Real Estate in Mexico: Property purchase guide for foreigners

As many say, investing in real estate is one of the safest decisions you can make. But precisely because it is such an important decision, it is not a simple process.

And if you are thinking of investing in another country, you should know that the conditions are probably different from yours. That is why from Dreambuilt we want to provide you with this guide to acquire a property in our beautiful country without problems.

Real estate in Mexico

In recent years, real estate investments have been growing steadily. Whether for housing, commercial or corporate space, Mexico is attracting both local and international investors.

One of the main concerns when investing in another country is the lack of knowledge of the regulations. There is information that can confuse you and make you believe that your investment is at risk.Below we will explain in detail how to buy a property in Mexico if you are a foreigner.

As real estate professionals, we also offer you some recommendations, key points, and approximate closing costs.

How to buy real estate in Mexico as a foreigner?

The way to acquire a real estate property in Mexico as a foreigner is through legal agreements. Among them, the easiest and simplest is the banking trust.

This agreement is the most normal legal form for non-Mexicans investing in Real Estate. This way you will be subject to the law, and you will have the corresponding obligations and rights.

What is a bank trust?

A trust is a contract that involves, on one hand, a trustor. This party is the one who delegates certain assets owned by him to a trustee.

The trustee, in this case, will be a banking institution of your choice. Its role will be to administer such assets in favor of a third person who is called the trustee or beneficiary.

And this beneficiary is the investor. It is the person who owns the trust, who makes the decisions and receives the profits from the investment. It is not a lease, but is equivalent to a Living Trust in the USA.

In other words, the bank is merely an intermediary. It gives the beneficiary the power to take whatever actions he wishes on the property. Whether to sell it, rent it, remodel, build, or live. Even mortgaging, probate or inheritance.

In other words, the property is placed in a trust owned by you to be administered by a Mexican bank on your behalf.

Why is the bank trust necessary?

What happens is that the Mexican Constitution establishes that certain territories are “restricted zone”, and cannot be purchased by foreigners. It refers to any land within 31 miles of the coast and 62 miles of the borders.

The measure was born out of the incredible loss of valuable land that Mexico has suffered in its history in foreign hands. But it brought contradictions when it came to encouraging investments of this type.

That is why the trust is created, instead of having to modify the National Constitution. Through it, foreigners can buy real estate of this type, since the bank holds the title to the property.

Let us be clear that, in common residential areas, it is not necessary. Although, still, many choose to do so. However, if your plan is to invest in these desirable areas, this is the right way to go.

Is a trust an asset of the bank?

This is always confusing, and is one of the biggest fears of investors. But do not worry, the concrete answer is no.

The only beneficiary of the trust will be its owner, or failing that, the persons he/she designates. The bank acts only as administrator. 

The trust of your property in Mexico is held by the bank but is not considered an asset of the bank. Therefore, it is not exposed to any legal action in which the bank may find itself.

For how long is a trust valid?

This contract has terms. The trust is initially established for a period of 50 years and can be renewed at any time by means of a very simple form and a nominal fee. 

The risk is nil, as the 50 years are guaranteed and renewable in perpetuity. They can also be included in wills and inherited. The current cost is approximately $500 per year.

What can the government do to properties acquired by foreigners?

At Dreambuilt we know what are the concerns of those looking to invest in real estate. And one of the main ones is the government.

Foreign investors often worry that the Mexican government may expropriate their land. But you should know that this, while possible, is very unlikely, and we are going to explain it.

Under the North American Free Trade Agreement, NAFTA, Mexico may not, directly or indirectly, expropriate property. Unless it is for a public purpose. That is, for example, the construction of highways. 

Of course roads are built, but from there to having to expropriate is a long way. Expropriation will only be possible through a legal procedure, which is costly for the State, and that is why it is not preferable.

In the rare cases where it is necessary to expropriate land, the government will pay compensation to the landowner. The compensation must be prompt and fair, according to the market, together with accrued interest. 

This is the same process known as Eminent Domain in the United States. It is also similar to the Compulsory Purchase process in the United Kingdom, or the Expropriation process in Canada.

That is why we recommend you not to panic with some terrible stories in which someone’s property was taken away from them. If any of them come to your attention, you should know that the unfortunate person most likely bought ejido land.

The ejidal lands do not have a title deed, and only a Mexican citizen can legally own them. It is precisely to avoid these problems that you should count on us.

As a foreign buyer, who represents my interests?

The feeling of not having someone on your side is also very common when you are looking for new horizons. But the truth is that it is a friendlier environment than you sometimes think.

If we talk about real estate transactions in Mexico’s restricted zone, we talk about four actors involved. They do not have a specific order, but are all involved in different parts of the process. They are:

• Real estate company
• Lawyer
• Bank
• Notary

Each one of them is useful in their respective areas, and will act serving the same purpose: to realize your investment.

Why is it recommended to have a lawyer when buying real estate in Mexico?

We recommend having a lawyer to have the best possible legal advice. It seems unnecessary to clarify, but it happens that sometimes, in order to save a few dollars, bad advice is followed.

It is very common in Mexico for some people, perhaps well-meaning but inexperienced, to promise a better deal. Or say they have a friend or relative who can offer discounts and save you money. 

Those of us in this field know that this is never the case. Allowing inappropriate people to get involved opens the door to mistakes that can delay you and cause you to lose thousands of dollars.

A lawyer will represent you and protect your interests from the beginning. He or she will also draft the contracts and review the terms and conditions of the sale. It can be very helpful in saving you money.

This is because they have contacts with banks, notaries and the Mexican government. They are aware of the most competitive costs and fees involved and ensure that the buyer receives the best possible prices.

You will also receive advice from your attorney on the legal issues surrounding your property. Such as tax planning, closing costs and ways to take title to your property.Another legal recommendation we give you is to hire a Mexican lawyer. Foreign lawyers are not licensed to practice law in Mexico and should not give advice on Mexican law.

What is a public notary in Mexico?

A Mexican public notary is also a licensed attorney, but acts as an official and impartial representative of the Mexican government. He or she has passed rigorous examinations required by the Mexican government and is an official of the Mexican government. 

Their role is very similar to that of a notary in Canada and they have a much greater responsibility than a notary in the United States. They are taken very seriously in Mexico, as they could be held civilly and criminally liable.

Functions of a Public Notary

In principle, they provide strict legal security in the operations. As well as of the original records and documents, and upon completion they register the documents in the Public Registry of Property.

But he performs a variety of tasks, including authentication of legal documents, calculation of capital gains tax. This official is responsible for ratifying every real estate transaction in the country.

He guarantees the legality of the title transfer. He is also responsible for calculating and withholding the seller’s capital gains tax on behalf of the government.

He is also responsible for collecting the buyer’s acquisition tax and paying it to the Ministry of Foreign Affairs. Coordinate appraisals, necessary certificates, and request all corresponding permits.

After closing, the Notary must register the transaction with the Public Registry and the Tax Office. Any transaction not ratified before a notary and duly registered in the Public Registry is considered invalid and unenforceable.

The Mexican public notary is qualified and legally authorized to carry out the transaction. However, as mentioned before, we also recommend using an attorney to represent all your interests.

What is a Trustee Bank?

A Trustee Bank is a fiduciary bank, and its role is fundamental for you to be able to acquire properties being a foreigner. It is not just any bank, but only those that are authorized to perform the contracts we discussed above.

The Fiduciary Bank must be a registered Mexican financial institution with an established trust department. The buyer has the right to select any bank within the qualified ones.

Among the best known are Scotiabank, HSBC, BBVA, Banamex and Santander. Here only your preference matters, all of them must elaborate the same general conditions for the contract.

The bank, for its part, must also make sure that the closing is legal and appropriate. Only then will they issue a trust on the real estate for your exclusive use.

At this point it is also important not to get in trouble for saving a few dollars. Having a major bank looking out for your interests is yet another level of protection for the investor.

Am I protected if something happens to the bank?

This is another of the most frequently asked questions when explaining how to buy a property. You don’t have to worry at this point either.

For your peace of mind, we tell you that you will be absolutely protected. Mexican banks have government protection against bankruptcy. This means that the trust is indirectly guaranteed by the government.

In addition, as mentioned above, properties held in trust are not assets of the bank. In the rare event that the bank has financial difficulties, the property is assigned to another of the qualified banks.

The new trustee bank will take over the existing trust, and the conditions will be the same. It is subject to the laws imposed by the federal government.

Average purchase costs for real estate in Mexico

Finally, we bring you an overview of the total closing costs of such a transaction. This way you will be able to plan your investment much better.

They are estimated to be between 6 and 9% of the sales price. This includes taxes, notary and appraisal fees, and opening commission, and the application. Also taking into account, among other things, obtaining the SRE permit.

Another case would be if you are approved for financing, and you choose to mortgage the property. In that case, closing costs will be closer to 7% to 10%.The vast majority of transactions of this type in Mexico are done in cash. But we clarify the above point as financing has been becoming popular in recent years.

To calculate the buyer’s fees, you must take into account the following percentages:

3% acquisition fee

1% registration fees

1% notary fees

And finally, and very important, the cost of the SRE permit. This will cost around $2,000 for the opening, and then $500 per year.

Conclusion

Now that we have cleared your doubts about investing in real estate in Mexico, it is time to get down to work. By following these tips you will be able to choose the ideal land for your investment. 

But it is not only important to know the steps to follow. It is also essential to count with an integral and professional service that will give you the necessary support for such a decision.From Dreambuilt we are committed to be that support for a safe investment. We have the necessary professional team and the variety of offers you are looking for to fulfill your dream.