Yes, any foreigner or any Mexican national can purchase real estate anywhere in Mexico, including the restricted zone. Laws passed in 1973 and 1993 have made it possible for foreigners to purchase property in the restricted zone which is 32 miles (50 km) from its coastline and 64 miles (100 km) of Mexico’s borders. Foreigners can purchase property within this restricted zone with either a fideicomiso or a Mexican Corporation.
Normally, there are four or five main players involved in any real estate transaction in the restricted zone:
- The Real Estate Company
- The Buyer
- The Buyer’s Mexican Attorney
- The Trust Bank (If purchasing with a fideicomiso)
- A Public Notary (Notario Publico)
The purpose of the fideicomiso is to allow foreigners to buy prime Mexico real estate inside the “restricted zone,” and ensure a safe and secure transaction. The “restricted zone” is any land within 32 miles (50 km) of the coastline and 62 miles (100 km) of the borders. The Mexican constitution, when created, was designed to protect their land and prevent the kind of massive land loss they had endured through their history. Rather than amend their constitution, Mexico created and added the fideicomiso to encourage foreign investment in the highly desirable areas, particularly along the coastline. Residential properties outside of the restricted zone can be acquired directly by foreigners without the need for a bank trust, although some buyers opt to use it.
A fideicomiso is a real estate trust held on your behalf by a Mexican bank. The bank acts as the Trustee, and you and those you designate are the beneficiaries of the trust. As the beneficiary of the trust, you maintain complete control over it, retaining the use of the property and making all investment decisions. This is not a lease; it is equivalent to a Living Trust in the US. A fideicomiso bestows upon the beneficiary of the trust (you) absolute and irrevocable control over the property: to enjoy, lease, improve, mortgage, sell, inherit and will. Simply stated, your property is placed in a trust that you own to be administered by a Mexican bank on your behalf.
There is a common misconception among foreigners investing in Mexico that once the trust expires, the beneficiary loses all rights and benefits of the sale of the property held in trust. This is not the case. On the contrary, the beneficiary has a contractual right under the trust agreement with the Mexican bank to all benefits that may result from the use or sale of that property, even though he does not hold title to the property. Under Mexican law, the bank, as trustee, has a fiduciary obligation to respect the rights of the beneficiary.
A real estate trust is not a lease. The beneficiary can instruct the bank to sell the property at any time. The beneficiary can develop and use the property to his liking and benefit, within the provisions of the law. Generally, the law allows most activities engaged in by foreigners. Beneficiaries are allowed to modify their property. Construction, in accordance to local zoning regulations, is permitted at the owner’s expense. The beneficiary has all of the benefits of a direct owner, including the ability to transfer his/her rights to the property to a third party or a pre-appointed heir. The normal annual trust fees are approximately $700.00 plus IVA. A cost to set up the trust varies by bank.
If planning on using the property as a short term rental, bed and breakfast or other business reasons this may be the best option for you. Many investors choose to purchase property though a corporation if the intent is to conduct the investment as a business. This would be the case in situations such as buying and selling land, renting their property or when owning more than one property.
There are several different types of Mexican corporations, however the two most common are a limited liability corporation (LLC) and a limited liability partnership (LLP). Choosing which type of corporation to set up is important for tax purposes in both the US and Mexico, and you should speak with an attorney or accountant on both sides of the border to understand the benefits and costs each one entails. Making sure the choice is made correctly from the beginning will save you time and money.
Ownership of property in Mexico is possible through the establishment of a Mexican corporation. As of 1995 foreigners can fully own, operate and administer Mexican corporations. A foreign corporation in Mexico requires two or more individual investors, who combined, control 100% of the corporation. Once your Mexican corporation is formed, it has the legal capacity to acquire property anywhere in Mexico, including the restricted zone. Through a corporation, foreign owners acquire the right of domain, in addition to possession and benefit. The property is owned with the same rights as if it were a Mexican entity. There are no investment restrictions on foreign-owned Mexican corporations aimed at buying and developing property.
Title Insurance is available. Insurance premiums are approximately $10.00 per $1000.00. Title insurance is NOT required in Mexico. It is optional for you to purchase if you choose, but most buyers chose not to purchase title insurance because the title is reviewed several times prior to the closing – usually by the legal departments of the buyer’s attorney, as well as the Notario.
Closing costs are paid by the Buyer and depend on the value of the property purchased. They include a transfer tax (ISAI) of 2% that goes to the Mexican government, Notary fees, a registration fee of .05% of the assessed value of the property, fees for the tax certificate, title search fees and property appraisal, as well as miscellaneous office expenses. Generally, when purchasing a property on Isla Mujeres you can expect the closing costs to represent 4-10% of your purchase price. It depends on the price of the property.
Once your Offer to Purchase has been accepted, a deposit (usually 10% of the purchase price) is required. These funds are held during the time needed to close the sale. The balance is payable upon the signing of the Trust Deed at the Notary’s office. In order to obtain a Trust Deed the buyer’s attorney will:
- Ensure the property is free and clear by checking the Land Registry Office. This is guaranteed by obtaining a certificate of no liens and a tax statement from the treasury. Additional checks are made for outstanding utility bills and municipal taxes, and/or Home Owners fees (if applicable).
- Obtain a permit from the Minister of Foreign Affairs to establish the Trust Deed.
- Prepare all documents for the buyer.
Property taxes are very low here in Mexico and on Isla Mujeres. The property tax, known as “Predial” is a rate of approximately .12% of the assessed value for private residences. Commercial properties will be assessed at a slightly higher rate. The assessed value is determined at the time of the sale. Historically, property taxes have always been low in Mexico because they have never been perceived as a source of revenue for the Mexican government.