The short answer is: Yes! You can own property in Mexico; it is not a lease despite the anecdote of the “99 year lease” for foreign buyers .
The long answer is: you own the rights of the land through a fideicomiso. The fideicomiso is a 50-year, renewable bank trust that must be set up with a Mexican bank in order to purchase residential property in the restricted zone of Mexico. The restricted zone is any land that is 100 kilometers (63 miles) from the border and 50 kilometers (31 miles) from the coast. The entire Baja peninsula is in the “restricted zone”, so all properties purchased here will require a fideicomiso, commonly called a Trust .
The Mexican bank acts as your trustee to the land, which you are then free to use as your own. When you want to sell the land, the trust is transferred to the new buyer. If you are buying a piece of property that is already in a bank trust, the trust is simply transferred to you as the new buyer .
Although foreign buyers do not technically own the land on a restricted zone property, they do own the rights, and, therefore, the freedom to live on the land, lease the land, borrow money against the land, and make modifications and improvements to it.
In practical terms, the beneficiary has full control of the property. The beneficiary may direct the trustee bank to lease the property, mortgage the property, or sell the property. The foreign owner enjoys full rights of usage and may do anything to the property permitted under Mexican law.
Who is involved in the purchase of property in Mexico ?
Generally speaking, the main parties in the Mexican real estate transaction are:
- Seller and his/her realtor
- Buyer and his/her realtor
- Escrow Agent
- Notary (similar to a lawyer in the US)
- The Trustee Bank
Do I have to pay all-cash ?
While almost 95% of property purchased in Mexico is purchased with cash, mortgaging property is sometimes an option as more mortgage companies in the US are beginning to offer financing to us citizens looking to buy property south of the border.
There is also sometimes the option of seller-financing.
Is there title insurance? Is it necessary ?
Yes! In 1998 US title insurance companies began offering title insurance for Trust Deed ownership in Mexico. US title insurance can be purchased for properties throughout Los Cabos, protecting buyers just like title companies in the US.
Purchasing title insurance is completely up to you, although it is recommended.
What are the closing costs ?
Closing costs are significantly higher in Mexico than in the United States or Canada because there are considerably more fees and documents to obtain during the process. In Mexico the burden of transferring title is on the Purchaser, not the Seller. The costs including fees for various required documents are typically between 4 to 7 percent of the value of the property, but can be higher in some situations. The good news is property taxes in Mexico are extremely low, which helps to offset this initial higher cost.
Some of the costs included in this 4-7% are: roughly $1,500 to establish your trust and $500 to register it in the National Foreign Investment Registry. Acquisitions tax, also called the transfer tax, this is currently around 2 percent of the total value of the property. Around $200-350 each for a home inspection and surveyor services. Other costs include permits, Notary fees, certificates of no debt, appraisal, etc. These prices are approximate the actual will cost depend on the location of the property and the detail of service being requested.
How long does the Closing Process take in Mexico ?
In most cases, a real estate transaction in Los Cabos can be closed in 60 working days for a cash transaction or 90 working days for a transaction involving financing. However, due to Mexican Holidays, permit delays, the Trustee Bank, etc., delays can occur. These delays are not considered defaults by Buyer or Seller as they are events beyond their control.
What taxes and other fees do I have to pay annually for my property ?
Property taxes (Impuestos Prediales) are due annually, normally they are published in January and must be paid at the local tax office of the municipality you purchased your property in (San Jose, Cabo, Todo Santos, etc). There are rebates and discounts (on top of the already low fee) for paying in the months of January, February, and sometimes March.
Bank administration fees are also due annually. If title to your property is in a bank trust there will be annual fees for the administration of the trust. These fees generally range between $500 to $700 a year and are subject to reappraisal of the property each year or two. Banks generally do not send annual statements. It is often necessary to request the bill for fees from the trustee bank each year and to pay on time to avoid penalties.
Is there anything I need to do to live in Mexico ?
If you plan on living in Mexico for more than 6 months (180 days) consecutively at a time you will need Temporary or Permanent Residency card (there are other types of Visas, but those are the two most used). The process typically starts at the Mexican Consulate where you’re from (US or Canada) and then picks up at an immigration office in Mexico. There are renewal processes for both, and many people hire someone to help with the process of receiving and renewing their Mexican Visas.