Costa Vallarta Realty

Buying in Mexico

PROPERTY IN MEXICO
Property values in Mexico, as in the United States, tend to increase year after year.  As the demand for oceanfront property in the U.S. has outstripped supply, it has become unobtainable for the average person.  However, in Mexico, there are numerous locations where one can still afford oceanfront or ocean view properties, as prices start at a much lower point.
The increase in value of Mexican oceanfront and ocean view land over the last few years has, for the most part, eliminated what we would refer to as “cheap”.  Fortunately, one can still enjoy a price differential of four to ten times that of similar properties in the United States.  As with all property, the relative value and appeal of land in Mexico comes down to three key factors: location, amenities, and accessibility to the United States.
In addition to Mexico’s lower land costs, construction costs are lower, maintenance is inexpensive, and ownership costs (taxes and utilities) are extremely low.  A person can live comfortably on the savings from property taxes alone. 
For example, in most areas of Mexico, property taxes are approximately 0.1% so, for a $1,000,000 home, one would pay about $1,000 per year.  In Florida, property taxes are about 2.5% or $25,000 on a million dollar home.  So, with the $24,000 annual difference in property taxes, one could hire a maid, pay the utilities, buy groceries, and still have money remaining.
Purchasing property anywhere requires an extensive amount of research, planning, and preparation.  Mexico is no exception. A person should research and understand the laws, and work with true professionals who can guide one to a safe and successful property purchase in Mexico.  The process is relatively similar to that of the United States and equally as safe.  Today, multinational financial institutions such as GE Capital provide 30 year financing in Mexico. 

YOU CAN OWN IN MEXICO.

When it comes to buying property in Mexico, the news for foreigners is good. Major U.S. insurers have recently started to provide title insurance and this has made buying property in Mexico as safe as buying property in the U.S.
In the interior of Mexico, foreigners may purchase property directly in their own names. Real estate located near coastlines or borders (which are known as restricted areas) must be purchased with a bank trust or Fideicomiso.
The bank (known as the trustee) holds the trust deed for the person or persons purchasing the property (known 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. You may live in, rent, remodel or sell the property and have rights to all profits.

A trust may be set up for a period of up to 50 years and is renewable indefinitely. 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. 
Rental potential is also good. Net yields of 15 per cent based on 40 per cent occupancy are currently possible in some areas. This combined with 15-20% annual property value increases makes for a very attractive investment.
A taxation treaty exists between Mexico and the and the U.S. to ensure that you are not taxed twice on profits from Mexican property. We recommend that you always consult professionals for advice on taxation issues.

Retiring in Mexico

It is estimated that the number of expatriate retirees currently residing in Mexico is over 1 million.  Due to the climate,cost of living, relaxed lifestyle, and overall friendliness of the people, it is no wonder so many choose Mexico as their retirement destination.
Many people seek the city life, where one can find many cultural events, museums, fine restaurants, interesting city highlights, and a wide variety of fellow expatriates with whom to converse.  Others are in search of something more tranquil with more natural vistas (whether by the ocean or in the mountains) and more of a small town rhythm.  Whatever one’s needs, Mexico offers a great variety of locales to fulfill them.
Other things to consider when moving to Mexico as a retiree are health care, insurance, and banking.  People may feel somewhat overwhelmed when it comes to relocating to a new country, a new language, and an entirely new way of living.  However, in Mexico, these transitions have become increasingly simple and “user friendly” for Americans and Canadians. 
With all things considered, there are countless opportunities for those looking to realize the dream of investing or retiring peacefully in paradise.
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.


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.