witness and certify important business documents which require absolute authenticity. The appointment also holds responsibility for the management and secure storage of original records. Notary Publics must be Mexicans of at least 35 year in age, they must have a degree in Law, have 3 year's work experience at a Notary Public office and they must pass a stringent exam. Those who pass, in time, are appointed as Notary Public by the State Governor.

Under Mexican Law, the deed to the property must be prepared by a Notary Public. As a buyer, it is your right to choose the Notary Public, and it should be your first port of call - or second after your lawyer.

The Notary Public will ensure that all documentation and permits are in order so that the transaction can proceed.

Outline of Property Purchase Procedure in Mexico

The exact process will vary in each case, but you will follow a process that goes along these lines:
  • Find a property you like; agree a price verbally;
  • An agreement to sell/buy, with detailed costs, inclusions and exclusions, as well as deadlines, is set out in an initial "Convenio de Compra/Venta" (sale agreement), at which point a deposit (5-10%) is paid by the buyer and cancellation penalties are set (usually equal to the deposit) if either party pulls-out;
  • If the property is inside the 50/100km coastal/border zone, you will need to set up a trust;
  • Next, you seek permission from the Foreign Secretary's office (a formality) to buy land. You will be asked to sign the "Calvo Clause", which states that you will not seek foreign jurisdiction in dealings with your property transaction;
  • If you are buying from a developer (e.g. a Real Estate Development) advise the Notary Public who will ensure the developer's permits are in order;
  • Get a copy of the Land / Property Deeds from the seller. The Notary Public will check these out. Ask the Notary Public to check that the land is not Ejido land, as discussed earlier in this guide;
  • An official appraisal of the Land (Avaluo) needs to be carried out; your Public Notary can arrange this.
  • Your Notary Public (or lawyer) will ask for official documents that can include (but are not limited to): Photo ID (passport), Birth Certificates, Marriage Certificates (if appropriate), and your visa (could be a Tourist Permit) to prove that your stay in Mexico is legal;
  • The seller will need to present to the Notary Public documents including (but not limited to): original property deed, up-to-date tax receipts for the property, public utilities bills (shown as paid), plus up-to-date details of land-service fees (shown as paid);
  • Capital Gains Tax is paid by the seller, unless you have agreed to pay CGT as part of the buying agreement. The Notary Public will state how much this is;
  • Payment is made (see note below) at the time when the deed is signed over to you, and this is done at the Notary Public's office;
  • The Notary Public's and Solicitors (if applicable) fees are paid at this time as well, as well as other taxes associated with land purchase (see Taxes, below).
Payment: Whether you are paying with cash or via some kind of financing you (or your lawyer representing you) will need to have the agreed funds available for hand-over at the Notary Public's office on the date the deeds are signed across to you.

Money Transfer Declaration: Cash or monetary instruments (of any kind) with a value of or exceeding USD$10,000 MUST be declared when you enter Mexico (and the enter/exit the USA - even if you are in transit to Mexico from elsewhere via the US). There are no limits on how much you can transfer in or out of either country - but sums over the US$10K limit must be declared on a special form.

Choosing the Right Location

As with any property purchase in any country, location is critical. Make sure that you are familiar with the location and the area of the location you are planning to buy in.

Also ask yourself how marketable the property is in its current condition and location, especially if you are planning to rent it, or should you want to sell it at a later date. A good Estate Agent will guide you in this respect.

Do your homework - don't just buy in an area based on how it looks. You may want to rent something nearby to start with, and get a feel for the place. Once you're living locally you can assess things like the atmosphere, the neighborhood in general, and talk with the locals about what its like to live there.

Buy, Build or "Fixer-Upper"?

Buying land and commissioning a house on it will provide you with much better value for your money: The price of land and construction will be less than an equivalent house bought built.

The downside of this, of course, is that you have the additional time, effort and expense of project managing a build. You would do well to be in Mexico for the duration. Architectural firms can be hired who will design, build and finish your house for you. They usually work on a multi-stage payment basis, and guarantee that the price they have quoted you is the price you'll pay, or within 10% (either way) min/max.

The choice of whether to buy or build will again be a personal one, and probably also based on what you are looking for and what is available: you may need to build in order to get what you want!

When you do the math, you'll probably find that you'll get more for your money than by buying something built, but keep in mind the additional effort you'll need to invest; for convenience, it may be better to buy something already built, especially if you can't be in Mexico for the duration of the building period to keep on top of events.

A special note about buying land

Be sure, if you buy land, that it served by a reliable water source. Ideally, your plot should have a mains feed, but if not, it could include a well, or water from a neighboring plot - if it does, make certain that this arrangement is in writing and that the additional costs, if any, are clearly stated. Land without a consistent and reliable water source has very little value.

The "Fixer Upper" (an American English term, now used as "Spanglish" in Mexican estate agent speak) is a shell house in need of serious maintenance. These enable you to buy the property at the 'shell' value, and create a home, almost from scratch. Some "Fixer Uppers" include old colonial buildings, that can polish up into magnificent homes - if you have the time and resources to dedicate to them. These days, the people who own these 'shell' homes do not underestimate the value of the property once it is renovated - they have learned from previous experience - so unless the seller is desperate to sell, you may not be able to buy your 'shell' property as inexpensively as you may think or hope! Shop around and think carefully about the costs you don't know that you don't know about when embarking on this kind of project.

Building Regulations and Standards in Mexico

There are no official "builder's guild mark" or similar standards for buildings and property in Mexico.

If you are buying a property that's built, then you should hire a good surveyor to check the place out thoroughly before agreeing to buy or handing over any money.

If you are having your house built, ask the architects to show you examples of their previous work - and go to the places to see them - don't just look at the photographs. Once again, a professional survey to assess the quality and state of the architect's previous buildings would be a shrewd move on your part.

In areas near to the coast, and in regions containing a large proportion of volcanic rock, a soil survey may also be a good investment - especially if you are buying land to build on... your architect may provide assistance in this area.

Valuation of Property in Mexico

Valuing a Property for Tax Purposes
If you own a house in the USA, Canada or Europe, you are required to pay tax to the government, usually based on a rate-able value of the property. In Mexico, the Rate-able value is known at the Catastro, and is set by an officer of county; no onsite inspection is required. The Catastro value will vary depending on the area in which you intend to buy, and can be a fraction of the commercial value of the property. This Catastro is used by the Notary Public to assess the value of the annual equivalent of the "Local Property Tax", known in Mexico as the Predial. The Predial is payable annually, on January 1st or soon after. You don't get a bill; you just know you have to pay it in January, and you show up to do so each year. You will find the Predial is very low (and could border on insignificant) when compared to say, property taxes (even at the lowest rates) in Europe, Council Tax in the UK, or the annual rental value of the property. This is one of the reasons why cost of property ownership is low in Mexico. Although the Catastro is an essential number for working out tax liabilities, in practice it serves of no use in assessing the commercial value of a property.

Commercial Valuation
House prices tend to be regional, and if you live in the UK especially, you are probably used to valuations of a property based on the number of bedrooms and whether the property is terraced, semi or detached, etc - not the square footage being bought. In Mexico, values are not determined or measured on number of bedrooms; as a measure of value people instead look at a price per square meter of land and then per square meter of construction on that land as they do in the USA, Canada and Continental Europe. For example, you could have a 300 square meter plot with 500 square meters of construction. The garden is likely to be small, or even, just a patio, in this scenario. "Construction" is based on outer measurements, wall-to-wall and includes garage, covered patios and out-houses or other buildings, not just the main living areas.

Some Common Valuation Models
Here are some of the more common ways in which properties can be valued:

Investment Value
This is deduced by determining how much the property would fetch monthly from a rental (based on similar rentals in the neighborhood / area) and multiplying by a factor. This factor is usually calculated by taking into account the cost of maintenance and applicable property taxes. If you wanted to see a return in 6 years (which is about average) then your formula would be: (Monthly Rental x 12 + Annual Maintenance (Including Service Fees) & Taxes) multiplied by Years (6).

Similar Recent Sales
If you are buying in a neighborhood where houses / land plots are similar, then you may be able to get an indicative commercial value from prices paid for similar size and type properties in the area during the last 12 months. An estate agent would be able to guide you in this respect.

Replacement Value
Another way of determining the commercial value of a property is to take the commercial value of the plot (land), and add to it the cost of construction, should you build it today (this is usually expressed in cost per square meter of construction) and depreciate this value according to the age of the house. You would then add on the value of any special features.

Features that can Add Value
Values of property can escalate when the following features exist on or near the property (remember that features attached to the property are subject to depreciation factor, mentioned above):
  • Property is well served by local infrastructure (e.g. good roads, airport);
  • The property is near a body of water; river, lake ocean (but watch out for rising water levels!);
  • The property has good panoramic views of the area;
  • Property is in good condition and requires little or no immediate maintenance;
  • Property has a swimming pool / whirlpool Good landscaping, driveways, garage, water pressure system, parabolic satellite system;
  • Any furniture: Homes in Mexico are often sold fully furnished, but not always - check.
  • Local security - for example in gated areas - where all residents in the community pay an annual fee to a security management company for 24x7 vigilance;
  • Any features which make the property unique and added to the cost of construction and / or take up additional land; e.g. a large ornamental fountain.

Costs and Taxes

When you buy property in your home country, you are usually faced with the associated costs like agent fees and taxes. Mexico is no different, although the net value of these costs as a percentage of the property values may be lower overall, but this is not guaranteed as professional fees have risen recently too.

Costs and Taxes: Buying
Acquisition Tax: This Tax is paid on the sale value of the property and is equivalent to about 2% depending on the State in which you buy. This tax is paid whether the property is sold, transferred, donated, placed into trust, split off or merged.
VAT (Sales Tax): No Value Added Tax (Sales Tax) is payable on residential property. Commercial Property transactions are liable to VAT at the current rate in addition to the Acquisitions Tax.
Appraisal Tax: The Tax Authority may choose to perform a commercial appraisal of the property after you purchase it. If the appraisal value is more greater than 10% of the price you paid for it, you will be asked to pay 20% tax on the difference between the two amounts. This sum is due within 15 days of the date of the appraisal report.
Registry Fee: In order to have the Public Records updated, a 1.3% fee (based on the value of the transaction) is paid by the buyer.
Public Notary Fees: You will be required to pay fees for services provided by the Notary Public. These are about 1.5% of the transaction value, plus the cost of the official appraisal (as described in Valuation section, for tax purposes).
Bank Trust: If you purchase property within the 50/100km restricted zones, you will need a bank to set up and manage a trust for you. Shop around, as prices vary from Bank to Bank. Set-up fees can cost up to US$750, with annual service charges between US$300-US$500. The annual service fee will cover legal obligations (e.g. the filing of necessary documents annually) by the bank on your behalf.
Lawyer / Attorney Fees: If you hire a lawyer / attorney, you will also need to pay him/her with fees for services they undertake on your behalf. These should be negotiated in advance.
Land / Building Surveys: If you need to undertake any land or building surveys, these will have to be paid for separately. Cost will depend on type, extent and complexity of surveys undertaken.
Foreign Office Permit: Your permit from the Mexican foreign office will cost around US$150.
Service Fees: If you are buying a house in a gated community, or an apartment, be sure to check on the annual service fees, and have these put in writing. Service fees can range from US$100 a year to US$1000+ a year, depending on location, number of houses or apartments in the enclosure and amenities offered.
Title Insurance: When you buy property in Mexico, you would do well to consider purchasing Title Insurance. Rates are based on the sale value of the property and are charged at around US$5-US$5.50 per US$1,000 of the value.
Costs and Taxes: Selling
When you sell a property in Mexico, you will be subject to the fees of any professional services you contract, plus the following taxes and fees:
Income Tax on Property Gains: If the home has not been your main residence for at least the last two years, will be required to pay income tax on the property. You may either pay 20% on the gross amount of the transaction, or elect to pay 40% tax on the net profit obtained from the property. This law prevents short-term speculation on the property market. Commercial property is taxed at above rates, regardless.
Agent Fees: If you employ an agent, expect charges of around 3-6% of the value of the sale as a fee, but you may want to negotiate on this beforehand. You will also need to pay VAT (Sales Tax) on agent fees.

Time Scales

Time Scales can vary dramatically from a few weeks, to several months! If you agree to 'deadlines' in your initial sales agreement, leave yourself plenty of time to meet deadlines that you agree to.

On average, you can expect the process to take up to 3 months from the time the initial sale agreement is drawn up and the deposit is paid.

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