Taking the leap and buying property in a foreign country can seem daunting. Here at Momentum Realty, we ensure you feel secure about that big decision. Find out everything there is to know about buying, selling, renting, and living in Mexico!
Buying Real Estate in Mexico
Can I own property in Mexico?
This is one of the first questions often asked by foreigners. The answer is a resounding YES! Home buyers from Canada and the United States are familiar with purchasing property through the process of “Transfer in Fee Simple.” While much of the process of buying property in Mexico is similar to this, there are a few minor differences.
To provide some history – the Mexican Constitution previously prohibited foreigners from owning property within 100 kilometers of the border and 50 kilometers from the coastline. These areas were and still are known as restricted zones. The entire Baja California Peninsula is considered a restricted zone.
In the early 1970s, a presidential amendment to the Mexican Constitution allowed foreign ownership of property in the restricted zones by way of a bank trust, or fideicomiso. Under a fideicomiso, a foreigner is able to buy property in the restricted zones with the property held in trust by a Mexican bank. Under the bank trust agreement (fideicomiso), the foreign owner, as a Beneficiary under the Trust, is able to enjoy the same rights as a Mexican citizen owning property in Mexico; i.e., they are able to build, rent, sell, etc.
The Mexican government issues a Trust Permit to a Mexican bank. The bank acts as purchaser, maintains the official Title of record to the property, and is designated as the Fiduciario or Trustee. As Beneficiary of that Trust, the purchaser is entitled to enjoy, develop, and use the property as he or she so desires. The Beneficiary may also instruct the bank to sell the rights of that Trust at market value.
Banks have a statutory responsibility to follow instruction submitted to them by the Beneficiary – an obligation that is not to be taken lightly. Banks are highly regulated in Mexico and their fiduciary responsibility is pivotal to the fideicomiso. They are the cornerstone upon which the entire process functions.
A purchaser should pay careful attention to the names that appear on Trust and Title documentation. At the time of purchase, it is best to name a Substitute Beneficiary in the event of divorce or death in order to facilitate future transfer of that particular Trust. Beneficiaries are easily transferable.
One big advantage of a Trust lies with the Beneficiaries and Substitute Beneficiaries. The Beneficiaries of the Trust are the original purchasers of the property. Often this is a married couple or partners. If the couple or partners split up or one dies, it is a fairly simple procedure to eliminate one from the Title without incurring title transfer taxes. If something happens to all of the Beneficiaries (such as death), then the property passes to the Substitute Beneficiaries who are the heirs of the original purchasers. Once again, it is a simple procedure, but the added bonus is that the property does not have to be probated. No will is needed with a Trust as long as the Substitute Beneficiary is appointed and mentioned in the Title. Saving your heirs from probate is probably one of the best gifts of time and money you can give them, especially if they have no expertise in dealing with Mexican law and bureaucracy.
Originally the Trust was set for a 30-year period, but the government has since amended the Trust Law and all new agreements last for a 50-year period with further Trust renewals of additional 50-year periods. The property owner has the obligation to pay the annual Trust fees to the bank holding the Trust on their property. Normal fees run between approximately $350-$500 each year depending upon the bank.
Why do I need a bank trust (fideicomiso)?
The laws behind the fideicomiso date back to 1917, enacted to protect Mexico from foreign invasion. Its aim was to stop foreign interests from purchasing strategic coastal and border areas of the country. While the notion of foreign attack seems somewhat antiquated, this law remains a founding chapter in the Mexican Constitution.
As stated under the first question, property located in restricted zones – land within 50 km of the coastline and 100 km from the border – require a fideicomiso for foreign buyers. Under Mexico’s Ministry of Foreign Affairs, a fideicomiso is a Trust granted for a 50-year period, which is renewable at any time (for another 50-year period) by submitting an application to the bank. If the 50-year period expires without renewal, the owner has another 10 years in which he or she may submit an application to renew the Trust. If property is purchased that already has a fideicomiso, it can be transferred to the new owner and will be good for the remainder of its 50-year period, or the Trust may be renewed.
Is my money safe in Mexico?
There are no restrictions on taking your money into or out of Mexico. The unit of currency is the peso and at the present time, the value is approximately 19 pesos to one US dollar. Personal checks are not widely used in Mexico and will not be accepted in most stores. Major credit cards are widely accepted, but travelers cheques are not. You can exchange travelers cheques or cash for pesos at any American bank at the going exchange rate. If you pay for purchases in dollars, you will usually receive change in pesos. A prospective investor in Loreto would be wise to open a US-dollar bank account in the community and transfer funds from their foreign bank account when required.
How do taxes in Mexico work?
Mexico has concluded a tax treaty with Canada and the US among other countries to avoid double taxation and prevent tax evasion. Non-resident individuals pay Mexican income tax only on income sources located in Mexico. Resident individuals are taxed on their worldwide income through a progressive income tax with an upper limit of 35%. Capital gains tax in Mexico (“impuesto sobre la renta”) is also charged, but only due on the gain derived from the sale of land without any improvements. Property tax or “predial” is the local tax on the assessed value of a property. The concept is not unlike Canada and the US’s own system of property taxation yet the amounts involved in Mexico are much less.
It is always recommended that you seek the advice of a competent tax accountant prior to purchasing property in Mexico.
What are the requirements for residency?
Per Mexican regulations, any foreigner who enters the country temporarily for up to six months is required to carry a valid tourist card in addition to a passport. The tourist card can easily be obtained north of the border at any Mexican Consulate, offices of Mexican tourism, offices of Mexican airlines, car insurance companies, and many travel agencies. It can also be obtained at any immigration office at a port of entry into Mexico.
Foreigners may reside in Mexico on a permanent income basis if they are at least 55 years old and have a minimum income earned abroad of $1,000 (US dollars) per month plus $500 (US dollars) per month for each dependent over 15 years of age. This is called “Inmigrante-Rentista” status. There are two other categories of residency status – “Investor-Immigrant” status and “Non-immigrant Visitante-Rentista” status.
How can a citizen from another country acquire property in Mexico for residential purposes?
If the property that you which to acquire is located along to the coastline or the Mexican border (the Restricted Zone), you can acquire it through an Irrevocable Trust and Transfer of Ownership Agreement, entered with the fiduciary department of a Mexican bank.
What is the Restricted Zone?
It is a strip of land of 50 km along the coastline and of 100 Km along the borders of Mexico, where by law, foreigners can only acquire property through an Irrevocable Trust and Transfer of Ownership Agreement, entered with the fiduciary department of a Mexican bank, for 50 years and renewable for another 50 years.
Anywhere else in Mexico a non-Mexican citizen can acquire direct ownership on a property.
What is an Irrevocable Trust and Transfer of Ownership Agreement?
It is a contract by which the seller of the property (trustor), irrevocably transfers the ownership of a property to a fiduciary institution (Mexican bank), granting the buyer (beneficiary), the exclusive right to use it and exploit it for 50 years. At the end of the 50 years period, this can be extended for another 50 years.
The beneficiary can, at any time, sell the property.
Is it possible for a person to acquire the beneficiary rights on an existing Irrevocable Trust and Transfer of Ownership Agreement?
Can an “LLC” or a Canadian “Inc.” acquire property in Mexico through an Irrevocable Trust and Transfer of Ownership Agreement?
Can a “family trust” or a “living trust” become a beneficiary in an Irrevocable Trust and Transfer of Ownership Agreement?
What is the average cost of a real estate closing in Mexico?
It can range from 5% to up to 6.5 % of the purchase price, approximately.
Tell me more about the escrow services provided by FMT?
Because in Mexico escrow services are not regulated by law, at FMT we recommend using the services of our US-based and regulated escrow service provider. An escrow is a financial arrangement where a third party holds and regulates payment of the funds required for two parties involved in a given transaction. It helps make transactions more secure by keeping the payment in a secure escrow account which is only released when all the terms of an arrangement are met as overseen by the escrow company.
Tell me more about the closing services provided by FMT?
The closing (also called the settlement) is the culmination of a lot of work performed on behalf of the buyer and seller by various real estate related professionals. This can include the real estate agents, attorneys for each party, the mortgage broker, the lender, title insurance company, pubic notaries, etc. They each have a vested interest in making sure that your closing happens timely and without problems.
Given the number of professionals that could be working together to prepare for the Closing, it is important that all parties involved communicate well. With First Mexican Title, our customers can trust that we do everything in our power to provide the best possible service to the buyer and the seller.
It is important to bear in mind that in most cases a closing process in Mexico can take up to 3 months.
On closing day, the buyer and the seller complete the legal transfer of the real estate with the representative of FMT, which will be conducting the settlement. At settlement, both, the buyer and seller or their legal representatives, will review and sign a public deed before a Mexican Public Notary and make affirmations as to certain facts, by this, completing the closing process.
Settlement can take as little time as fifteen minutes to sign all the documents and transfer ownership. Normally at the end of closing, the seller will receive the funds via wire transfer from the escrow company and the buyer will receive the keys to their new home.
FMT will complete the transaction by supervising the recording the public deed with the Public Property Registry that applies and forward the duly registered public deed containing the title to the buyer in about a month’s time.
Why the services of a Public Notary in Mexico are much more expensive than in the US or Canada?
In Mexico, all real estate transactions must be closed (formalized) before a Mexican public notary, who is a lawyer commissioned by the government for these matters. Furthermore, notaries in Mexico are responsible to calculate, collect and pay to the local and federal governments, the capital gains tax and the property acquisition tax in all real estate transactions. Finally, notaries are responsible to file the public deeds containing property titles at the Public Property Registry.
Do you need legal and tax advice before purchasing and selling property in Mexico?
Bear in mind that you are acquiring property in another jurisdiction, therefore, there are special sets of tax, administrative and civil laws that regulate the purchase and sale of real estate in Mexico by foreign citizens.
FMT will be very happy to advise you or your clients on these important matters.
Is it recommended to purchase title insurance in Mexico?
It is commonly accepted in Mexico that it is not necessary to acquire title insurance due to the scrutiny which a real estate closing goes through in Mexico, however, there are a few that think that extra protection doesn’t hurt anyone.
Living in Mexico
What is healthcare like?
There are excellent doctors and dentists available in every major city in Baja, as well as good hospitals and specialized medical personnel. A hospital was recently opened at the entrance of Loreto.
Expatriates can join the Mexican health care system (IMSS) for a very nominal amount per year. This plan is very inexpensive and covers ambulance service, pharmaceuticals, office calls, and hospital expenses. Additional coverage can be obtained through the purchase of supplemental policies.
Can I own a business in Mexico?
The North American Free Trade Agreement (NAFTA) along with Mexico’s new Foreign Investment Law provide the necessary safeguards for a North American entrepreneur to operate a business in Mexico. These policies have created a level playing field so that a small business owner can compete with larger counterparts in one of the richest marketplaces in the world. Foreigners can now own businesses in Mexico as sole proprietors or as an incorporated company without needing to have a Mexican partner.
Since NAFTA, there is a new category of immigration into Mexico called FMN. The FMN is available on demand and provides the easiest process for a foreigner wishing to do business in the country. The FMN is meant to be a provisional 30-day renewable work visa to permit individuals to explore business opportunities. Once a business is established and working, the FMN can be converted to an FM3.