Buying Property in Mexico
This may seem like a complicated process, but the reality can be quite different. Our team at International Surf Properties will help you navigate through the purchasing process every step of the way (no matter where you are in the world), ensuring an informed, secure and successful transaction. This is the key to buying property in Mexico.
There are five common steps in completing the process of buying property in Mexico: the Offer, the Contract, Third Party Escrow, a Bank Trust (or ‘Fideicomiso’ in Spanish) or Mexican Corporation, and the Closing.
We work with the buyer to put together their best offer. We are equipped with the resources, information and negotiation experience in order to achieve for you the best possible price.
When the offer is accepted our closing agent will compose a legal document, termed an Escrow Agreement, covering all the information agreed on by the buyer and seller.
3. Third Party Escrow.
By using third party escrow, your money remains safe until the property title is officially transferred to you. We use several companies that provide us great service and our clients are very happy.
4. Bank Trust (Fideicomiso) or Mexican Corporation
The closing agent guides this process. The Fideicomiso or Mexican Corporation is the official documentation necessary to own coastal real estate as a foreigner in Mexico. See explanation below.
The closing agent guides this process. The Fideicomiso is the official documentation necessary to own coastal real estate as a foreigner in Mexico.
When the closing agent has completed all details of the process, then the Notario Publico will transfer the title from owner to buyer.
FIDEICOMISO OR BANK TRUST
This addresses foreigners purchasing property in the restricted zone in Mexico. The restricted zone is the land within 50 kilometers of any coast or 100 kilometers of any border. Foreigners are prohibited by the Mexican constitution from having direct ownership over property in this area.
Don’t worry, your dream of having a surf house in Mexico is not dead. Fortunately, Mexico created two ways that foreigners could still purchase property in the restricted zone: 1) by creating a bank trust, known as a fideicomiso; or 2) by forming a Mexican corporation and purchasing the property under that legal entity.
A FIDEICOMISO is the most common option chosen by the foreigners who attempt to buy property in the area. A Fideicomiso is unique because it doesn’t have an exact equivalent in United States or Canada, so an exact translation is impossible. The closest we can get would be a “real estate trust.”
A Fideicomiso de Zona Restringida (Real Estate Trust of a Restricted Zone) is a legal document with which a Mexican bank will lend you their name so you can use and manage the property. Technically the property will be under the bank’s name. The Fideicomiso deed lays out how the bank will be responsible for the ownership of the land, but that’s about it. The use, administration, maintenance, civil responsibility, rental income, mortgage loans, and income from its sale, belongs exclusively to the trustee. The trust institution makes very clear that they have no responsibility to the property and trustees can do pretty much whatever they want with it.
There are many benefits to a Fideicomiso. One of them is that it works like a will. In the deed, you designate beneficiaries who inherit the trust upon your death by presenting a death certificate and a simple letter. Another benefit is that nobody can put a lien of your lot, simply because it is not in your name, so your legal/economic issues won’t affect the property. But that the biggest advantage is that, if the property qualifies and the trustee gets resident status, at the time of sale, the seller (trustee) can exempt 100% of the ISR tax (capital gains) up to a selling price of $3,800,000 MXN.
The downside of forming a Fideicomiso would be the price. The initial bank fees (that include the permit, one yearly fee in advanced and expenses) are between $2,000 and $2,500 USD, which you pay on top of all the closing costs (acquisition property tax, rights, certificates, notary and attorney fees, etc.). Also, a bank takes around three weeks to issue the permit, but this is from the moment the permit is paid and all the proper documents and forms have been submitted. To get those documents and fill out those forms takes usually a good two or more weeks, so the closing time frame of a Fideicomiso is usually two to three months.
CORPORATIONS are simpler. A Mexican corporation can be formed in two weeks with at least two partners. They can both be foreigners; no Mexican citizen is needed, so don’t fall for that story. It costs a maximum of $1,500 USD and from there you can use it to acquire property through a normal transaction as a Mexican national would. The corporation is a considered Mexican person and can do everything that a Mexican can do. So in a month and a half you can have the corporation formed and the property under its name. You can also buy a car and pretty much anything you want with it.
The corporation ties you to an accountant. Even if it reports zero income, an accountant will need file yearly. Everything you buy through a corporation, has to be done through a check and or wire transfer made from the corporation bank account, so cash is not an option.
And finally, the biggest downside: there is no way to avoid capital gains when selling the property. The key is to manage your property correctly. Get and save physical receipts for everything you do in the house. You can deduct that against the profit at the time you sell to lower the tax bill, but you can´t avoid it completely.
WHICH IS THE BEST OPTION FOR YOU?
Mexican corporation is the best option for people interested in starting a business or renting their villa out consistently. If you intend to open a business or even buy property for a non-residential reason, a corporation is the best route. It will save you some money on income tax, and most of all, it will allow you to create a legal source of income in the country.
Bottom line is; a Fideicomiso is the way to go if you plan on buying property in Mexico and use it for residential/personal reasons that will not generate an income. If you intend to use your home as a vacation rental, open a business or if you’re buying the property to function as a business, then you will want to form a corporation.