FOREIGNERS GUIDE TO INVESTING IN REAL ESTATE IN MEXICO
Riviera Maya Mexico boasts great climate, great food, beautiful people, and the wonderful culture of Mayan History. Investing in real estate between Playa del Carmen and Tulum is a great lifestyle investment. In between those two points of the Riviera Maya, you can find a hip city vibe in Playa del Carmen with pedestrian-only 5th avenue, lined with Euro-style shops, cafes, and outdoor restaurants; Tulum with his Bohemian eclectic lifestyle and beautiful white sand beaches; and all points in between. There are exotic cultural escapes in the nearby cenotes and Mayan Ruins. No other place in the world offers this. The draw of buying real estate in Playa del Carmen or real estate in Tulum with amenity-rich developments all at lower prices of what you'd pay for comparable property in the U.S. or Canada makes it the ideal place to own a vacation or retirement home or a condo.
Strong worldwide demand to rent and vacation here produce great rental income on investment and vacation properties in Tulum and Playa del Carmen.
HOW FOREIGNERS CAN OWN REAL ESTATE IN MEXICO
It is a common misconception that foreigners cannot own Real Estate in Mexico, and reality is that they can
No resident visa or special status is required to own real estate in Mexico as a foreigner
There is a “restricted zone” described below, within which a foreign person or foreign corporation may obtain all the rights and obligations of ownership of residential property in Riviera Maya.
There is a title, and it is held in a bank trust, known as Fideicomiso.
THE RESTRICTED ZONE
Previously, the Mexican constitution banned foreigners from owning property within 62 miles of any Mexican land border and 31 miles of any coastline. This was to prevent further loss of land and life after a long history of foreign invasion. These prohibited areas of ownership for foreigners are known as the "restricted zone".
Most vacation properties fall into these restricted zones due to natural beauty.
Starting in the early ’70s there was a resurgence of interest from foreigners wanting to invest in these restricted zones. Since these restrictions were written into the Mexican constitution, the Mexican government created a way to work around for foreigners to own property in the borders and beaches. They created a system called "fideicomiso" (pronounced: FEE-DAY-E-CO-ME-SO). It is a real estate trust with a Mexican bank by which foreigners can own residential property within the restricted zones. This is how the fideicomiso was born.
The bank trusts hold the deed to the property, and the investors and any others who are specified by the buyers are beneficiaries of the trust (and, of course, the property). The beneficiary has all the rights and obligations of ownership of the property with full control over the property. It can live in the property or rent, sell, improve, and will the property.
FIDEICOMISO OR BANK TRUST
Any foreigner or Mexican National can constitute a Fideicomiso through a Mexican bank in order to purchase real estate anywhere in Mexico, including the Restricted Zone. It is similar to a living trust or beneficial trust.
The trust is usually set up through the lawyer of choice in the area you are purchasing. Through the lawyer, the investor requests a Mexican bank of his/her choice to act as a trustee on his/her behalf. The bank or notario obtains the permit from the Ministry of Foreign Affairs to acquire the chosen property in the trust. The Fideicomiso can be established for a maximum term of 50 years and can be automatically renewed for another 50-year period. During these periods you have the right to transfer the title to any other party, including a member of your family.
The bank, which is the trustee, is responsible to the buyer beneficiary to ensure precise fulfillment of the trust, according to Mexican Law. They are responsible for the technical, legal, and administrative supervision of the trust, to protect the interests of the buyer/beneficiary.
Important fact: Fideicomisos are NOT an asset of the bank.
For practical purposes, even in unrestricted zones many foreigners and Mexican nationals, for that matter, prefer to hold their property under a Fideicomiso.
ESCROW, TITLE INSURANCE, AND HOME INSURANCE SEARCH
It is the Real Estate Company who traditionally in effect, acts as a "Holding Agent" for the involved parties, similar to Canada. This is still a common practice. There are risks involved in that, as you can imagine. In recent years we have seen the use of third party escrow services in the Riviera Maya. They offer full escrow, title searches, and closing services.
To find the required property, be it for lease or for purchase, it is advisable to contact a reputable real estate company. Otherwise, you could get caught in the nightmare of people taking money and not having a legitimate title. A reputable real estate company checks all of this out for you and ensures you will get a good, clear title with no nightmares.
C. PURCHASE-SALE PROCESS
Most real estate transactions are "opened" after a written purchase offer is accepted by the seller and when a purchase-sale agreement (promissory contract) is signed by both parties. In most cases, a deposit is required by the broker in order to transmit the offer to the seller. If the transaction is being conducted directly with the seller, it is highly recommended that a real estate broker or a lawyer be consulted before signing any papers or handing over any money.
In some areas it is common practice to deliver to the seller, directly. While that was the common practice before, now we use third-party escrow as an assurance to both parties to protect the funds and the transaction. A deposit is usually paid at the signature of the purchase contract equivalent to 20-50%, of the total price. A purchase contract usually contains a penalty clause applicable to either party in case there is a breach of contract. When it is time to sign the escritura or official deed, it must be certified by a Notario Publico. At that time, the balance is paid and the property is delivered. This usually takes more than 45 days.
NOTARIO PUBLICO OR NOTARY PUBLIC
The Notario Publico is a government-appointed lawyer who processes and certifies all real estate transactions, including the drawing and review of all real estate closing documents, thus ensuring their proper transfer. Furthermore, all powers of attorney, the formation of corporations, wills, official witnessing, etc. are handled and duly registered through the office of the Notario Publico, who is also responsible to the government for the collection of all taxes involved.
In connection to real estate transactions, the Notario Publico, upon request, receives the following official documents, which, by law, are required for any transfer:
A non-lien certificate known as a “Libertad de Gravamen” from the Public Property Registry based on a complete title search.
A statement from the Treasury of Municipality regarding property assessments, water bills, and other pertinent taxes that might be due or copies of the latest utility receipts. - An appraisal of the property for tax purposes.
It is common practice that the buyer pays the transfer or acquisition tax as well as all other closing costs including the Notario fees and expenses, and the seller, pays his capital gains tax and the broker’s commission.
Since January 1, 2020, the state of Quintana Roo applies a 3% real estate transfer tax. This transfer tax plus the rest of the closing costs vary from 6-8% % of the purchase price.
COST OF THE FIDEICOMISO
Based on a present tariff, the bank charges the person desiring the Fideicomiso an initial fee for the permit and for drawing up of the agreement and establishment of the trust, plus a percentage according to the value of the property. In addition, the bank charges an annual fee (approximately $800 US) to cover its annual services as a trustee.
REAL ESTATE BROKER´S COMMISSION
Most real estate companies in Mexico charge a 5 to 9% commission, paid by the seller, based on the actual sales price of the property. However, different area broker rates reflecting higher broker expenses may be found, such as in the resort areas.
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Call or email me for further information.
USA 1 760 994 1716; Canada 1-604-628-7247
Mexican cel + 52 984 116 3251
Judi Shaw, Realtor ®