Real Estate in Mexico

There are many exciting real estate options and investment opportunities in Mexico at the moment. However, many foreigners are still under the impression that they cannot buy real estate when they actually can There are a few things you need to take into account, but if you do your homework right, your dream property in Mexico is yours!

MEXICAN LEGISLATION

In Mexico there is what is known as the Restricted Zone. The Mexican Constitution prohibits foreigners from direct acquisition of land and waterways within a distance of 100 kilometers from any frontier and 50 kilometers from any coast. Such regions are known as "Restricted Zones". This means that, for example, the entire Baja California peninsula is in this restricted zone. However, given that most foreigners wish property in the coastal areas, in 1993 Mexico liberated ownership provisions of property in the Restricted Zone and passed the Foreign Investment Law.

Outside the Restricted Zone or within Mexico, foreigners can acquire direct ownership and buy any kind of real estate they like. This is as long as they abide by Mexican law and waiver their rights to any foreign government intervention in case of legal conflict.

THE LAW TO PROMOTE MEXICAN INVESTMENT AND REGULAR FOREIGN INVESTMENTS

The purpose of the Foreign Investment Law (FIL) is to promote Mexican and foreign investments in Mexico. It was passed with the intention of encouraging fair and balanced development, all the while maintaining the country's economic independence. The FIL specifies the rights and obligations of foreign capital when it comes to investments.

FIL and the Restricted Zone: The FIL specifies that by establishing a bank trust (or a “fideicomiso”) foreigners can obtain the rights of ownership of real estate within the Restricted Zone. This also includes property intended for industrial or tourism purposes. These rights of ownership means that foreigners can use, improve, rent or even sell their property as though they directly owned the property.

For non-residential or commercial property, another way to invest instead of setting up a bank trust is to buy the property through a Mexican corporation. Depending on the nature of the business, a foreigner can own 100% of the corporation as long as they agree to be subject exclusively to Mexican Law.

Foreigners can buy or invest in real estate in Mexico without any restriction, except in the coastal and border areas. There, foreign individuals and branches of foreign corporations can have 100% control of property through a real estate bank trust. Mexican corporations with foreign capital are allowed to buy directly if the property is to be used for profitable purposes.

*Definition and Mechanisms of Trust:
A 'Fideicomiso' or bank trust is defined for real estate purposes as a transaction between a Mexican bank and foreign individual or firm investing in areas otherwise restricted to foreign investment, with the bank serving as a trustee or legal owner with respect to a certain real estate property interest and the investor serving as the legal beneficiary of the trust. The bank holds the title to the property in trust for the beneficiary who retains the exclusive right to use and control of the property.

As a trustee, the bank acts on behalf of the beneficiary in transactions involving the property, including the decision to transfer, assign or otherwise dispose of his or her interest in the property. The trust is essentially a contractual arrangement which, in most respects, is identical to the type of trust used in North America. Trusts are established for an initial 50 year periods and can be renewed.

*Investment in Real Estate through Trust:
New rules governing foreign investment through Real Estate Trust were put into effect in 1993. These rules provided the stability and protection of legal certainty for foreign investments. Mexican law now expressly provides that at the end of the 50 year term of the trust, upon request, the Mexican government will issue a new permit which provides for a new 50 year term no matter how much time remains on the original trust.

While a Mexican bank holds title to the property in these transactions, the bank is legally obligated to follow terms outlined in the trust documents that comply in all areas with the request of the foreign investor who is the trust beneficiary.

As the beneficiary, the foreign investors have a personal and exclusive right to use, occupy and possess the trust property, including the right to build upon it, subject to applicable construction and zoning regulations. In addition, the beneficiary may transfer or assign his/her beneficial interest to any person and may keep the profits from the sale of the property according to the instructions given to the trustee, subject to applicable tax laws and expenses of sale.

Foreigners that decide to invest in real estate in Mexico agree, because of such action, not to invoke the protection of their governments with respect to such properties.

http://www.eagerrealty.com/rentals.html

Mexico is a wonderful and very beautiful country. If you enjoy your visit you may begin to think about acquiring a bit of our paradise. We have mountains, lakes, rivers, forests, deserts and seashore in Mexico. We also have history, ancient cultures, handcrafts, folklore and many other wonderful things to share.

Buying property in ANY country can be stressful. A property purchase in Mexico can be just as safe and secure as in the U.S. or Canada… IF it is done correctly!

Here are some guidelines for success in a real estate acquisition in Mexico:

1. Be sure the agent you select to represent you is a member of AMPI, the Mexican National Real Estate Association. Ask for references, check them out. Be satisfied the person representing you is experienced in Mexican transactions.

2. Insist that the person representing you, represent ONLY you, the buyer, and not also the seller unless you understand, agree to and sign an agency disclosure agreement.

3. Consider only the purchase of PRIVATE property. Ejidal property is often offered at a far lower price but it cannot legally be sold or promised to be sold until it becomes private property.

4. Be certain that you and your agent are dealing ONLY with the owner of record or his or her legitimate power of attorney. Insist upon receiving a copy of the seller’s deed as a condition of your offer. If you and /or your agent don’t understand Spanish, get it translated.

5. Avoid costly and time consuming litigation, insist upon including a binding arbitration clause in your contracts with the seller and other parties involved.

6. Get a title investigation and buy title insurance for the full amount of your purchase price. While the initial search may seem expensive for some areas, the title policy transfers risk to the insurance company, and minimizes yours as the buyer.

7. Think carefully about how you acquire title in order to avoid or minimize probate and transfer costs in the future.

8. Closing costs may run from 13% to 20% of the cost of a $50,000. dll. property! The multimillion dollar property will be about 3.5% of purchase price. Certain costs are fixed regardless of value. Be sure to budget for closing costs and get a full estimate in writing from the company supervising your transfer.

9. The major portion of your payment for the property should be withheld or held in escrow until the deed has been signed by the seller and, if applicable, the bank trustee (if a fideicomiso).

10. INSIST upon receiving a registered title document for your property. If the seller is financing the property, sign a document protecting his interests in the event of your default. Be SURE you know the amount which is declared in your deed and understand the tax implications of same.

11. Use an experienced neutral third party to supervise the transfer of title to you.

Foreigners who wish to make money through the purchase of vacation or retirement homes and condominiums on beautiful Mexican beaches or along the U.S. and Belize borders do so through a Mexican bank trust, or fidei­comiso.

Article 27 of the 1917 Mexican Constitution, prohibits foreigners from acquiring fee simple title to residential real estate in areas referred to as “restricted” zones. These restricted zones refer to any land: within 30 miles (50 km) of any coastline or 60 miles (100 km) of either border. Also included in this zone is the entire Baja Peninsula.

The fideicomiso law, providing a legal, simple and safe circumvention of the constitutional provisions was established in 1973. The trust places legal title in the name of a Mexican bank under a permit from the Secretary of Foreign Relations, so the bank may administrate the property on behalf of the buyer/beneficiary, who enjoys exactly the same rights of ownership as a Mexican national.

A permit to establish a trust can be obtained for a period of 50 years and then renewed multiple times thus establishing perpetuity for owners of rights in Mexican properties.. Should the foreigner wish to sell he may assign his rights to the buyer, or the buyer may obtain a new trust permit, as he or she prefers. The cost for the permit and registration in the foreign investment registry is currently about 1,950 dollars and bank trust administration fees generally range from 200 dollars to 750 dollars annually.

The Mexican corporation as a vehicle for acquisition of “restricted” property: Under the 1993 Foreign Investment Law, a corporation established in Mexico is considered Mexican under the law, even if all shareholders are foreign. Thus a Mexican corporation with 100% foreign ownership can acquire property in the restricted zone. This applies only to non-residential property: such as a hotel, restaurant or other type of business. It is a violation of the foreign investment law to place a retirement or vacation home in the name of a Mexican corporation.

.Title investigations and the Public Registry: Title, whether through direct ownership or a trust, must be registered in order to give notice to third parties as to the interest of the property. A certificate obtained from the local Public Registry will in addition provide information as to encumbrances on title. Title insurance is now available in some areas through both Mexican and U.S. companies and should be obtained wherever available.

There is no licensing law for real estate or escrow agents in Mexico and regulation of attorneys is virtually nonexistent. A foreigner considering the purchase of property in Mexico should consider the following guidelines:

• Carefully select your real estate broker. Confirm that the agent you are considering is an active member of the Mexican Association of Real Estate Professionals (AMPI). AMPI members operate under a code of ethics, and are affiliated with the U.S. National Association of Realtors (NAR) and the Canadian Association of Realtors (CREA). Check references and with others who have dealt with the broker.

• Be wary of ejidal property. More than 50% of all land in Mexico is ejidal (e-HEE-dal), or communal land, meaning it is government property at the service of a community, much like Indian lands in the United States and Canada. Certain provisions in the law now allow ejidos to be converted into private property, but until the conversion process is complete, it may be risky.

Now! Financing options! Traditionally, buying a Mexican property meant paying all cash or convincing a seller to carry a mortgage. Now, however, some US finance companies are entering the lending market, opening a whole new panorama of possibilities for leverage in the Mexican market. Another important option is the use of self-directed IRA accounts for Mexican property acquisitions. Properties purchased with IRA funds can be investment properties only, not for personal use. Nonetheless, a great deal of money is being made in Mexican recreational properties both through appreciation in the purchase and sale and from rental income. Solid investments today can provide a great nest egg for attractive retirement.

More and more it makes great sense to look south to Mexico for recreation, retirement and investment properties!. The future is just beginning!

A recent report in the International Herald Tribune ascertained that the property buying process in Mexico has vastly improved in recent years and the newspaper cited a number of examples of how insurances and regulations have enhanced things greatly for the North American buyer in particular.

The real estate transaction process in Mexico has more in common with the American system though, and so for British and European buyers there are a number of things to consider when doing your due diligence on the property market. This article details what to watch out for when buying property in Mexico so that there are no nasty surprises along the way.

Mexico has grown in popularity in terms of its attraction as a location for holidays, holiday homes, retirement and a low cost, high standard of living - and today not only is it a highly regarded location among North American baby boomers, it is becoming a destination that even those from Northern Europe are considering as being an attractive and affordable place to invest or retire.

The fact that you can now get a range of sophisticated mortgage products to buy property in Mexico means the market is far more open to overseas buyers. In addition to this positive fact you can now get title deed insurance for your Mexican home and you can even find an estate agent affiliated with the American National Association of Realtors…but none of this really means you can let your guard down!

The first thing you as an investor need to know is that there are restrictions on foreign buyers in Mexico. You cannot own property within 50km of the coast or 100km of the nation’s borders for example, and many overseas buyers have to purchase through a bank trust to get around a number of the more limiting restrictions. In itself this issue is not terribly difficult to get around but it is worth bearing in mind that there will be additional expenses involved in the purchase process other than the usual taxes and fees.

Buyers really need to allow for at least 10% on top of the purchase price when buying property in Mexico to ensure they have enough to cover all additional expenses. Prices for real estate in Mexico are usually displayed in US dollars as the American buying market is the largest, and for the moment at least this means British and Europeans are getting far more for their money in Mexico.

This may be why more people are considering investing in Mexican property with a view to buying off plan and flipping or buying, remodeling and reselling. Please note that capital gains tax can take a hefty chunk of any gains made though, and advice should be sought before reselling assets to legitimately avoid CGT as far as possible.

There are another few hurdles when it comes to reselling that investors need to be aware of. Firstly it can take a long time to get title deeds through and until the new buyer has them in their name it can mean they cannot resell. Additionally, those buying a resale property need to check the value the property was last sold for…just like in Spain it was and sometimes still is common practice to declare a ridiculously low amount as the sale price so that capital gains tax can be avoided by the previous vendor which can come back and bite the new buyer on the backside when they come to sell and declare the value they are selling it for. The discrepancy in prices at this point can leave you with a huge CGT bill!

Other things to watch out for when buying property in Mexico include the fact that some land is owned by co-operatives which can make getting everyone’s permission to sell impossible, even though the National Association of Realtors has signed a memorandum of understanding and agreement with the Asociación Mexicana de Profesionales Inmobiliarios little inspection and ongoing regulation of Mexican agents is currently possible, and finally….buyers need to be so careful and ensure that the land or real estate they are buying is actually private property that the vendor has the right to put on the market.

Needless to say engaging the services of a competent, experienced, professional and preferably recommended local solicitor is essential - and as the International Herald Tribune article implies, apply for title insurance and if the insurance company won’t touch your chosen property let this be sufficient warning to you to walk away from the deal.

Over the next few days we’re taking an orderly look at buying property in a number of countries, of which Mexico is the first. We hope that this logical approach will tick the right boxes for readers and give some ideas for comparing different countries and setting about gathering similar information for countries we haven’t covered. We’d love to hear from others with hands on experience of the process.

Where to Look

The Yucatan Peninsula and Baja California are especially popular with Americans (though there are problems with buying in coastal regions – see below). San Miguel de Allende in the state of Guanajuato (north west of Mexico City) is also popular.

Snags, Points to Remember, Legal and Otherwise

Foreigners are prohibited from owning property within 100km of the frontier and 50km of the coast but the law does allow them to hold property on lease from a Mexican bank trust in an arrangement known as a fideicomiso. This will require an initial charge and an annual commission payable to the bank of, say, $600 and $800 respectively and both of these will be subject to VAT at 15%.

Investors are strongly recommended to follow Mexicans’ example of doing business with people they know and are sure they can trust.

The professional body for estate agents is the Mexican Association of Professional Realtors (Asociación Mexicana de Profesionales Inmobiliarios), known as AMPI (Spanish language only) .

Property Taxes

Property related taxes in Mexico are complicated and different specialists interpret the likely effects in slightly different ways. Longer term further harmonisation with the US and Canada can be expected. The basic picture is as follows:

Acquisition Tax: A state tax that is normally, depending on the state, in the region of 2% of the value of the sale. This tax is paid whether the property is sold, transferred, donated, placed into trust, split off or merged.
VAT: No Value Added Tax is payable on residential property. Commercial Property transactions are liable to VAT 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. So this is like a capital gains tax that has to be paid before the gain has been realised and, what’s more, it becomes due immediately the assessment has been made. The purpose of the tax is to stop property being undervalued at the government’s expense so the appraisal would normally occur shortly after a purchase has been made.

Registry Fee:A 1.3% fee is paid by the buyer.

Predial: Property taxes on real estate in Mexico, called predial, are low compared to other parts of the world. Depending on which part of the country you live in, you may not necessarily receive a bill in the mail. You may need to go to the local property tax office to request a bill.

Capital Gains Tax:Non-residents must pay either 25% of the gross amount of the transaction or the amount resulting from applying the highest marginal income tax rate in Mexico to the gain, whichever is lower.

"Can I own property in Mexico?"
The answer is
"YES!",
with some restrictions.

# Foreigners may obtain direct ownership of property in the interior of Mexico. Foreigners cannot acquire direct ownership of residential property within the area 100 kilometers from the border and 50 kilometers from the coastline. This area is known as the restricted zone. It is possible, however, to acquire beneficial rights to use, improve, and enjoy property in the restricted zone through a Bank Trust or Fideicomiso authorized by the Mexican Government under the Ministry of Foreign Affairs. The Fideicomiso is established for a 50 year renewable term and grants the beneficiary the right to use, rent, modify, or sell the property. An advantage of the bank trust is the avoidance of probate upon the death of the beneficiary when a substitute is named.

# Property acquired for commercial use by foreigners may be owned without the need for a bank trust, provided that the property is held in a Mexican corporation. Depending on the type of business, it is often possible for a foreigner to own 100% of the Mexican corporation.

# In a typical transaction, a preliminary sales agreement will be used. This is like an agreement to agree and is subject to a formal sales agreement which will be executed at closing by a Notario Publico. The preliminary agreement should provide for a price and terms -- generally, cash as financing is not readily available -- and a closing date conditioned on the issuance of the trust permit if necessary. Other due diligence contingencies may be negotiated, but they are not customary.



* Escrow as it is known in the United States is not used in Mexico, and real estate salespeople are not licensed or regulated as they are in the United States, so be careful of making any deposits up front. Escrow services are available through the Mexico Division of Stewart Title, Houston, Texas.



* Real estate transactions in Mexico are "closed" by a Notario Publico, an official, highly respected government lawyer who acts as a neutral intermediary. Among other things, the notary is responsible for formalization of the final real estate contract, collection of transfer and capital gains taxes and recordation of the transfer with the Public Registry. The notary is not your lawyer, however, and as with any investment, you may want to seek independent Mexican or U.S. legal counsel before proceeding.



* American title insurance is available for Mexican real estate whether acquired directly or through a trust. The cost of the insurance depends on whether the property you are purchasing is covered by a master title commitment. The seller of the property should have this information.



* A foreigner interested in acquiring real estate in Mexico should take care to follow all of the formalities under Mexican law. Seek competent legal, tax, and other professional advice before proceeding.



CAVEAT EMPTOR - Let the Buyer Beware!

Foreigners interested in purchasing property in Mexico should consider the following in making any investment:

1. Understand that Mexico is a foreign country with a unique set of laws that must be adhered to in order to acquire recognizable rights in real property. Do not expect paperwork, procedure or costs to be the same as in the U.S.

2. If you are purchasing residential property in the restricted zone, you must buy through a Mexican Bank Trust. Don't use a corporation to acquire residential property. A trust is not a lease. To be sure that you are getting good title, purchase U.S. title insurance.

3. Real estate agents are not licensed in Mexico and escrow as we know it does not exist. It is imperative to use qualified professionals including a trustworthy Mexican agent or attorney, possibly in cooperation with a knowledgeable U.S. attorney since the Mexican professionals do not carry liability insurance.

4. Insist on U.S. style protections that are available in Mexico, including but not limited to inspections, U.S escrow, U.S. title insurance, U.S. appraisal, and U.S. financing. You can ask to have your earnest money held by a Mexican bank in a conditional deposit subject to the satisfaction of any contingencies that you negotiate in your offer to purchase, including issuance of a bank trust if applicable. Establishing an escrow account in the U.S. with Stewart Title Guaranty Company's Mexico Division in Houston, Texas is recommended. Get an estimate of closing costs before you make an offer.

5. When purchasing in a new home community or subdivision make sure that the improvements are in or that there has been a bond posted for the completion of the improvements. Ask for U.S. Title Insurance and a Mexican Bank Trust. In Arizona ask for a Public Report. Just because there is an offer made to sell a particular lot number does not mean that any such lot has been duly subdivided & recorded in the Public Registry of Property.

6. Be patient, transactions in Mexico may take longer than you anticipate. If someone suggests that you should purchase before your trust has been issued or without a Mexican Notary Public, beware! Mexican Notaries are official government lawyers who are uniquely empowered to formalize and record real property transactions.

Your purchase of Mexican real estate should be an investment, not a gamble. Many foreigners have paid money or built improvements on property that they cannot obtain legal rights to under Mexican law. The Mexican government in many cases has taken action to help the foreigner acquire recognizable rights because of widespread fraud or ignorance. At some point the Mexican government may draw a line and refuse to regularize such transactions. Foreigners are more educated now and they may be held responsible for acting in accordance with the law.

Mexico Real Estate & Mexico Property
The First Step to Mexico Real Estate Success

Buying Real Estate in Mexico

Can Foreigners Really Own Property in Mexico?

Yes, Americans and other foreigners may obtain direct ownership of property in the interior of Mexico. However, under Mexican law, foreigners cannot own property outright within the restricted zone. Instead, a real estate trust must be set up to hold title for the foreigner. Since foreigners are not able to enter into contracts in buy real estate, they must have a bank act on their behalf, much as a trust is use to hold property for minors because they also can not contract. The following is a brief outline of the law regarding such trust, known as "fideicomisos", but potential buyers should always get advice and have all real estate transactions overview by a licensed Mexican attorney.

Who's Involved in Real Estate Transactions in Mexico?

Normally, there are three to four players involved in any real estate transaction in the restricted zone:

* A real estate company
* The buyer's lawyer
* A bank
* A public notary

All four are helpful in their respective areas in assisting with real estate transactions. Transactions outside of the restricted zone do not involve a bank since it is not necessary to establish a real estate trust in those areas. Otherwise the transactions are much the same. Because of the similarities of real estate transactions in general, it is easy to assume that the basic terms and principles which are familiar in the United States also hold true in Mexico. This assumption becomes easier to make when United States real estate terminology is adopted for transactions in Mexico. Much of the paperwork is similar, if not exactly the same, as that used in the US. Although, there are many aspects of Mexican real estate transactions that are identical to procedures carried out in the United States, there are many aspects that are completely different. As a rule, a foreigner should assume nothing.

Mexican real estate transactions are not carried out in the same manner as United States real estate transactions. The buyer must retain professionals to assist in the transaction. Mexico has yet to regulate real estate transactions. Real estate agents and brokers are not legally licensed in Mexico. Consequently, a foreign buyer cannot always depend on the normal safeguards that would be applied to real estate transactions in the United States. The old saying "let the buyer beware" is very appropriate. Anyone can set up a real estate company in Mexico. There are no special requirements or brokerage licenses to obtain. A would-be real estate agent merely has to establish a Mexican corporation, obtain a work visa, and he is in business.

There are good reasons why the real estate industry in the United States is highly regulated. Until the real estate industry is regulated in Mexico, there will always be some real estate companies who prefer that buyers know as little as possible about real estate transactions. After all, a buyer cannot ask questions if he does not have any knowledge of the laws.

Currently there is nothing similar to a Real Estate Commissioner or a Department of Real Estate in Mexico. Some states are beginning to look at some kind of real estate legislation, but it might be some time before this is a reality. The American Embassy and the American consulates in Mexico are good places to start when trying to determine if a real estate company is reputable. Some of the real estate companies have established quite a reputation for themselves at some of the Consulates.

A Mexican attorney should be involved to draw up contracts and to review the conditions and terms of sale. Additionally, an attorney can do a title search and point out any problems or alternatives a buyer may have. The buyer should always have his or her own attorney rather than using the attorney of the seller or some attorney used by a real estate company free of charge. As the old saying goes, you get what you pay for, and usually if someone's services are offered free of charge you are probably paying for them in some other way. Legally, only a licensed Mexican attorney should provide advice on the law. If an attorney is licensed in Mexico he should be able to produce a "cédula profesional." This document is a registered license to practice law in Mexico and includes a photo of the attorney and his signature. To be sure that an attorney is licensed in Mexico, a foreign buyer should ask to see the attorney's license, or have the attorney's license number included in a retainer agreement before employing any services.

American attorneys are not licensed to practice law in Mexico and should not give advice on Mexican Law. I should clarify, here, that I am referring to individuals who are licensed to practice law in the United States, and not merely individuals who are citizens of that country. There are currently very few Americans who are licensed to practice law in Mexico. The fact that a person is licensed to practice law in the United States in no way allows him or her to practice law in Mexico: Mexican or United States law.

Besides formalizing your real estate transaction, an attorney can be very helpful in saving you money. This is because attorneys are involved in many different transactions and have contacts with banks, notaries, and the Mexican government on a regular basis. Because of this they are aware of the most competitive cost and fees involved in a transaction and can make sure that the buyer is given the best possible prices. An attorney can also inform the buyer regarding his or her legal options and by doing so can make sure that no opportunities are missed: tax planning considerations, closing costs which should be paid by the seller, and ways of taking title to the trust rights which make sense for the particular circumstances of a specific buyer. Very often one piece of good advice can save the buyer thousands of dollars in tax savings or other savings when the buyer eventually sells the property.

When looking for an attorney it is important to remember that any Mexican attorney can normally handle a real estate transaction. The buyer is not limited to only the local attorneys where the property is located. All real estate transactions involving a trust are governed by federal law. This means that all such transactions are carried out the same way regardless if the property is in Cancun or Los Cabos.

The Restricted Zone and "Fideicomisos"

The law declares that the Mexican nation has original ownership to all land and water in Mexico, as well as minerals, salts, ore deposits, natural gas and oil; but that such ownership may be assigned to individuals.

The Mexican Constitution prohibits direct ownership of real estate by foreigners in what has come to be known as the "restricted zone." The restricted zone encompasses all land located within 100 kilometers (about 62 miles) of any Mexican border, and within 50 kilometers (about 31 miles) of any Mexican coastline. However, in order to permit foreign investment in these areas, the Mexican government created the "fideicomiso," (FEE-DAY-E-CO-ME-SO) which is, roughly translated, a real estate trust. Essentially, this type of trust is similar to trusts set up in the United States, but a Mexican bank must be designated as the trustee and, as such, has title to the property and is the owner of record. The Mexican Government created the "fideicomiso" to reconcile the problems involved in developing the restricted zone and to attract foreign capital. This enabled foreigners, as beneficiaries of the trusts, to enjoy unrestricted use of land located in the restricted zone without violating the law.

A "fideicomiso" is a trust agreement created for the benefit of a foreign buyer, executed between a Mexican bank and the seller of property in the restricted zone. Foreign buyers cannot own real estate in the restricted zone due to Constitutional restrictions. The bank acts on behalf of the foreign buyer, taking title to real property. The bank, as trustee, buys the property for the foreigner, then has a fiduciary obligation to follow instructions given by the foreigner who is the trust beneficiary. The trust beneficiary retains and enjoys all the rights of ownership while the bank holds title to the property. The foreigner is entitled to use, enjoy, and even sell the property that is held in trust at its market value to any eligible buyer.

In order to allow foreigners to enter into the agreement contained in the Calvo Clause, Mexico requires all foreigners to apply for and obtain a permit from the Ministry of Foreign Affairs prior to contracting to acquire real estate in Mexico. This is currently done by the trustee/bank at the time a real estate trust is set-up.

Given the changes made for 1997 in the foreign investment Law, and the fact that a buyer can now apply for and obtain a trust permit in a matter of days, it is always better to secure the trust permit from the Ministry of Foreign Affairs before entering into any contract.

The bank, as trustee, must get a permit from the Ministry of Foreign Affairs to establish a real estate trust and acquire rights on real property located within the restricted zone. The purpose of the trust is to allow the trust's beneficiary the use and exploitation of the property without constituting real property rights. The beneficiaries of the trust (fideicomisarios) may be:

* Mexican corporations with foreign investment
* Foreign individuals or legal entities


The law defines "use" and "exploitation" as the right to use or possess the property, including its fruits, products, or any revenue that results from its operation and exploitation by third parties or from the bank/trustee.


The law does not clarify how trust permits will be issued. Article 14 of the law states that the Ministry shall decide on issuing the permits "...considering the economic and social benefit, which the realization of such operations imply for the nation." The basic criteria used to determine such benefits are likely to change somewhat with the publication of the new foreign investment regulations. However, it is reasonable to anticipate that some of the unwritten rules used by the Mexican government in the area of real estate trusts will be included in the new foreign investment regulations. It is also possible that some of the confusing elements will be eliminated. It is important to understand the application of the current regulations, even if they are going to be replaced, as well as some of the unwritten policies the government has used in the past, to better understand what criteria will be used by the Ministry in the future.

The Ministry of Foreign Affairs must grant any petition for a trust permit that complies with the stipulated requirements within 5 working days following the date of its presentation to the Ministry's central office in Mexico City. It must be granted in 30 days if the application is submitted to one of the Ministry's state offices. The Ministry of Foreign Affairs must confirm the registration of any property acquired by foreign-owned Mexican corporations a maximum period of 15 days following the filing of the petition. In both cases, if the maximum period passes with no action by the Ministry, the trust permit or registration are considered authorized.

There is a common misconception among foreigners investing in Mexico that once the trust expires, the beneficiary loses all rights and benefits of the sale of the property held in trust. This is not the case. On the contrary, the beneficiary has a contractual right under the trust agreement with the Mexican bank to all benefits that may result from the use or sale of that property, even though he does not hold title to the property. Under Mexican Law, the bank, as trustee, has a fiduciary obligation to respect the rights of the beneficiary.


A real estate trust is not a lease. The beneficiary can instruct the bank to sell or lease the property at any time. The beneficiary can develop and use the property to his liking and benefit, within the provisions of the law. Generally, the law allows most activities engaged in by foreigners.

Enjoying the Mexican beachfront or colonial hillside town, you've decided to put down roots in Mexico and "save money" by buying in. Think twice: you may make the deal of a lifetime, or you wish you'd never become involved. Invest a significant amount of time before investing in Mexican real estate. Get to know the terrain, its problems and advantages. Work hard to understand the area, the people and the real estate values. Get the assistance of someone who speaks and reads Spanish fluently so that you don't miss legal nuances and idioms. Even though you may have bought and sold real estate in the United States, the Mexican experience is a totally new experience. You're not in Kansas anymore, Toto. Under the Mexican Constitution, only Mexicans have the right to own land or receive mineral or water rights. Foreigners have the right to own real property, provided they do not invoke the protection of their government. That sounds reasonable enough, doesn't it? All this means is that any dispute concerning land ownership will be decided by Mexican courts, treating foreign landowners the same as Mexican nationals. Foreigners have no legal recourse in the legal system of their homelands. This is done to prevent the historic recurrence, prevalent in Latin America in the past 200 years, of a capital-exporting country meddling in the sovereign affairs of another nation to protect a private party's economic interests. Foreigners are prohibited from directly owning real estate within the "Forbidden Zones" of 100 kilometers of the Mexican border and 50 kilometers of its coasts. Within these restricted areas, foreign ownership is possible under a fideicomiso, or bank trust. Under the fideicomiso (pronounced Fee-deh-com-ee-so), a Mexican bank trust is created for a period of 50 years, and the trust may be extended for another like period. Legal title to the property is held by the bank, as trustee, and beneficial use is held by the property buyer. Even in non-restricted areas, the fideicomiso may be used by foreigner landowners and Mexicans alike for the same reasons that trusts are created in this country. Under the fideicomiso, multiple or successor owners can be named. The costs of establishing the fideicomiso are not great: an initial set-up cost is based upon a percentage of the property value, and annual trustee fee is charged. While zoning restrictions may not be apparent in commercial and residential neighborhoods, certain areas may have building codes to preserve colonial flavor. For instance, downtown Morelia has enforced a historical building preservation code for the past hundred years. Private land ownership may be barred in forested areas, natural protected areas, reserves, biospheres and other environmentally protected areas. That beautiful isolated mountaintop or bucolic site may be out of reach for the same reasons that it's just real difficult to buy a chunk of the Grand Canyon or Central Park. Historical antecedents have limited large land-holdings in agricultural areas. Size, irrigation, and productivity limit the amount of farm land which can be owned by a single entity. Presumably, you're not planning to farm in Mexico, anyway. If you're really determined to do so, there are ways to accomplish this goal, but you'll need more legal advice than we can give you here. The 1910 Mexican Revolution was rooted in unequal land distribution: 1% of the Mexican population controlled 97% of the land. In response, the government expropriated large land-holdings, outlawed latifundios, and created communal lands, or ejidos, occupied by rural peasants or farmers. This concept dates back to Mayan times. Some seventy years after the enactment of the 1917 Mexican Constitution, these small plots of land became less productive and unable to compete in the market economy. In 1992, the Constitution was amended to loosen the tightly controlled ejido system, make it more productive, and to provide ejido members with greater access to capital. The new law allowed some ejido lands to be rented out or sold under certain restrictions. In Mexico, anyone can offer real estate for sale. There are no license laws regulating real estate brokerage and sales....all the more reason to exercise caution to search out a reputable and established real estate company. Commissions are usually about 7% of the actual sales price, although they may be higher in resort areas. Now that you've found your dream property, how are you going to pay for it? Forget about financing...unless you plan to finance a stateside property to pay for your Mexican dream. Lack of capital markets and high interest rates force most foreign-purchased real estate purchase to be made in that quaint tender, cash. As the Mexican economy opens, new sources of financing may become available, but high mortgage interest rates will make the worst of American interest rates pale in comparison and will not create the traditional 20- or 30-year mortgages Americans have considered the norm. Unlike stateside real estate transactions, closing costs borne by the buyer are considerably greater in Mexico. Customarily, the buyer pays 1) the transfer tax, which is 2-6% of the appraised value of the land, 2) notario's fees, usually 2-3% of the appraised value. The appraised value used for deed (escritura) purposes is often much lower than the actual sales price. The notario, a special breed of lawyer who has been delegated quasi-judicial functions and acts much like public recorder, performs what amounts to a title search, obtains "no lien" certificates, secures an official appraisal, verifies that there are no unpaid taxes or water bills which could cloud title, drafts the deed. All real estate transactions must involve a notario, who has virtually no relation to the American notary public. The seller pays any capital gains tax and the agent's commission. Real estate prices may be established in dollars. Don't feel that you're being gouged as an unsuspecting American; it's common practice in devalutionary times. Payment made by made by wiring funds from a U.S. bank to a Mexican correspondent bank in the U.S. or to a casa de cambio. Like many transactions in Mexico, closing may not proceed as rapidly as in the U.S. One transaction I was involved in took two years from acceptance of offer until possession: the owner had died intestate, and 42 heirs had to agree to the sale. Because telephone lines are purchased by each customer, the buyer will need to determine whether phone service is included in the real estate purchase. Light fixtures and garden statuary which generally stay with the property in the U.S. are often not part of the real estate purchase in Mexico. Find out what's included and what's not to avoid surprises when you take possession. Because Mexican landlord-tenant laws, which vary from state to state, are tenant-oriented, making eviction extremely difficult and costly, most leases tend to be written to protect the landlord. In some areas, Mexican landlords prefer to rent to foreigners --- not so much for higher rental income as for the foreigner's ignorance of landlord-tenant laws. While locales can differ significantly, normal rental values are 1% per month of the property value. A $200,000 property would likely rent for $2,000 per month. One-year contracts are common, with one- and three- year renewal options with predetermined rate increase formulas. Normally, a cosigner is required, and a one or two month rental deposit can be applied to the last month's rent. The tenant usually pays for utilities, water, gas, telephone, cable TV, and condominium maintenance fees. In resort areas, time share hawkers are rampant. Beware of the high risks involved, because Mexican law provides very little legal protection to the time-share owner. If you absolutely must invest in a time-share, do so with full warning and preferably with a stateside company. And be warned that the resale market is extremely poor. Competent legal counsel (your own, not the seller's or the real estate broker's) is mandatory. Just as you'd carefully watch your backside making your first real estate deal at home, don't let your guard down in Mexico. Fully warned, go ahead and reap the pleasure of Mexican property ownership. While your upfront costs may be higher than you contemplated, you'll benefit from significantly lower property taxes and utility bills. And you'll feel like a real part of Mexico as a property owner.

"Buying Property South of the Border"

Purchasing real estate in Mexico has changed dramatically over the past ten (10) years for foreign, non-Mexican nationals. Beginning in 1994, the federal government of Mexico liberalized ownership provisions of all property within the constitutionally protected area known as the "prohibited zone". Prospective buyers outside of Mexico's borders seeking to buy tourist (housing developments, condominiums and time share projects), rustic, industrial or urban property can now enjoy greater legal freedom and ownership rights as mandated and protected under Mexico's new foreign investment law. In Mexico , as in the U.S. , the transfer of real estate property rights are administered by federal, state and local laws. Foreign nationals wishing to acquire property are subject to permission and registration with Mexico's Department of Foreign Affairs. This federal level agency is responsible for awarding the lawfully required permits and authorizations to purchase land in the Mexican Republic , as well as to acquire real estate properties or rights thereto.



Buying property in Mexico not like buying property in the US

However, buying south of the border is not like buying property in the U.S. and purchasers must always remember that they are not in the United States. The Mexican legal system is not the same as its American equivalent. That is not to say that real estate transactions (operaciones) in Mexico are totally different or more complicated than in the US, but common sense should always be exercised. The worst a purchaser can do is to remain ignorant of the law and procedures involved in the conveyance of real estate in a foreign country. Mexico is not the 'wild west' as some may perceive where anything goes and the prevailing Mexican attitude is 'trust me, no problema.' It is inherently important for non-Mexican buyers to understand that Mexico has formality of law with authorized regulation of real estate development procedures at all levels and this formality is coupled with a statutory government framework for the legal conveyance of real property.



Foreign purchasers should be aware of the same basic issues that any prudent buyer would utilize acquiring real estate. Additionally, they should not depend on the seller for information or advice about the property because they have no way of knowing whether it is correct. They should obtain the status of the title to the property requiring an in-depth title search. They should be knowledgeable of the type of contracts to be utilized for a purchase-sale agreement (compraventa) and preparation of the deed (escritura publica) by the notary public (notario publico) in Mexico. They should be aware of earnest money deposit and escrow considerations, and ultimately, a buyer should have an understanding of the actual conveyance method in Mexico and how legal title or beneficiary interest (fideicomiso) is vestedand recorded for foreign purchasers.



Does the seller have legal title?

The first thing a buyer must consider is whether the seller of the property has legal title to the property, and if so, whether the property can be legally transferred. Although this seems to be a logical and foregone precaution, there have been many documented transactions in which foreigners thought they had acquired real estate only to find out later that the seller was unable to transfer legal title. Very simply, the seller didn't own the property or he had not completed the required development procedures for the conveyance of the real estate. A good example would be agrarian land (ejido) not properly regularized, or the conveyance of a condominium unit that does not have a recorded condominium regime (regime de condominio) or even the sale of a lot or house in a residential subdivision (fraccionamiento) that does not have the required and published state/municipal development approvals. In any of these cases, the result is that the purchaser has paid money for the acquisition of the property but can not receive legally recorded title or beneficiary interest in a Mexican bank trust.

The ocean's wonderful sights and smells and the peace of living or vacationing along Mexico's 6,000 miles of coastline is a powerful attraction for foreigners. But before purchasing vacation property or a retirement home on or near the beach, there are a few important legal and technical matters to keep in mind.

Foreigners are welcome to invest in property along the coast, but there are restrictions. The most important restriction is contained in Article 27 of the constitution which states "that foreigners cannot own property within 100 kilometers (60 miles) of the border and 50 kilometers (30 miles) of the coastline." The government, however, provides two ways to get around this restriction:

* A Trust (called Fideicomiso) or
* A Corporation

How Does the Trust Work?
Three parties are involved in the trust:

* The trustor (the owner of the original property)
* The trustee (which is the bank)
* The beneficiary (the person who will receive the benefits of the trust.)

The Trust, which in Mexico is called a Fideicomiso, does not give direct ownership to the foreign beneficiary. Instead, it establishes the legal basis by which the bank holds legal title to the property in order to act on the foreigners behalf. This trust deed assures the foreign buyer of all rights and privileges of ownership. The Foreign Investment Law, a Constitutional amendment created in 1973 and amended again in 1994, allows the trust to be established for a term of 50 years and is renewable any time during its existence, forever.

The Bank (trustee) holds the trust deed for the person who purchases the property (beneficiary). The property is not part of the bank's assets and cannot be liened or attached for any other obligations. YOU the purchaser are the beneficiary and have all rights of enjoyment of the property including the ability to remodel, lease, mortgage, pass to their heirs or sell the property at any time.

The Mexican government established the trust system as a protection for foreigners interested in owning property in Mexico. By making ownership pass through the trust process, the bank is required to check ownership, insurance, and liens against the property. There would be an automatic review of the transaction, thus ensuring:

* Valid Ownership
* No outstanding indebtedness of the Property

Bank Trusts may be granted and extended in 50 year periods. If you purchase property, the existing trust deed may be assigned or a new 50 year trust created. Trusts are renewable at any time by simple application. The costs to establish a fideicomiso trust vary from bank to bank. However, the range is approximately $1,000 to $1,500 U.S. dollars for the trust set up and about $300 to $500 U.S. dollars for each year's maintenance of the trust. These fees are paid directly to the bank that has your trust.

Bank trusts are established by a Mexican Notario (Notary), following the receipt of a permit by the Minister of Foreign Affairs. This procedure is routine due to the large number of foreign property owners. The forms are standardized and the entire process is usually completed by the notary as part of the closing procedures.

What does the Bank Do?
It is an important link between the foreigner and the government. The bank accepts full technical, legal and administrative responsibilities and protects the beneficiary's interests. While the bank is the technical owner of the property, they have a statutory responsibility to follow the beneficiary's (YOUR) instructions concerning the property. Therefore, the control of the property is in your hands - not the bank's.

What can the Foreigner Beneficiary Expect from the Trust Agreement?

* The beneficiary can occupy the property for the life of the trust.
* Title to the property can be transferred to the foreign beneficiary in the event that he acquires legal capacity to hold such property, or to any legally qualified person he/she may designate.
* The trust can also be heired to your family by naming them as substitute beneficiaries in the event of your death. The property can also be sold to a person legally authorized to own land or to a foreigner via a trust.
* The property may be rented with prior approval from the ministry of foreign affairs.

Beneficiaries are allowed to modify their property. Construction, in accordance to local zoning regulations, is permitted at the owner's expense.

Closing Procedures
Once your offer of purchase and sale has been accepted, the closing process begins. To validate the Offer of Purchase and Sale, a deposit (normally 10% of the purchase price) is required. The money is held either by your attorney, notario, real estate agent, or placed in an escrow account. These funds are held during the time needed to close. The balance is payable upon the signing of the trust deed at the office of the Notario. Most real estate agents have one or two notarios with whom they usually deal.

In order to obtain the trust deed, the notario will:

* Ensure the property is free and clear by checking the Land Registry Office. This is guaranteed by obtaining a non-lien certificate and tax statement from the treasury. Additional checks are made for outstanding utility bills and municipal taxes.
* Obtain a permit from the Minister of Foreign Affairs to establish the trust deed.
* Prepare all documents for both buyer and seller.

When the above has been completed, the notario will present your representative with a statement of remaining funds due and, once paid, will present the legal transfer papers to be signed by the seller.

The entire closing process takes between 30 and 60 days.

Closing Costs
Closing costs are paid by the Buyer and depend on the value of the property purchased. They include a transfer tax (ISAI) of 2% which goes to the Mexican government, an average of 2% for legal Notary fees, a registration fee of .05% of the assessed value of the property, fees for the tax certificate, title search fees and property appraisal, as well as miscellaneous office expenses.

The Seller pays all capital gains taxes and real estate fees. Capital gains taxes are 35% of the difference between assessed values at the time of purchase and sale, with adjustments made for inflation and capital improvements.

Capital Gains Taxes
As noted above, the seller pays all capital gains taxes. As a buyer you are eligible for a one time exemption from capital gains tax if you establish residency for 2 years after your purchase prior to selling.

To establish residency, you must have an FM3 (Resident Tourist Visa), and all the utility and phone bills in your name for 2 years. FM3 Visas are issued from Mexican Immigration. You can request the forms from Immigration which tells you everything you need to apply for the visa. They usually take 30 to 45 days to obtain, once submitted.

The Mexican Notary
In Mexico, certain attorneys are designated by the government as a Notary, and their services are required for the legal transfer of real estate. They are an unbiased, official representative of the government and have a fiduciary responsibility to both parties and sanctions the contract from a tax and legal point of view.

Property Taxes
Property taxes are very low here. The property tax, known as "predial" is a rate of .08% of the assessed value, paid every bimester. The assessed value is determined at the time of the sale. Historically, property taxes have always been low because they have never been perceived as a source of revenue for the government.

Tropicasa Realty has arrangements with several banks and notaries who will assist in setting up the trust. English-speaking personnel, as well as publications, are usually available to answer questions about trusts.

How does the Corporation Work?
Ownership of property through a mexican corporation is an interesting and potentially lucrative alternative. First of all, as long as there are two or more parties to the corporation, a Mexican corporation can be wholly owned by foreigners -- a Mexican citizen no longer need be part of a Mexican corporation to be valid. Secondly, a mexican corporation can own property outright, eliminating the need for a fideicomiso trust and their respective fees. This means that you, as sole owners of the corporation, own the property essentially in "fee simple," similar to the U.S.

Finally, by establishing the property in a corporation, you can then legally rent out the property, thereby generating attractive income if you are in a prime vacation destination such as Puerto Vallarta. Mexican corporations are set-up similarly to those in the U.S., with by-laws, articles of incorporation and the issuance of stock. You should discuss the pros and cons of forming a Mexican corporation with an attorney in Mexico who is familiar with the process.

Establishing a Mexican corporation for the purpose of purchasing real estate is relatively simple and can be accomplished within 1-2 weeks and generally costs from $1,500 to $2,500 USD, depending on the complexity and number of partners involved.

MEXICAN LEGISLATION

The Mexican Constitution prohibits foreigners from direct acquisition of land and waterways within a distance of 100 kilometers from any frontier and 50 kilometers from any coast; such regions are known as "Restricted Zones".

THE LAW TO PROMOTE MEXICAN INVESTMENT AND REGULAR FOREIGN INVESTMENTS

The purpose of this law is to promote Mexican and Foreign investment, this encourages fair and balanced development in consolidating the country's economic independence. It specifies in which way capital should participate and how, by establishing a trust, foreigners can purchase Real Estate earmarked for industrial and tourism activities.

INVESTMENT IN REAL ESTATE

For the benefit and security of foreigners wanting to invest in Real Estate located on the Mexican Border or coastal regions, the government has decided to do away with various loopholes that had been used to bypass constitutional restrictions. The most common of these maneuvers, which was jeopardizing foreign investment, was the Mexican interposition in name only and fictitious contracts, or other legal instruments. The government will take action against such methods but will grant full protection to foreigners who, through trust institution, can invest in real estate in restricted zones under the provisions of the aforementioned law.

INTERVENTION OF TRUST INSTITUTIONS

Through the Ministry of Foreign Affairs, the Federal Government, after hearing the recommendation of the interministerial consulative commission in charge of studying the economic and social implications of specific projects to which the law refers, can authorize a trust institution to act as trustees in acquiring real estate whose beneficiaries are foreigners.

INDUSTRIAL AND TOURISM DEVELOPMENT

The purpose of this arrangement is to accelerate industrial and tourism development in coastal and border zones in accordance with the Mexican Constitution. The law provides that a trust institution can acquire land in such zones acting as trustees for foreign beneficiaries if it is used for industrial or tourism activities.

HOW THE TRUST WORKS

When a foreigner wishes to acquire the right of using and developing a property, he can instruct SCOTIABANK INVERLAT, S.A., to purchase it and retain it in trust for a term of fifty years, provided the Ministry of Foreign Affairs grants the necessary permit.

OWNERSHIP OF THE PROPERTY AND RIGHTS OF BENEFICIARY

Upon acquiring a property in trust, the bank becomes its new legal owner, subject to the clauses of the contract granting the beneficiary the rights to use, exploit, rent or sell the property or transfer the said rights to a third party. The formalities involved are straightforward and simple.

RENEWAL OF TRUST

At the end of the trust's term that, as mentioned before, can be for a term of fifty years, the beneficiary has the following options:

* If there is no change in the Mexican Government's present policy, it is a possible that the trust agreement might be renewed for an additional period of more than fifty years. In case the authorities fail to grant such an extension, the trust will have to be terminated by selling the property.

* No matter what the alternative results, the beneficiary's interests will be adequately protected. It should be pointed out that the beneficiary can at any time during the term of the trust agreement or at its termination, arrange for the sale of the property to any person legally qualified to purchase the real estate.

STRUCTURE OF THE TRUST

* THE TRUSTOR A Mexican citizen or a Mexican corporation with no foreign participation; the original owner of the Real State, it's the party who places the property in trust.

* THE TRUSTEE As indicated previously, the trustee is the Banking Institution that holds the trust over the land for the benefit of the beneficiary.

* THE BENEFICIARY The first beneficiary is normally the promoter, who acquires beneficial rights in order to develop the property and sell its beneficial interest to other parties in turn. The final beneficiary is a foreigner, since Mexicans will usually acquire (buy) direct ownership.

SOCTIABANK INVERLAT, S.A. TRUST DIVISION REQUIRES THE FOLLOWING DOCUMENTS FOR A TRUST AGREEMENT:

* Title of the property (deed)

* Map of location of the property

* Receipts of the payment of Real Estate Tax

* Permit of Foreign Affairs. This is obtained by SCOTIABANK INVERLAT, S.A.

The Puerto Vallarta area is located on the Bahia de Banderas (Bay of Flags), the largest natural bay in Mexico and the deepest bay in the world. The area boasts over 100 miles of pristine coastline and the Sierra Vallejo and Cuale Mountains rising to the north and south. The beaches are among the most beautiful you have ever encountered and the mountains have a beautiful coat of green jungle reflecting off the crystal blue waters of the ocean. A hidden paradise waiting to be discovered.

History of the Puerto Vallarta Area:

In 1524 Spanish conquistador Francisco Cortes Buenaventura, nephew of Hernan Cortes, arrived on the Jalisco, Nayarit coast. In the surrounding mountain range stood an army of 2000 warriors awaiting the arrival of Cortes. Their war bows were all decorated with vibrantly colored flags. The warriors blocked the Spaniards path long enough to make a lasting impression on Fransciso Cortes. So impressed he named the valley "Valle de las Banderas" (Valley of the Flags). Thus this great bay later became named Bahia de Banderas or (Bay of Flags).

The first certain record of the Bay of Banderas comes from conquistador Don Pedro de Alvarado, who sailed into the bay in 1541. The conquistador notes massive sea rocks as his point of reference. These massive sea rocks are now known as Los Arcos (The Arches) that can be seen from all over the bay. For the next 300 hundred years the Bay of Banderas slept peacefully.

The rebellion of 1810-1812, with the lure of gold and silver led to the settlement of the Puerto Vallarta area. In 1851 Guadalupe Sanchez and his family settled at the mouth of the Cuale River, which is now the heart of downtown Puerto Vallarta. His fortune ironically was made from salt not from gold and silver. He hauled salt from the beach up to the gold mines; the salt was used to process the ore (gold). In the decades that followed a few other families followed with the hope of becoming wealthy in the mines. The Valley of Flags also drew many farming families with promise of rich and productive croplands. Also, during this time many farmers began selling their produce and shipping it overseas by boat. On May 31, 1918 the local government founded the current municipality and officially named the area Puerto Vallarta. Puerto meaning port and Vallarta named after one of Jalisco, Mexico’s great governors, Ignacio Luis Vallarta. Then the town was all but forgotten.

In 1954 Mexicana Airlines opened up the first commercial flights into the Puerto Vallarta area. Poco a Poco (little by little) people started to take notice of this beautiful area surrounded by sea, mountains and a rich history. In 1964 a Hollywood director John Huston came to Vallarta to shoot "Night of the Iguana", a Tennessee Williams play. Most people were surprised that some of the most famous people in the world would brave a jungle environment without electricity, phones or running water. Among the superstars were such names as, Richard Burton, Eva Gardner, Deborah Kerr and accompanying them was Elizabeth Taylor. Liz was at that time still married to singer Eddie Fisher yet here with Richard Burton. John Huston later returned to the area and lived the last 11 years of his life. Both Richard Burton and Liz Taylor eventually purchased homes in the area, got married, and stayed for years. Thus, the onslaught of Hollywood superstars, coupled with the "Liz and Richard Scandal" awoke the rest of the world to the Puerto Vallarta area. Soon Mexicans, Americans, Canadians and Europeans alike were flocking to Puerto Vallarta to see were Richard and Liz and had started their romance. Once they arrived and forgot the scandal, they realized they too had found a hidden paradise.

Many other people recognize Puerto Vallarta from the famous television show "The Love Boat." The Love Boat docked regularly in the Marina and it is rumored they filmed many romantic scenes in the local area.




Bucerias

The northern arc of the Bay of Banderas, begins when you cross the bridge over the Ameca River. The bridge is not only the state line from Jalisco to Nayarit but it is also a time zone change, set your clocks back one hour. Some people call this the "longest and shortest bridge in the world" as it takes 1 minute to cross and 1 hour to return. Approximately 12 miles north of the airport lies a small village called Bucerias meaning "the place of the divers". Bucerias has the longest creamiest sand beaches in the entire bay area. Bucerias, a farming and fishing community, turned tourist attraction, has over three miles of untouched white sand beaches that are incomparable to any other beaches in Mexico. This small Mexican village has been untouched by the outside world for many years, however all of the locals flock to the beaches due to the beauty and calmness of the beach and bay. Bucerias has a lot of activities including, fishing, boating, kayaking, and horseback riding. Dolphins frolic in the breaking surf and on occasion you will see a family of hump back whales surface. There is a local bus system that runs through the area, the bus will take you anywhere in the bay for under 10 pesos. A bus trip is a great way to see the area and meet the local people.

PURCHASING PROPERTY IN MEXICO

WHAT DO I NEED?

One of the most commonly asked questions is, "What Do I Need?" To purchase you need a photo id, preferably your passport and the blue and white tourist visa you received when you entered the country. Your T.R.E.G. (The Real Estate Group) agent will take care of the rest!

IMMIGRATION

Once you want to live in Mexico for more than six months at a time you need to apply for your immigration papers, or FM3. The FM3 is easy to obtain; you can do most of the paperwork yourself. The FM3 grants nonimmigrant status and is applied for through the local immigration office in Puerto Vallarta. The FM3 needs to be renewed on an annual or annual basis. After holding your FM3 for 5 years you can then apply for your FM2. The FM2 grants immigrant status and is applied for through the Mexico City immigration office. These papers can take awhile to be processed and you will probably need professional assistance. Your T.R.E.G. agent can refer you to an attorney who can assist you in obtaining these papers.

The privileges of both a FM2 and FM3 are the same; however, there are a few differences that you do need to be aware of. With an FM2 you are only allowed to keep a foreign plated car for 5 years, after the 5 years the car will need to be sold out of the country. With an FM3 you can keep your foreign plated car for as long as you hold your nonimmigrant status. When you have an FM2, you can not leave Mexico for more than 18 months total in a 5-year period. There is no such rule with your FM3 papers, you can come and go as you please.

You may apply for your FM3 visa at your nearest Mexican consulate office in the U.S. or you can wait to apply when you get to Mexico. It is just as easy to wait until you come to Mexico. There are English speaking people in the immigration office here in Mexico and there are local attorneys who will be more than happy to help you for a small fee. You will need original or certified copies of your birth certificate and marriage license (if applicable). You will also need to document the minimum income requirements. You will need to show $1,000.00 U.S. dollars monthly income for each month you stay in Mexico. You can provide paycheck stubs, or 3 months bank statements showing reserves or a letter from social security showing your retirement benefits. The reasoning behind this is to verify that you can support yourself without working for the length of your stay. You will also need to provide an address for where you will be living and proof of the address, such as phone, electric bill, or the deed to your property. You will need to obtain passport photos and have your documents translated from English to Spanish. In some cases a visa holder is allowed to obtain work in Mexico. You will need to find an employer who will sponsor you and ask for your permission to work in Mexico. The biggest deciding factor when immigration is granting permission for employment is whether or not you are taking a job away from a Mexican National. Your FM2 or FM3 can also help you to avoid capital gains taxes when selling your property. Once you have purchased your home, your immigration papers will need to have the address of your property. If someone proves they were living on their property for six months in Mexico, they can avoid paying any type of capital gains. (This is usually done with electric or phone bills) Warning, please apply for your immigration papers early. It can take up to eight weeks to receive your completed documents. Do not let your tourist visa papers expire prior to receiving your FM3.

You are allowed to bring your car across the border. However, there are a few rules you need to follow. Once you reach the border you will be stopped at a check point about 20 minutes inside of Mexico. There you will need a certified copy of the car title or a certified letter from the lien holder that you have permission to cross the border into Mexico. You will also need a credit card; there is a small fee that must be paid on a credit card. You will then receive your blue and white tourist visa and a sticker to place in the window of your car. The sticker is to let the Mexican officials know at a glance that your car is legal.

You will also need to put on your border papers a list of everyone who will be authorized to drive your car while in Mexico. Tourist visas are good for 6 months. So make sure when asked "how long will you be in Mexico?" you receive all 6 months on your visa. This way you will have enough time to reach your destination and apply for your immigration papers. Then you will go through a border check where they have the red light green light system just like the airport. If you receive the red light you will be stopped and your car and belongings will be inspected. Be prepared to pay a duty tax on any electronic equipment you bring across the border. Computers are a big question… laptops are acceptable to bring in; used stand-alone computers are not allowed to cross the border. New computers in the original box are "said" to be acceptable to bring across the border, but you will have to pay tax. You can buy computers down here for a reasonable price with all of the latest software. Remember to be patient and understanding when dealing with the locals and any type of border or check point official, the fastest way to slow a Mexican down is to raise your voice.

HISTORY ON BUYING IN MEXICO

In 1917 despite all of the sparring between the Mexican government and the Mexican rebels, Carranza got a convention together in Queretaro to formulate political and social goals. The result was the constitution of 1917. The constitution, among other things, gave communal or ejido land to every Mexican village. This land was given by the government to the villages for use only and could never be sold away to the highest bidder. All land was to be either communal land for use only or owned by Mexican Nationals only. This law was greatly placed in effect for the past problems with the Spanish, French and Americans, controlling both land and waterways in Mexico. In 1973, a constitutional amendment known as the Foreign Investment Law allowed foreigners to purchase property anywhere in Mexico, except in the restricted zone. The restricted zone, stated in article 27, is 50 km (32 miles) from high tide and 100 km (64 miles) from any border. The largest problem with this amendment is that most of the foreigners wanted to purchase specifically in the coastal and border areas. In January of 1994 NAFTA had been finalized and President Bill Clinton gave a multibillion-dollar loan to Mexico. In succession with NAFTA Mexico passed another amendment to the constitution that foreigners could now own property in the restricted zone with a bank trust or fideicomiso. The trust system circumvents the constitution allowing foreigners to legally own in the restricted zone.

How does a Trust deed work?

The bank (know as the trustee) holds the trust deed for the person or persons purchasing the property (know as the beneficiaries). This property is not part of the bank’s assets and cannot be subject to any lien or attachment for any bank obligations The beneficiaries has all ownership rights to the property and may sell, lease, mortgage or pass on to their heirs as desired under law. A bank trust is not a lease.

The Mexican government established the trust agreement as a way of protecting foreigners interested in owning property in Mexico. The reasoning was that by making ownership pass through the trust process, there would be an automatic review of the transaction to ensure it was legal and unencumbered. The bank is required to check ownership, insurance and indebtedness of the property, providing further protection to the foreign owner. In the past numerous foreigners have purchased property, illegally and with liens unknowingly. At that time there was no way to protect the foreigners because there was no check and balance system. With the new laws and the influx of professional real estate agents your transactions are now safe and protected. Please do not purchase property without a professional agent which is an AMPI member. Many people are lured into "cheap beach front property", remember anything that seems too good to be true probably is.

A trust may be granted and extended in 50-year periods. If you purchase property currently held in a trust deed, a new 50-year period can be established or the existing trust deed may be assigned to the purchaser. Trusts are renewable at any time by simple application with the bank. It was never the intent that these properties pass back to the government at the end of the trust period. This is a common misconception and fear of most buyers. In fact at the end of the 50-year period the owner has an additional 10 years to renew the trust with the bank.

Trustee Fees

There is a fee of approximately $450.00 US dollars to open your trust account and an annual fee as long as you have the trust. You need to check with your TREG agent on actual fees to set up the trust as they can vary from bank to bank. This fee pays for the paperwork and government reporting on your behalf. To open your trust account you will need your accepted offer for purchase, a photo ID and 10% of the purchase price of your new home. At that time you will also receive wiring instructions, to wire the remaining money into the bank when you return home. Do not give anyone any money that is not being handled by a bank escrow representative. You should sign a bank contract with a banking official at the time you put down your deposit. Your TREG agent with help you with setting up your escrow account.

Taxation

Property taxes are very low in Mexico as a whole. The property tax – known as predial is .1% of the assessed value. Taxes are paid annually, with the assessed value determined at the time of sale. If you purchase a property of $100,000.00 US dollars your annual tax rate would be $100.00US dollars. The reason taxes are so low is due to the fact that they have never been a source of revenue for the Mexican government.

The Closing Process

The closing process takes between 30 to 45 days. While you are waiting to close your T.R.E.G. agent is working with the bank to set up your escrow account, with the notary to prepare your legal deed and closing papers and to check if there are any liens or problems with the title of the property. Closing costs are paid by the buyer and are usually about 6%-8% of the purchase price. 2% sales tax to the Mexican government, 4% to other closing costs, such as title search, attorneys fees, filing of all legal documents and closing deal. Ask your T.R.E.G. for a good faith estimate of the closing costs for your purchase. The seller is responsible for his or her capital gains tax and any real estate fees owed on the property at the time of sale. The buyer does not have to be present at the time of sale. However, a power of attorney will need to be given to T.R.E.G. to help to execute the closing process for you.

The Notary

The notary is a government appointed official that helps to close and educate you through the closing process. The notary represents a high level of legal standing and their services are required for the transfer of real estate property. The Notary is the attorney of record and the unbiased, official representative of the government. A notary has a fiduciary responsibility to both parties and sanctions the contract from a tax and legal point of view. A notary must first be an attorney and then must take special instruction in real estate law to become a notary. Once he has finished his instruction the attorney must then be appointed by the government. This "Notario designation" can also be taken away by the government should he not follow the rules and regulations. Your T.R.E.G. agent will refer you to a Notario that we know and trust.

PROPERTY OWNERSHIP THROUGH A CORPORATION

This is a question that is very frequently asked. In 1994 change in the Mexican Foreign Investment Law allowed a Mexican corporation to be 100% foreign owned. You are also, in a corporation, allowed to own title, with out a bank trust, in a restricted zone. This is a great benefit for foreign business owners. However, this is not the answer for everyone. Commercial property carries higher water, electric and phone rates. You also are required to do additional government reporting and tax payments. You can not own a single-family residence in a corporation. The government had cracked down on purchasing property in a corporation unless it is actually for business use. The trust deed is just as safe and less problems with the government.

Maintaining Your Property

Many property owners leave their property for some time during the year. If you have a condo you pay your monthly fees and they will maintain your property area. Homeowners should consider hiring a property management agent to handle the upkeep and bills of your home while you’re out of town for any length of time. T.R.E.G. has a list of property management companies for this purpose, please ask your sales agent for more information.

Insurance

There are various types of insurance in Mexico. You can receive health, life, auto and property insurance. The rates are relatively low and should be purchased for your piece of mind. Your T.R.E.G. agent can help you to set up your insurance policies and can refer you to a reputable insurance company.

Financing

Real estate transactions in Mexico have historically been all cash deals. Recently, the Mexican market has been opened up to financing. There are different types of financing available. We offer a choice of finance companies which finance in Mexico. They can also help you with second home tax breaks in the U.S. As your Real Estate Company we would also like to help and educate you on the financing of your home so feel free to ask any question necessary. Ask your T.R.E.G. agent to set up an appointment with the mortgage representative to help handle all of your financing needs.

Obtaining Financing

To start your loan process you will need to answer a few simple questions.

Full name:

Full name:

Address:

Phone:

Fax:

Job Title:

Years on Job:

Job Address:

Job Phone:

Annual Income:

Job Title:

Years on Job:

Job Address:

Job Phone:

Annual Income:

Mortgage Loan:

Balance:

Monthly Payment:

Total mo. Debts:

Checking/Savings

Balance:

Ira Balance:

Stock/Bonds:

The Closing Process

The Agreement

Congratulations! The offer you have made has been accepted. Our offer has been defined and redefined by our attorney. They are double columns and in English and in Spanish. In order for a contract to be legal in Mexico, it must be written in Spanish. However, we provided a side by side translation in English. We know buying in a foreign country is very difficult, we go out of our way to make you feel more comfortable. Once the offer is signed by both parties (the buyer and the seller) and witnessed, you have a legal contract.

Escrow

The accepted offer is combined with a 10% of the purchase price deposit (or earnest money). The funds are held in an escrow account set up at the bank for you by your T.R.E.G. agent. We use the deposit towards your closing cost. This money is used to start your closing process by ordering all of your legal documents, appraisal, survey and title search. The remaining money is held in your escrow account until the day of signing the deed (or escritura).

Your Deed (Escritura)

In order to obtain your deed, T.R.E.G. with the Notary (Notario) and the bank escrow officer will work to complete the following steps:

* Ensure the property is free and clear of all liens. This is guaranteed by obtaining a non-lien certificate at time of closing (Certificado de no Adeulo) from the treasury. Additional checks are made to endure there are no outstanding water bills or state taxes.
*
* Obtain a permit from the Ministry of Foreign Affairs to establish the trust deed.
*
* Obtain the appraisal or the assessed value of the property.
*
* Obtain a survey of the property.
*
* Prepare all documents for both the buyer and the seller.

When all of these items have been completed, the remaining balance should be transferred into your escrow account. You will then issue a letter of release to the bank, stating that the money is to be released to the Notary for the signing of the deed. The letter will state how the money and the closing costs are to be dispersed. Your T.R.E.G. agent will help you to write the letter and fax it for your approval. When the Notary disburses the money, you will then be the proud owner of a home in Mexico!

Capital Gains Taxes

As of January, 2007, the Capital gains laws have changed again.

*The seller pays Capital Gains taxes at the time of closing. Capital gains taxes are 28% of the difference between the purchase price and the selling price or 25% of the sales price, whichever is the lowest, with adjustments made for inflation. Your T.R.E.G. agent can assist you in your tax planning.

To avoid Capital Gains with the new law depends on interpretation of the Notario handling the closing. Information we received from one Notario is as follows to avoid gains:

Applies to Nationals and Foreigners:

*For a foreigner you must have Inmigrado Status (FM2)

*You must have lived in the primary residence at least 5 years to be totally exempt.

*If living less than 5 years at the property and the property is worth less than approximately $500,000 USD, then the property will be exempt from capital gains tax.

*If living less than 5 years at the property and the property is worth more than approximately $500,000 USD, then the capital gains will be calculated on the amount of the gain between approximately $500,000 USD (exempt) and the price of the actual sale.

*Only one property per year will be eligible for tax exemption.

However, things work a little slower and a lot different here. Do not get frustrated; enjoy the education and the dream of your home in Mexico.

Buying Property in the Lake Chapala Area
by Tony Harries & Teresa A. Kendrick

In the last decade or so, it is estimated that more than 10,000 foreigners have purchased property on the Northshore of Lake Chapala. Long prized as a weekend retreat by wealthy Guadalajarans, the villages from Lake Chapala to Jocotepec now boast an expatriate community said to be the largest in the world. Ajijic has become the prime location for foreigners because of its infrastructure of services, such as internet access, and the existence of the Lake Chapala Society, an English-speaking resource center for newcomers and residents.
The Real Estate Climate on the Northshore

At present, the Northshore has 20 real estate agencies. Their level of competency and expertise vary. In Mexico, the real estate industry is not regulated by the government. It is self-regulated. Two associations are responsible for training agents and policing the ethics of the agencies: AMPI (Asociacion Mexicana de Profesionales Inmobiliarios) is the national organization (with a lakeside chapter) and Gil (Grupo Inmobiliario del Lago) is the local organization. Many offices belong to one or the other, and some belong to both. They provide multiple-listing services that allow agents to show properties listed by other agencies, an advantage for both buyer and seller.

The most professional agencies also provide their own in-house training for new agents. Several agencies have websites that will allow you to get a feel for the company, the houses that are available and the prices of property and land. The websites allow you to interact with the agency via email, and, if the site is good, will offer background information and answers to frequently asked questions. It can also provide you with the name of an agent.
Choosing an Agent

Good agents tend to work for well-run organizations. When walking into the office for the first time, take a look around. Does it look professionally managed? Are key personnel bilingual? Are listings photographed, detailed and organized so you can spend time reviewing available properties and evaluating how much your money will buy? Talk with several agents to find one you feel is knowledgeable, experienced, available, compatible, and upfront.

Professional, reliable agents provide service before, during, and after a sale. If a problem or error arise, your agent should work hard to correct it. After your initial meeting, ask around about the reputations of various agencies and agents, but be aware that while gathering information, it is very likely you will also gather misinformation. One person can easily contradict another; this is human nature and common in a small communities.
Being a Good Client/Firing an Agent

Agent- and agency-hopping is an ethical no-no, but after viewing several properties reevaluate your agent. If you feel that the agent is not listening to you, tell him or her; they will appreciate you restating your requirements. Often clients are confused about what they want, or unrealistic about what their money can buy. Be clear about what you want. Buying a house is an emotional process, so be prepared to experience some unusual feelings and reactions and understand that an agent has the dual job of steering you through the process of buying property in another country and your own learning curve.

If you are unable to work with your agent, graciously fire that agent and find another. You might use a simple, “Thank you for your time and efforts. We feel we wish to expand our search and thought we might consult with another agency. If we feel you can be of further service, we will get back to you.” Remember, the agent you are releasing is a member of the community in which you will live and diplomacy will save some feelings down the line.
How to be a good Client

If your first visit to the area is an exploratory excursion, tell your agent. He or she will guide you as you gather preliminary information. If you are not in a position to buy at the time, limit the time you spend with the agent as he or she has other clients to serve. If you have funds available to buy property, the agent will intensify the search for a suitable property and guide you through the process. Be clear about how much you can spend and when you plan to resettle. Remember agents often work for months without reimbursement for their out of pocket expenses.
The Nitty Gritty

At this time, prices for houses on the Northshore run anywhere from $22,000 US to 1.35 million US. The average home with the amenities sought by North American buyers are in the $100,000 US range. Location, as everywhere, is one of the most determining factors for setting the price. The further out from services you go, the lower prices will be. View, construction type, size and amenities determine the rest.

Clients can choose from gated communities which offer security (a plus for residents who spend 6 months in Mexico and 6 months elsewhere), large country estates, and village living. Village homes are connected to one another by common exterior, and, occasionally, interior walls and allow residents to live within walking distance of most services and activities.
Do not let any agent sell you ejido land.

No matter what future promises anyone may make, you will not get a legal title. This is land set aside by the government for the indigenous people of Mexico and cannot be sold to foreigners. Also, there are a few places on the Northshore known for their instability due to soft soil or geothermal faults, and some places have water supply problems. Informed, wise agents will steer you away from these trouble spots.
The Buying Process

Purchasing a home or lot on the Northshore is primarily a cash transaction, but occasionally short-term owner financing is available. When you make an offer to the seller you must present a check for 10% of the value of the house. A photocopy is made of this “earnest money” and the check itself is placed in the agency safe. Once negotiations are completed under the supervision of the respective buying and selling real estate agents, and both parties have signed a purchase agreement, the check is deposited into the escrow account of the selling agency. The check is later applied to the balance of the purchase price at the notary public’s office.

(Note: The actual sale price of a property is not a matter of public record in Mexico, nor is it registered with the government. It is unethical for an agent to tell you the sale price of a property. He or she can tell you what the property was listed for, but not what was paid.)
The Closing

Closings take place in the office of a Notario Publico, or notary public. These are lawyers of very high standing who, after 5 years of legal practice, apply to the government for notario status and must undergo strict scrutiny to be awarded the title. With it comes many responsibilities and important legal functions. One of these is to preside over and ensure the legality of property transfer. The notary authenticates the seller’s right to sell the property, scrutinizes the history of the property for any irregularities, and makes sure the deed is clear and free of liens through appropriate government offices.

Since the buyer pays for the closing costs and notary’s fees, it is his or her privilege to select the notary. The notary can advise the buyer which type of deed meets his needs: direct deed or bank trust deed. The notary will file with the Mexican government the application for the transfer of the deed from seller to buyer. His official signature on all documents finalizes the purchase and makes it a legal transaction under Mexican law. From purchasing to closing the norm is 30 to 60 days, but motivated parties can complete the process within 15 days.
Differences in Home Construction

There is no slab-frame construction in this part of Mexico. A home here is usually of concrete, glass, stone, brick, iron and rebar construction. Wood is expensive and used little except for design affect. Each wall is load-bearing and has its own foundation. Many houses have exterior walls and decorative metal work to ensure privacy and security.

There are "aljibes" (cisterns) for water storage and in some of the newer homes, water purification and pressure systems are built-in. You will also find tanks for storing propane used for cooking and heating water as there is no infrastructure to supply natural gas. You will notice a lack of central heating and air conditioning, as it’s not essential. A fireplace on a cool evening or morning is charming and does the trick.
There are no building codes so a good agent will provide you with information about levels of construction quality and what might be buried within the walls.
Developers

The north shore of Lake Chapala has recently seen a rise in new, speculative construction meant to appeal to buyers from the North. Much of this work is being done by young, Mexican architects from monied Guadalajara families with varying degrees of experience and dependability. There are also projects being developed by American, Canadian and European companies.
Remodeling

Many buyers purchase a home with the intent of upgrading and remodeling the existing structure. Craftsmen, laborers, architects and artisans abound in the area. If you are in the market for such services, perhaps your agent can help direct you to a general contractor who has a good reputation. Be sure to get a signed, witnessed contract stipulating prices and the quality of work and materials to be used.

If language is a problem, get a translator to help you. Several translators are listed in the Lake Chapala Society directory, a members-only book that can be loaned to you by your agent.

If, during the remodeling, you feel you have been financially abused, the government has an agency with an office in Chapala called PROFECO which helps consumers receive satisfaction.

The pace of work is probably not what you are used to, but in Mexico, patience is required as distribution of materials, cultural standards, and community -- and family-based events interrupt building schedules.

If you are planning for retirement and thinking about Mexico, consider the sunny northern shore of Lake Chapala, Mexico's largest freshwater lake. With a community of more than 7,000 seasonal and full time foreign residents who call "Lakeside" home, Ajijic (ah-hee-heek) has one of the world's two best climates and a low cost of living. This pre-colonial village in Western Mexico's Sierra Madre mountains makes for unparalleled living in a quaint Mexican village with all the services and amenities of lovely Guadalajara, Mexico's second-largest city, only about 30 minutes away.
A bit about life in our wonderful village of Ajijic...     Ajijic has numerous active social groups in the area including The Lake Chapala Society, with more than 3,100 members, bridge clubs, garden clubs, the American Legion, and the Lakeside Little Theater, to name a few of the more than 40 active clubs and charitable organizations. A variety of classes, including art, handicrafts, music and, of course, español, are available, as well as sports such as tennis, golf, walking, boating and fishing! The concerts, art galleries, and restaurants will delight your senses. Why Not Give Mexico a Try?
Living outside of one's home country can be the most rewarding and enjoyable time of one's life. Gathering information in advance and planning ahead will help you avoid frustration. The ability to adapt is a quality that will help greatly, but preparation is the KEY. Most people who consider living in Mexico do not want to duplicate their past environments. A part of the excitement of the adventure is doing something completely different, and enjoying the constant stimulation of a new culture. The Mexican people are open and friendly, and you can make life-long friends. And, speaking for the tens of thousands in the expat     community who have made central Mexico their home, we think that we are a special group.

http://www.ajijic.com/properties_under150k.htm

Cost of Living


 

Other than excellent climate, the reason many North Americans have for moving to Mexico is the cost of living. Most prices are lower compared to those "back home". It is hard to understand why so many people on small pensions or Social Security will struggle with miserable climates, high utility and medical bills, and other services, when they could live better in Mexico. Here are some random samples of prices:
All prices in US dollars.

Automotive
Premium gasoline - $2.44 a gallon. Regular $2.06
Wash auto - From $2.00 to $5.00
Lubricate auto, change oil and filter - $20
Car Insurance - 40 per month 5 year old car

Medical and Dental
Clean teeth - $20.00
Tooth filled - $25.00 Porcelain.
Doctor's office visit including EKG - $45.00
Health insurance 23/month per person

Housing
Furnished one bedroom apartment with living room, kitchen and bath - $350 to $600.
Beautiful, furnished apartment (two bedrooms) in a nice neighborhood from $550 per month.
Unfurnished garden style condominium with pool (two bedrooms, two baths) in Guadalajara neighborhood from $600 per month.
Land tax 15/month

Personal Care
Ladies haircut and permanent - $30.00
Mens haircut - $4.5

Utilities
Electricity - $30.00 for two months.
Propane gas for cooking - $28.00 per month
Telephone basic service - $21.00
Water for drinking - $6 per month
No heating or air conditioning required
Internet - 19 USD per month

Entertainment
Cost for ticket to movie theater (first run film) $3.5

Maid
Basic thorough house cleaning one day (4 - 5 hours) each week - $10.0

Laundry and Dry Cleaning
Clothes for two people at commercial laundry (washed, dried and folded) $7.00 per week
Dry clean trousers or skirt - $3.00

Food
Prices for groceries can change depending on the area and the place where you shop and the time of year.  Municipal markets are good places to buy local fresh products as well as the “tianguis” (Mondays in Chapala, Wednesdays in Ajijic and Thursdays in Jocotepec). Most of the natives buy their groceries there, most of the time the items are cheaper and a shopping day at the market can give you a good idea of a busy, cheerful and colorful day in Mexico.

If you prefer, there are well known local stores and a franchise of a nation wide chain of supermarkets that sell excellent quality products at a higher, jet reasonable price.
There is an option for every taste.

The following are average prices per pound. The prices of the fruits may go lower or higher depending the time of year.
 

These are prices as of July 18, 2006.

Chicken, whole - $2.72
Bacon - $2.39
Hamburger - $2.53
Pork shops - $2.21
T bone steak - $3.61
Beef Fillet - $2.94
Tomatoes - $0.51
Cucumbers - $0.25
Potatoes - $0.68
Broccoli - $0.57
Strawberries - $0.59
Oranges - $0.24
Bananas - $0.32
Margarine bar - $ 0.32
Flour - $0.21
Eggs (doz.) - $0.68
Coffee - $3.50
Rice - $ 0.31
Sugar - $ 0.33
Beans - $ 0.59
Fish (red snapper) - $ 3.29
Box Corn Flakes - $ 1.99

Bottled Drinks
Beer six pack (325ml) (11 ounces) - From $ 4.04
Coca-Cola (2 liters) (0.53 gallons) plastic bottle - $ 1.27
Milk (2 lt) (0.53 gallons) - $ 1.45
Fruit Juice (1 lt tetra pack carton) (33.8 ounces) - $0.99
Assorted soft drinks (355 ml) (12 ounces) aluminum can - $0.41
Assorted light soft drinks (355 ml) (12 ounces) aluminum can - $0.46

Buying Property in Mexico

CAN FOREIGNERS REALLY OWN PROPERTY IN MEXICO?
Yes, Americans and other foreigners may obtain direct ownership of property in the interior of Mexico. However, under Mexican law, foreigners cannot own property outright within the restricted zone. Instead, a real estate trust must be set up to hold title for the foreigner. Since foreigners are not able to enter into contracts in buy real estate, they must have a bank act on their behalf, much as a trust is use to hold property for minors because they also can not contract. The following is a brief outline of the law regarding such trust, known as "fideicomisos", but potential buyers should always get advice and have all real estate transactions overview by a licensed Mexican attorney.

WHO'S INVOLVED IN REAL ESTATE TRANSACTIONS IN MEXICO?
Normally, there are three to four players involved in any real estate transaction in the restricted zone:

* A real estate company
* The buyer's lawyer
* A bank
* A public notary

All four are helpful in their respective areas in assisting with real estate transactions. Transactions outside of the restricted zone do not involve a bank since it is not necessary to establish a real estate trust in those areas. Otherwise the transactions are much the same.

Because of the similarities of real estate transactions in general, it is easy to assume that the basic terms and principles which are familiar in the United States also hold true in Mexico. This assumption becomes easier to make when United States real estate terminology is adopted for transactions in Mexico. Much of the paperwork is similar, if not exactly the same, as that used in the US. Although, there are many aspects of Mexican real estate transactions that are identical to procedures carried out in the United States, there are many aspects that are completely different. As a rule, a foreigner should assume nothing.

Mexican real estate transactions are not carried out in the same manner as United States real estate transactions. The buyer must retain professionals to assist in the transaction. Mexico has yet to regulate real estate transactions. Real estate agents and brokers are not legally licensed in Mexico. Consequently, a foreign buyer cannot always depend on the normal safeguards that would be applied to real estate transactions in the United States. The old saying "let the buyer beware" is very appropriate. Anyone can set up a real estate company in Mexico. There are no special requirements or brokerage licenses to obtain. A would-be real estate agent merely has to establish a Mexican corporation, obtain a work visa, and he is in business.

There are good reasons why the real estate industry in the United States is highly regulated. Until the real estate industry is regulated in Mexico, there will always be some real estate companies who prefer that buyers know as little as possible about real estate transactions. After all, a buyer cannot ask questions if he does not have any knowledge of the laws.

Currently there is nothing similar to a Real Estate Commissioner or a Department of Real Estate in Mexico. Some states are beginning to look at some kind of real estate legislation, but it might be some time before this is a reality. The American Embassy and the American consulates in Mexico are good places to start when trying to determine if a real estate company is reputable. Some of the real estate companies have established quite a reputation for themselves at some of the Consulates.

A Mexican attorney should be involved to draw up contracts and to review the conditions and terms of sale. Additionally, an attorney can do a title search and point out any problems or alternatives a buyer may have. The buyer should always have his or her own attorney rather than using the attorney of the seller or some attorney used by a real estate company free of charge. As the old saying goes, you get what you pay for, and usually if someone's services are offered free of charge you are probably paying for them in some other way. Legally, only a licensed Mexican attorney should provide advice on the law. If an attorney is licensed in Mexico he should be able to produce a "cédula profesional." This document is a registered license to practice law in Mexico and includes a photo of the attorney and his signature. To be sure that an attorney is licensed in Mexico, a foreign buyer should ask to see the attorney's license, or have the attorney's license number included in a retainer agreement before employing any services.

American attorneys are not licensed to practice law in Mexico and should not give advice on Mexican Law. I should clarify, here, that I am referring to individuals who are licensed to practice law in the United States, and not merely individuals who are citizens of that country. There are currently very few Americans who are licensed to practice law in Mexico. The fact that a person is licensed to practice law in the United States in no way allows him or her to practice law in Mexico: Mexican or United States law.

Besides formalizing your real estate transaction, an attorney can be very helpful in saving you money. This is because attorneys are involved in many different transactions and have contacts with banks, notaries, and the Mexican government on a regular basis. Because of this they are aware of the most competitive cost and fees involved in a transaction and can make sure that the buyer is given the best possible prices. An attorney can also inform the buyer regarding his or her legal options and by doing so can make sure that no opportunities are missed: tax planning considerations, closing costs which should be paid by the seller, and ways of taking title to the trust rights which make sense for the particular circumstances of a specific buyer. Very often one piece of good advice can save the buyer thousands of dollars in tax savings or other savings when the buyer eventually sells the property.

When looking for an attorney it is important to remember that any Mexican attorney can normally handle a real estate transaction. The buyer is not limited to only the local attorneys where the property is located. All real estate transactions involving a trust are governed by federal law. This means that all such transactions are carried out the same way regardless if the property is in Cancun or Los Cabos.

THE RESTRICTED ZONE AND "FIDEICOMISOS"
The law declares that the Mexican nation has original ownership to all land and water in Mexico, as well as minerals, salts, ore deposits, natural gas and oil; but that such ownership may be assigned to individuals.

The Mexican Constitution prohibits direct ownership of real estate by foreigners in what has come to be known as the "restricted zone." The restricted zone encompasses all land located within 100 kilometers (about 62 miles) of any Mexican border, and within 50 kilometers (about 31 miles) of any Mexican coastline. However, in order to permit foreign investment in these areas, the Mexican government created the "fideicomiso," (FEE-DAY-E-CO-ME-SO) which is, roughly translated, a real estate trust. Essentially, this type of trust is similar to trusts set up in the United States, but a Mexican bank must be designated as the trustee and, as such, has title to the property and is the owner of record. The Mexican Government created the "fideicomiso" to reconcile the problems involved in developing the restricted zone and to attract foreign capital. This enabled foreigners, as beneficiaries of the trusts, to enjoy unrestricted use of land located in the restricted zone without violating the law.

A "fideicomiso" is a trust agreement created for the benefit of a foreign buyer, executed between a Mexican bank and the seller of property in the restricted zone. Foreign buyers cannot own real estate in the restricted zone due to Constitutional restrictions. The bank acts on behalf of the foreign buyer, taking title to real property. The bank, as trustee, buys the property for the foreigner, then has a fiduciary obligation to follow instructions given by the foreigner who is the trust beneficiary. The trust beneficiary retains and enjoys all the rights of ownership while the bank holds title to the property. The foreigner is entitled to use, enjoy, and even sell the property that is held in trust at its market value to any eligible buyer.

In order to allow foreigners to enter into the agreement contained in the Calvo Clause, Mexico requires all foreigners to apply for and obtain a permit from the Ministry of Foreign Affairs prior to contracting to acquire real estate in Mexico. This is currently done by the trustee/bank at the time a real estate trust is set-up.

Given the changes made for 1997 in the foreign investment Law, and the fact that a buyer can now apply for and obtain a trust permit in a matter of days, it is always better to secure the trust permit from the Ministry of Foreign Affairs before entering into any contract.

The bank, as trustee, must get a permit from the Ministry of Foreign Affairs to establish a real estate trust and acquire rights on real property located within the restricted zone. The purpose of the trust is to allow the trust's beneficiary the use and exploitation of the property without constituting real property rights. The beneficiaries of the trust (fideicomisarios) may be:

* Mexican corporations with foreign investment
* Foreign individuals or legal entities

The law defines "use" and "exploitation" as the right to use or possess the property, including its fruits, products, or any revenue that results from its operation and exploitation by third parties or from the bank/trustee.

The law does not clarify how trust permits will be issued. Article 14 of the law states that the Ministry shall decide on issuing the permits "...considering the economic and social benefit, which the realization of such operations imply for the nation." The basic criteria used to determine such benefits are likely to change somewhat with the publication of the new foreign investment regulations. However, it is reasonable to anticipate that some of the unwritten rules used by the Mexican government in the area of real estate trusts will be included in the new foreign investment regulations. It is also possible that some of the confusing elements will be eliminated. It is important to understand the application of the current regulations, even if they are going to be replaced, as well as some of the unwritten policies the government has used in the past, to better understand what criteria will be used by the Ministry in the future.

The Ministry of Foreign Affairs must grant any petition for a trust permit that complies with the stipulated requirements within 5 working days following the date of its presentation to the Ministry's central office in Mexico City. It must be granted in 30 days if the application is submitted to one of the Ministry's state offices. The Ministry of Foreign Affairs must confirm the registration of any property acquired by foreign-owned Mexican corporations a maximum period of 15 days following the filing of the petition. In both cases, if the maximum period passes with no action by the Ministry, the trust permit or registration are considered authorized.

There is a common misconception among foreigners investing in Mexico that once the trust expires, the beneficiary loses all rights and benefits of the sale of the property held in trust. This is not the case. On the contrary, the beneficiary has a contractual right under the trust agreement with the Mexican bank to all benefits that may result from the use or sale of that property, even though he does not hold title to the property. Under Mexican Law, the bank, as trustee, has a fiduciary obligation to respect the rights of the beneficiary.

A real estate trust is not a lease. The beneficiary can instruct the bank to sell or lease the property at any time. The beneficiary can develop and use the property to his liking and benefit, within the provisions of the law. Generally, the law allows most activities engaged in by foreigners.

Property in Mexico

This introductory guide assumes that you are considering the purchase of land or property in Mexico. If you are looking for advice solely on property rentals in Mexico, then connect to the page on Renting now.
Mazatlan Real Estate Opportunity

Estrella del Mar is an 816 acre tropically landscaped estate that offers prime real estate including beachfront and golf course homes, home sites and condos. With a new phase of development right around the corner, now is the time to learn about the opportunity and get your name on the developer's contact list for priority announcements

* Learn More about Estrella del Mar

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.
Realize your ideal property in
Puerto Vallarta

Puerto Vallarta, on the Pacific Coast, is one of the most sought-after locations for property in Mexico. Casa Dali Partnership offers one-stop knowledge and investment facilitation services for serious investors in this idyllic location. Their services can help you realize your perfect property investment in Puerto Vallarta.

* Learn More and make an inquiry today

Another important factor to consider in Mexico when buying property is the developed state of local and surrounding infrastructure in the location you're looking at. Not all areas are well developed, and property prices will be cheaper in those that are not. However if, for example, a high speed road is built connecting a previously 'remote' location to other, better developed places, you may see a property investment in that area increase substantially. Mexico is a vast country - at nearly 2 million square kilometers - and not all of it is easily accessible. Road infrastructure is improving every year, with most major places now adequately connected, and work continues to connect the more remote areas, but this will take time.

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.

[Top]
Financing Your Mexican Property

Investment Historically and in many cases today, most property/real-estate deals in Mexico are cash only. Mexican Banks are now beginning to offer mortgage products for the purchase of real-estate in Mexico, although 30-40% deposits are required and interest rates are not as attractive as those in the US, Canada and Europe.
Prime Beachfront, Golf and Ocean View Home Sites

Offering a unique “ground level” opportunity to acquire prime real estate along the Mexican Riviera at predevelopment pricing. Choose from home sites and condos along a pristine and private 3.5 mile beach or along one of Mexico’s top rated golf courses...

There are some banks in the US who are now offering mortgages on Mexican Property, but they are usually offered on the back of equity built up in a property in the USA and the rates are higher on the additional loan amount, to reflect the additional risk. Many Americans HAVE mortgaged a house in Mexico using this financial vehicle so it is possible.

Financing inside Mexico is still difficult and relatively expensive, so if you plan to buy real-estate in Mexico you will be well advised to have your own foreign funding available; either through an equity-release scheme or other fund. Some people who are planning to retire to Mexico will sell their house in their home country and use the proceeds to finance property in Mexico; those who want to keep a 'base back home' may release equity from their existing home, rent it out, and use the dual proceeds to fund their retirement home in Mexico.

It's important to think carefully beforehand about how you are going to finance your property in Mexico. An Estate Agent in Mexico may be able to advise you, and some even have connections with financial institutions in the USA who can proffer solutions depending on your personal circumstances.

See also: Payment for your property investment, later on this page

[Top]
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 (see below) 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 which 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.

Mexican Law on property ownership is comprehensive and provides protection for the seller and the buyer in all property transactions, provided that the law is followed, and you ensure that all necessary documentation is present and that the procedures are adhered to. Your Notary Public (see below) is an important person in this process, and he/she will guide you.
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.

[Top]
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.

[Top]
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.

Important! Everything official to do with your transaction should be done via the Notary Public: Do not take anyone's word about documentation (like property deeds) being valid - take copies to the Notary Public for official verification. A good lawyer will be able to advise you on such matters.

[Top]
Common Checks that should be made

The Notary Public and/or your lawyer will do a series of checks on the property and ensure that the property has a 'clean' history, and that there are no liens on the land (e.g. an old unpaid mortgage). Under Mexican Law, liens are passed on with title of the land - BEWARE!

Your Notary Public should also check that all land taxes have been paid during the last five years (if applicable) and that utilities (electric, gas, water and phone) have also been paid during the last two years. By Law, you are not liable to debts after these times.

Other items to be checked include: Checking all buildings are on tax registers and have the required building permits, utilities were legally installed and payments are up-to-date, the property is not jointly owned, or if it is, that both (or all) owners agree to the sale, and that the seller/s has/have the right to sell.

The Notary Public is legally responsible to ensure that all documents are in order and that all legal procedures have been adhered to. He will do a thorough check and will not destroy his reputation by hiding any problems, or potential problems from you.

Read the Outline Process below for more information about the role of Notary Public.

[Top]
Outline of Property Purchase Procedure in Mexico

If you have hired a lawyer (which is recommended but not compulsory) then he/she will likely act as an intermediary between you and the Notary Public / Seller.

The exact process will vary in each case, but you (or your lawyer) 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.

[Top]
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.

[Top]
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.

[Top]
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.

[Top]
Estate Agents and other ways to get to market

There are a huge number of Estate Agents in Mexico - you can find out more about their services on the Estate Agents Page

Property is often 'marketed' by word of mouth in Mexico - and you may find some terrific deals by talking with people locally about properties available for sale. Mexican people are very friendly, and they are brilliant "net-workers" - they know people who know people...

Caution should be exercised and no agreements should made or monies handed over before the proper procedures are put into place, but as a means of introduction, it's a great way to avoid the "middle man" agent, and possibly, find an offer that you would otherwise not have been made aware of through the "estate agency" network alone, although in recent years, Mexico's estate agency networks have evolved considerably into professional organizations offering full-service agency facilities.

Remember that almost all estate agencies are privately-owned franchise businesses - even big name brands are operated at a local level by what is essentially a small or med-sized business.

[Top]
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 "Council 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 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.

Negotiating / Bartering

Try to find out (from the Agent if you are using one) what the history of the property is: who owns it, for how long and why are they selling? Are they in a hurry? Do they need cash fast? How far would they be willing to negotiate or barter - especially if you can close quickly. How much discount you can negotiate will depend on each individual situation. However, you should not offer the asking price and be prepared to walk away (and show that you will) - at the risk of losing the house - if you cannot get a deal that you think represents value. Even in Mexico, some people are sitting on property they paid too much for: make a cold, accurate assessment, and if necessary, politely say "no, gracias".

Ultimately, the value of real estate, like the value of anything, is what someone is willing to pay for it. If you fall in love with a particular plot or house, you may be willing to pay extra for it. If you can, keep emotion out of the equation, and if you can't, certainly make sure that you don't show any emotion as it will be immediately sensed and will erode your negotiating position.

[Top]
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. More Information about Title Insurance.
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.