HOW TO BUY A REAL ESTATE IN MEXICO

INDEX
Buying in Mexico
How does a Fideicomiso "Trust" work?
Trustee Fees 
Taxation
The Closing Process
The Notary  
Maintaining Your Property
Insurance
Your Deed "Escritura"
Capital Gains Taxes
Title Insurance

 

MEXICAN IMMIGRATION INFORMATION

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 non-immigrant status and is applied for through the local immigration office in Tijuana or Rosarito. The FM3 needs to be renewed on a semi-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.

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 pay check 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 two years in Mexico, they can avoid paying any type of capital gains. 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.

Buying in Mexico

The Mexican Constitution and the 1973 Foreign Investment Law prohibited "direct" foreign ownership of land or water within those border and coastal areas known as the restricted zone except through a title holding "fideicomiso" -- a bank trust. Until recently, a fideicomiso for restricted zone property could last not more than 30 years. After that, the trustee had to sell the property to a "qualified" buyer (a Mexican citizen or another trust). Indirect ownership through a Mexican company owned by foreign investors also was prohibited. In 1989, Mexico promulgated new regulations to allow the 30-year trust term to be renewed at least once. As a result of further reforms in 1993, the term of the trust may now extend to 50 years, and the trust may be renewed indefinitely for additional periods of up to 50 years each. The 1993 new foreign investment law also allows ownership of "non-residential" real estate within the restricted zone through a foreign-owned Mexican corporation, provided that formal approval is obtained from the Secretariat de Relationes Exteriores (SRE). Otherwise, all foreign individuals and foreign corporations as well as Mexican corporations which include any foreign investment may hold title to property within the restricted zone only "indirectly" through a bank trust arrangement known as a "fideicomiso".

How does a Fideicomiso "Trust" 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. 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 $350.00 US dollars to open your trust account and an annual fee as long as you have the trust. You need to check with your Real Estate Agent on actual fees to set up the trust as they can vary from bank to bank.

Taxation

Property taxes are very low in Mexico as a whole. The property tax - known as predial is approximately .2% of the assessed value of the land your house is built on. Taxes are paid annually, with the assessed value determined by the zoning department of the city you live in. If you purchase a property of $100,000.00 US dollars, and if the zoning department appraised the land at $25,000 US dollars your annual tax rate could be as low as $50.00US 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 RE agent is working, 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% 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 RE agent. 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 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 "Notary ship" can also be taken away by the government should he not follow the rules and regulations. Your R.E. agent will refer you to a Notary that we know and trust.

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 property management division 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.

Your Deed "Escritura"

In order to obtain your deed, the real estate agent with the Notary (Notario) 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 Adeudo) 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 (Avaluo) 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 transaction can be closed at the notary's office.

Capital Gains Taxes

The seller pays Capital Gains taxes at the time of closing. Taxes are 35% of the difference between the purchase price and the selling price, with adjustments made for inflation. Your Real Estate Agent can assist you in your tax planning. Capital gains are not paid if the seller can prove that he or she has lived on the property for the last two years. You would need your FM2 or FM3 with the address of your home in Mexico and 2 years of water and electricity bills. This will eliminate any capital gains you would have to pay. Your R.E. agent will advise you of how to avoid capital gains when selling your property. Again please remember you are buying in a foreign country. Your R.E. agent will help you over all of the hurdles. 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.

Title Insurance

To guarantee your real estate transaction is safe as can be, you can obtain a title insurance.

Several US companies delivers title insurance in Mexico:

Chicago Title Insurance

First American Title Co.

Stewart Title.

The cost is approximately $1000.00 dollars for a $150,000.00 home.

Contact your RE agent for further information.