Buying Real Estate in Mexico FAQ
Like anywhere in the world, Mexico has its own administrative processes for buying real estate. This process is neither difficult nor is it simple, but is a process where you need to be sure that you are being informed and advised impartially by a professional Real Estate Agent in Mexico.
Please find below a brief overview and FAQ of the process for buying real estate in Mexico.
Our staff is available for any questions or clarifications you have regarding real estate in Mexico, and more specifically in the Puerto Vallarta area.
1. Can non-Mexicans (foreigners) buy real estate in Mexico?
YES. A person of any nationality is able to legally buy real estate in Mexico. People are often misled or believe otherwise due to the existence of a Mexican designation for certain areas called the "restricted zone" (formerly known as the "prohibited zone").
There are a number of methods for acquiring property in Mexico.
First, outside of this restricted zone foreign ownership of any type of real estate is legal on a fee-simple basis.
Second, for non-residential property, foreigners can acquire real estate via a Mexican Corporation (and under certain conditions these corporations can be 100% foreign-owned). The main 2 conditions are the agreement of the foreigner(s) to subject themselves to Mexican law, and for the property to be registered for non-residential use with the Ministry of Foreign Affairs. This applies to real estate in and out of the restricted zone.
Third, within the restricted zone, for residential real estate, acquisition must be made through a bank trust (fideicomiso).
2. What, and where is the Mexican restricted zone?
Here in the Vallarta coastal area (or the Bay of Banderas area), we are in the Mexico restricted zone. The restricted zone is land within 50 kilometers (30.5 miles) of Mexico's coast, or within 100 kilometers (61 miles) of Mexico's land borders with other countries.
Why ? Following a history of invasions, wars and losses of territory, Article 27 of the Mexican Constitution was created in 1917 to protect Mexico from foreign intervention and invasion - it's aim was to stop foreign interests from purchasing strategic coastal and border areas of the country. While today the risk of foreign attack is low, this law remains a founding chapter in the Mexican Constitution.
Today, the restricted zone is merely a legacy of Mexican culture and history and not a tool to stop foreigners from investing in Mexico. To enforce this message, Mexico's Foreign Investment law (enacted 28th December 1993) was created to protect the rights of foreigners in the restricted zones and ensure the safe and legal purchase/acquisition of real estate.
So, Puerto Vallarta is in the restricted zone, what now? Within the Bay of Banderas and other coastal areas, foreigners can own real estate, but are required by Mexico's Foreign Investment Law to do so via a fideicomiso, or bank trust.
3. What is a Fideicomiso? What is a Bank Trust?
If you are familiar with Bank Trusts in the United States then you will find Bank Trusts in Mexico to be very similar (a Bank Trust is called a fideicomiso (fee-day-co-mEE-so) in Spanish).
The trustee is the Mexican bank, and the beneficiary of the trust (and therefore, the property) can be you as an individual, a partnership, a company or corporation, Mexican or foreign. For practical reasons, many foreigners outside of the restricted zone, and even Mexican nationals, prefer to use a fideicomiso. The property is not part of the bank's assets and cannot be subject to any lien or attachment for any bank obligations.
4. Isn’t the fideicomiso (Mexican bank trust) just a lease?
No. A fideicomiso is not a lease. The trust-holder essentially has the same rights of "ownership" as Fee Simple Title in the US and Canada.
5. How long does the fideicomiso last?
The typical trust period is for 50 years and is easily renewable with simple instructions to the bank. Upon sale of the property the trust can also be transferred to the new owner if desired, or they may set up a new trust. There is an initial fee for setting up the trust through the bank as well as an annual fee. These fees vary from bank to bank. Your real estate agent can help you with the details and to set up your trust. Another mistaken belief and concern is that after 50 years bank-trust properties pass to the authorities, this is not true.
6. Can I will my real estate in Mexico to my friends or family?
Yes. The fideicomiso bank trust gives you all the rights of fee simple ownership, including leaving the property to your family or friends. One advantage, however, of using the fideicomiso is that as a trust you can pass your investment to a 3rd party simply by naming them as a secondary trustee. Thus the property would pass directly without risk of probate, inheritance taxes, etc.
7. How secure are Mexican Banks? Can I trust fideicomisos?
Yes. The Mexican bank has a fiduciary responsibility to act in the trustees best interest... under penalty of law. The bank will simply hold the deed to the real estate for you (or your beneficiaries). You as a beneficiary hold all the rights of ownership to the property, you can sell, lease, rent, build on, or do anything else the legal owner of property in Mexico can do (obviously, you must comply with building and zoning regulations). Many large and respected American and International banks such as GE Capital, ScotiaBank, Banamex (CitiBank) and Santander Serfin, among others, have been and remain big players in fideicomisos in Mexico.
8. What is the "Notario"? We’ve heard that we will need to use one.
Notarios in Mexico are more than just clerks, but state government appointed lawyers who have the power and authorization to close real estate transactions in Mexico. The Notario Publico (Notary Public) has an important role in the purchase of real estate, much greater than in most other countries. He/She is appointed by the State Governor as responsible for carrying out a number of key aspects of the transaction, such as the authentication of legal documents, titles and deed searches (for liens or other legal/financial issues), tax collecting, construction permit checks (if relevant), capital gains tax calculation etc.
The Notario is essentially responsible for ratifying all real estate transactions, hence if a property transaction is performed without a notario and not recorded in the public registry, it is invalid, placing the purchaser in a position where he/she could lose the property with no legal recourse.
9. Are there "Title" companies in Mexico like in the USA?
Yes. Title companies are present in Mexico, and there are a number of US-based agencies working here. They offer escrow and closing services, as well as US Title Insurance policies.
10. What is the typical purchase process in Mexico?
Generally speaking, the real estate transaction process is "open" once a written purchase offer has been accepted by the seller and when a purchase-sale agreement contract has been signed by both the seller and the purchaser. In some cases a deposit is required by the broker to transmit the offer to the seller.
A payment of 10-30% will generally be required as a deposit when the purchase-sale agreement contract is signed. Generally, developments & pre-constructions ask for a 30%+ deposit whilst for re-sales the deposit will be less. The balance is normally paid when signing the escritura (public deed) with the Notario.
If you are dealing directly with the seller, it is strongly recommended that you seek guidance from a lawyer or buyer's agent before signing any contracts or exchanging any money (especially as all legally-binding contracts in Mexico will be in Spanish).
11. What’s the best way to find a property in Puerto Vallarta?
Puerto Vallarta is awash with real estate agents, brokers, builders, developers, promoters, advertising posters, flyers, reviews and magazines etc... all trying to sell to you and tell you that their real estate is best. As in any important purchase, it is important that you feel comfortable with the people you are working with and that you feel confident that they are working in your best interest; that they are not rushing you.
12. How much will my closing costs be?
Closing costs will usually run between 5-7% of the sales price of the property. They are determined before closing by the Notario. Notarios have the power and authorization to close real estate transactions in Mexico. The closing costs include their fees, transfer taxes and establishing the trust. Closing costs may increase if you include title insurance and financing fees. Your real estate agent will assist you with the closing process.