Buying real estate in Mexico

Restricted zone...

The Mexican Constitution does not allow foreigners to register deeds to land in their own names in areas of Mexico that are included in a zone 50 kilometers wide along the coast and 100 kilometers from the US border, which is the restricted zone.

So, as Mexican government encourages foreign investment, in the early 70's they set a law that allows foreigners to "own" real estate in the Restricted Zone by using a "bank trust deed" called Fideicomiso, or Trust, and since 1993 was amended to make it more liberal and to comply with the provisions of the North American Free Trade Agreement.

According to the Trust, the Foreigner/Purchaser is named as the beneficiary of the trust and has all the rights of normal ownership. The bank has no rights of ownership in the property and deed does not form part of the bank's assets.

Even if a bank were to fail or close, the deeds in trust would be transferred to another bank and would not be subject to bank creditor claims. All rights of normal ownership also includes: selling, renting, improving, disposing or even destroying. The Foreigner/Purchaser pays all property taxes, utilities, and other charges made against the property.

The banks charge an annual fee ($400 to $650 depending on the bank) for holding the deed of trust. For any foreigner to own property in Mexico, a permit must be obtained from the Secretary of Foreign Affairs in Mexico City. As evidence that the government considers Trusts (Fideicomisos) a form of ownership, the Foreigner/Purchaser of a Trust must obtain this permit.

The trust allows the Foreigner/Purchaser to name primary and secondary beneficiaries as well, so the property can pass to descendants without the need for a will or probate. Under current law, the Trusts run for a term of 50 years and then they are renewable for another 50 years. It is not the intention of the government to ever acquire these properties, so this does not happen.

When a Foreigner decides to sell this property, the new purchaser has the option of assuming the existing Trust or taking out a new Trust for a new term of 50 years. Foreigners have also been known to switch banks and take out a new Trust for a new 50 year term without selling the property.

As a buyer, you will pay approximately 6% for closing costs in addition to costs associated with either assuming an old trust or starting a new trust. Trusts (Fideicomiso) are not leases! They are simply a different kind of ownership. Leases are a different matter and must be investigated thoroughly as the Foreigner has less protection with a lease.

Costs of purchasing & Owning

Property in Mexico…

1. Price of Property
2. Closing Costs ( no more than 6% of the value of the property) includes:
   • 2% for Notary fees
   • 2% for Transfer Tax to Mexican Government
   • 2% for appraisal, No Lien Certification, Catastro Value, recording at the Public Registry, copy of Trust, Power of Attorney, etc.
3. Bank Trust fees approximately $3,000 USD depending on the bank.
4. Legal fees/admin $750 USD for all legal property research and trust paperwork.

Yearly Expenses

• Yearly trust payment (amount determined by bank) usually $400-600.00 USD
• Property taxes (10% discount if paid by March 31) usually around $1,000.00 per year
• Association Fees (if applicable for Condominiums or homeowners)
• Management fees if property rented (20%) Repairs/Maintenance/Maids
• Utilities:
  • Electric (bills are about same as US) Remember they are more for air conditioning
  • Water/sewer - around $30.00 per month
  • Phone Telmex package land line & internet US$30.00
  • Propane Gas - for two people approx. $25.00 per month for gas stove and water heater