Mexico Real Estate for Investment or Pleasure

The ocean's wonderful sights and smells and the peace of living or vacationing along Mexico's 6000 miles of coastline is a powerful attraction for foreigners interested in Mexico real estate.

If you've been considering purchasing a vacation home or a retirement property in Mexico, there are a few things you'll need to know concerning the legal and financial issues surrounding buying property in Mexico. Many people believe that foreigners cannot own land in Mexico at all, but this is not true. There are ways in which a foreigner can purchase real estate anywhere in Mexico. It's just a matter of going through the proper channels and obeying the proper regulations.

It is written in the Mexican constitution that no foreigner may own any Mexican property within 100 km of the border or within 50 km of the coast. Naturally, this restricted zone includes the largest portion of resort cities in Mexico. The Mexican government does, however, allow foreigners to establish trusts with Mexican banks allowing indirect acquisition of real estate within the restricted zone.

This is how the process works: Anyone interested in a particular property in Mexico must, through his or her broker, have a Mexican bank acquire the property for them. The bank then becomes the legal owner, but only in trust. All rights to and use of the property is the purchasers. These trusts are for a period of thirty years and may be extended for another thirty years at the end of this period. The trustee's rights to the real estate may also be transferred to a third party.

All banks in Mexico are protected against bankruptcy by the Mexican government, so failure of the bank that owns your property in trust will not mean the loss of your Mexico real estate investment. Naturally there will be additional costs due to the use of a third party in the real estate purchase. In addition to the cost of the property and the taxes (which will be discussed later), the purchaser will have to pay a percentage of the value of the property to the bank and a tariff for the drawing up of the agreement. There will also be an annual fee for the bank's services as trustee.

In Mexico, real estate deals must be processed through a notario, a government official whose duty it is to see that all real estate is transferred properly. The notario's duties are to make a title search through the Public Registry and to obtain a non-lien certificate and tax statement from the Treasury. The Notario also conducts an offical appraisal, and makes sure that there are no unpaid bills or taxes on the property. The Notario charges approximately 2% of the appraisal value for the services.

The only tax paid by the purchaser is a variable transfer tax. This should be around 2 to 4% of the appraised value. The seller must pay a capital gains tax on the sale.

When it comes time to close a real estate deal, it is not uncommon for a seller to require a written offer as well as a 5 to 20% deposit. Due to the highly unstable interest rates in Mexico, financing of property is rare. Most real estate deals are paid for in cash. It is common to pay 20 to 50% of the total amount of the purchase upon signing the contract and the full cost upon signing the official deed.