The Truth About Buying Property in Mexico Everything You Should Know
 

 Here you will find the facts and information to dispel the myths about buying real estate in Mexico. You will find that purchasing property in Mexico, particularly in Puerto Vallarta, is as simple as in the U.S. or Canada. You may also view other information for property owners and visitors to Vallarta Mexico and some of the surrounding areas, as well as our specialized Puerto Vallarta buyer's agent services and procedures.

Ever since Mexico joined NAFTA, the Mexican government has dramatically changed its laws governing the purchase of real estate properties by foreigners and non-Mexican nationals. Read More

When Mexico joined NAFTA in 1993, the government appointed a commission to study ways to get around the Mexican Constitution from 1917 that forbade foreign ownership of Mexican land in so-called “Restricted Zones.” Those zones are 31 miles (50km) from the body of oceans and 62 miles (100km) from the Mexican borders. The solution that the Commission came up with is simple: Foreigners will put their property in a trust (called Fideicomiso Trust) with a Mexican bank which is almost identical to the U.S. Estate Trust. The Mexican bank holds the title in this trust and the foreign buyer of Mexico property is the sole Beneficiary of this trust for 50 years. The Trust is renewable in increments of 50 years, indefinitely and without any conditions. In the event of transfer of property to heirs, the simple procedure of changing the beneficiary of the Trust is easily accomplished. What are your rights as the Beneficiary of Fideicomiso Trust? Read More

The Trust system for purchasing property along the coastal or restricted zones, was created by the Mexican government 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.

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 "Trust" bank.

 Or what rights to your Mexican property do you have as a foreign buyer? Before we answer this question, we should ask what rights do you have or what is the legal definition of owning a property in the U.S.? The layman’s definition of owning a property in the U.S. says that “to own a property means that one owns Bundle of Rights in that property. And what are those rights? They are:

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.

a. Right to possess property
b. Right to enjoy property
c. Right to encumber against property
d. Right to dispose property by any mean (sale, rent, deed it to someone (hears) or destroy it).

These very same rights one owns as a Beneficiary of Fideicomiso Trust. Therefore, to own a property in Mexico whose title is being held by a Mexican bank is exactly the same as owning it in the U.S.

 There are Three parties are involved in the trust:
 
1. The trustor (the owner of the original property)
2. The trustee ( the bank)
3. The beneficiary (the person who will receive the benefits of the trust.)

 
The Bank (trustee) holds the trust deed for the property purchaser (beneficiary). The property is not part of the bank's assets and cannot be liened or attached for any other obligations. The purchaser (beneficiary) has all rights of enjoyment of the property including:

1. the ability to remodel
2. lease
3. mortgage
4. pass to their heirs
5. sell the property at any time.

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

The bank holds technical, legal and administrative responsibilities and protects the beneficiary's interests. The control of the property is in your hands.

 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.

 The Notary:

Should you decide to own property in your own name, a deed called an escritura, must be prepared by a Mexican notary public. In some states in Mexico it is now possible to name beneficiaries in the deed, but if this is not the case it is well to have a Mexican will prepared to avoid expensive legal fees and probate at the time of death.

The Notary ensures 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.

In Puerto Vallarta and all of Mexico, the notary public (notario público) is a public official appointed by the State Governor. He has the capacity to attest and certify documents and business and legal transactions that require authenticity. He also provides for strict security of original records and documents. 

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.

 Closing Costs:

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.


 Property taxes:

Historically Mexican property taxes are very low. 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.

 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 and are paid by the seller.

Tax law in Mexico requires a Capital Gains Tax to be paid on the profit received from the sale of your property, this is calculated from your 'cost basis'-the amount recorded by the Notary at the point of transfer/sale. It is important that you understand how this works, to avoid future loss that could have been a profit!
The only people exempt from capital gains tax in Mexico, are those who have had their primary residence here for two or more years. You are allowed only one primary residence to secure the tax advantage; this includes property you may hold in the States. This law is for Mexican Nationals or Foreigners holding their FM3 or FM2 visas and work permits.

Contact us for more information and professional guidance on this subject or have additional questions Ask Gringo’s Experts.