Editor's note: I originally wrote this article in 2006 or 2007, and it has been updated along the way as the rules and the market have changed. It first appeared as a blog article on my personal site, johnforget.com. The advice has held up remarkably well — the updates are in the details.
I am often asked “Can foreigners really buy Mexico real estate?” The answer is a resounding yes — but only if you use the same common sense you would use in Canada or the U.S., work with a qualified real estate professional, and have competent legal representation. Follow this formula and you and your family will have a safe investment that you can enjoy and benefit from for many, many years.
There is no way to cover every intricacy of Mexican real estate in one guide, but I will give you a solid understanding of the process — and some tips on protecting your investment and your interests. I strongly recommend seeking professional guidance. More often than not, it costs you nothing, and it can save you headaches, time, money… or even your entire investment!
It doesn't surprise me that people visit this wonderful country and fall in love with her charm and beauty. It doesn't surprise me when folks say they can't believe how friendly the people are or how affordable everything is. I'm not even surprised when someone says they want to live here part-time, or even permanently. I am amazed, however, when they decide to invest in real estate with the first person they meet who says they “sell” real estate.
There are literally millions of folks in Mexico who will say they sell real estate. Very few of them do it as their full-time job, and even fewer are trained in the basics! Would you let a taxi driver give you a root canal? How about getting brain surgery from a waiter? Of course not! You don't risk what is important to you with someone who doesn't have the knowledge to help you… period!
There is plenty of misinformation about owning property in Mexico, and a little information can be dangerous (do you have a know-it-all in-law?). Please use this guide as a basic primer for general information purposes only, and get professional representation before you buy real estate in Mexico. If you are considering a pre-construction project, I stress this point even more — there are very few legal protections with that type of investment… no matter what the nice salesman tells you!
And one more thing: never, ever buy ejido (communal) land that hasn't been fully regularized and titled — no matter how good the price looks. There is no fideicomiso, no title insurance, and no Notario that can protect you on land the seller doesn't privately own.
How Foreigners Own Mexico Real Estate
The Mexican constitution states that foreigners may not directly own land in the “restricted zone.” Although that sounds scary, the restricted zone is simply all land within 100 km (about 60 miles) of the borders, all land within 50 km (about 30 miles) of the coastline, and the entire Baja peninsula. All other Mexican land may be owned outright (fee simple) by foreigners. To avoid having to change the constitution (a bad proposition for any politician) while still allowing secure foreign investment, the Mexican government created a land trust system called the fideicomiso (pronounced “fee-day-ee-co-me-so”).
The fideicomiso is created through a Mexican financial institution (bank), and the bank holds the deed to the property… in trust. You, and/or other persons you specify, are the sole beneficiaries of the trust — and therefore of the property. You have full rights to do whatever you like with it: develop it (within the law), rent it, lease it, sell it, or give it away. In other words, fee simple ownership in all but name. The great news is that the property is not an asset of the bank. If the bank fails, the trust is simply transferred to another financial institution. The trust is established for a 50-year term and is renewable indefinitely — and when you sell, it can be transferred to or replaced by the new owner's trust. One more route worth knowing about: property held for commercial or rental purposes can also be owned through a Mexican corporation — I cover that in my restricted-zone FAQ.
The Process
Find Your Agent — A good rule of thumb: make sure your agent has at least 1–2 years of experience practicing real estate in Mexico, a minimum of 10 completed transactions, CONOCER certification (the standards-based competency certification issued by the Mexican government), and membership in A.M.P.I., Mexico's professional real estate association — ASK FOR THE PROOF!
When I first wrote this guide, you did not need a license to sell real estate anywhere in Mexico. If that sentence doesn't concern you, read it again. It is finally starting to change — Jalisco now requires real estate agents to be registered and licensed with the state, and other states are following — but enforcement is still uneven, so vetting your agent remains YOUR job.
Financing — If you need it… get it now! Nothing is worse than finding the perfect Mexican property and losing it to someone who had their ducks in a row before you. Most sellers in Mexico will not accept “subject to financing” in an agreement. Your agent should be able to connect you with lenders. An ethical agent will also disclose whether they receive a commission for that referral. Ask the question, so you know who your agent is really working for. Fair warning: the majority of purchases in this market are still cash. Financing options for foreigners exist, but they are fewer and more expensive than back home.
Find the Property — If you are in a market that has an MLS, use it. By now, your agent should have asked you a million questions to make sure the properties they show you actually meet your criteria. If you feel your agent is not listening to you… find a new one — quick! Don't be surprised if you ask for a three-bedroom condo with a pool near the beach and they come back with a one-bedroom house on a mountain with no running water (okay, that may be an extreme example, but it's pretty darn close).
Get an Inspection — Inspections are not the standard practice in Mexico that they are up north — get one anyway. A few hundred dollars here beats discovering the plumbing story after closing.
The Sales Agreement — You found the place of your dreams… now, to avoid the nightmares. The agent will put together the sales agreement and — if they are a true professional — have it checked by a licensed Mexican real estate attorney. Your agent's fiduciary (first) responsibility is to protect you and your rights (whether your agent knows that will depend on how well you interviewed them). One more thing: make sure you are working with an agent who knows the property's true market value and can negotiate. Just because something seems like a good value doesn't mean that's what it's worth. It's only money… but it's your money, right?
After the Sales Agreement Is Accepted — Your agent should give you an estimate of closing expenses based on the actual accepted purchase price. Closing expenses generally run 5–9 percent of the purchase price (more if financing is involved). Some expenses are fixed and some are percentages of the price; the fixed costs are the same whether the property is $150K USD or $950K USD, which is the reason for the spread — generally, the more expensive the property, the lower the percentage. These costs cover setting up the trust, the first year's trust fee, permits, the property acquisition tax, legal expenses, and more. None of it goes to the agent or the seller — only to the Notario's office (more on him later) and the government.
The lawyer or the Notario (they can be different individuals) will ask for a deposit to start the closing process — usually 25%–50% of the estimated closing costs, and completely legitimate. You will also be asked for copies of your identification (passport, driver's license, and proof of residence — a current phone or electric bill). A quick side note: if the seller or agent asks you to declare a lower price for the property than was agreed… run away! No really… run away!
Set Up an Escrow Account — Your agent should ALWAYS recommend an escrow account for the purchase. It runs in the $850 USD range, and it is the safest way to buy Mexico real estate — probably the best money you will ever spend. Your agent will set up the account for you. Americans know escrow well, but it is mostly unknown to Canadians. In a nutshell: the deposit and the remaining purchase amount are held in a U.S. escrow account, and the money is only disbursed when the buyer, the seller, and the Notario agree that all conditions have been met and there is a legal sale at closing. If a seller or an agent (yours or theirs) asks you to hand them any part of the purchase money to hold in their “trust account”… run away! When I first wrote this guide there was no way to set up an escrow account with a Mexican bank; happily, that has been changing.
Title Insurance — Depending on the circumstances of the sale or the property, title insurance may be a good idea. Rates run around $5–$6 USD per $1,000 of the property's value. Talk to your agent about whether it makes sense for your purchase.
Until the closing, there is not much else to do. The Notario or attorney will ask you to complete a beneficiary statement called a KYC (“know your client”). This defines ownership on the trust. There are primary beneficiaries (generally the buyer and/or a spouse or partner) and substitute beneficiaries (generally, the heirs). The substitute beneficiaries have no ownership rights unless the primary beneficiary dies.
The great thing about the trust: upon the death of the primary beneficiary, ownership transfers immediately to the substitute beneficiaries with no estate taxes or probate. There is, however, a process to finalize it — certification of the death certificate by a Mexican government representative and some work by the Notario, with fees due. This is one of those things best handled by an attorney.
Back to the Closing — Decide whether you will be in Mexico for the closing; if not, a power of attorney may be needed so someone can sign on your behalf. Closings generally take 30–90 days on a cash sale and 90–180 with financing. The fastest closing I have seen with a foreign buyer is about 28 days.
At the Closing — All parties are represented. You will again be asked for identification: bring your passport and, if you are in Mexico for the closing, the visa or entry permit that legally allows you to be in the country. Buyer and seller verify that all the information is correct and sign where they must. The Notario signs off, and the property transfers to the buyer once the Notario verifies the funds have been wired to the seller (usually from escrow).
Congratulations — you now have the pleasure of owning a Mexican home. Have a margarita and count your lucky stars that you worked with a competent Mexico real estate professional.
After the Sale — What Now?
For those of you who want to know as much as possible, a little epilogue. There are some things you will be responsible for after the sale.
Bank Trust Fees — Paid yearly, these run roughly $350–$650 USD per year depending on the bank. For the most part there is little difference between institutions other than price, and your first year is covered in the closing costs. What do you get for it? Not much! Over the years there has been occasional talk in the Mexican congress of doing away with the trusts for foreigners. It has never gone anywhere — it would take a change to the Mexican constitution, and that is not a likely scenario.
Property Taxes — Nearly free in Mexico, but still worth mentioning. They currently run about 0.1–0.2% of the assessed value per year — that's roughly $100–$200 USD per $100,000 of value. This will undoubtedly creep up someday, but it should stay reasonable (to foreigners, anyway). If taxes were raised too much, an angry electorate would pass judgment on the offending politicians. Tip: pay your predial early in the year — most municipalities give a healthy discount for paying in January or February.
Property Insurance — Concrete doesn't catch fire easily, so many folks here skip it — but we live in hurricane and earthquake country, so it is worth a serious look. Coverage is affordable, and there are many reputable insurance companies in Mexico.
Name Change on Utilities — A few days after the closing, the Notario will issue a letter stating that you own the property. With that letter you can change the electricity (CFE) account into your name. The water account is a different story: these days the water utility requires the physical deed (escritura) to change the account — and the physical deed can take six months to a year to be issued after closing. Plan for that gap; the account simply stays in the previous owner's name until your deed arrives, so keep paying the bills on time.
One extra note about the water contract: there have been more than a few instances where the original escritura doesn't reference the house number of the home being sold — there's a lot number in the description, but nothing tying the two together. This is a HUGE pain to resolve after the closing and is best resolved before. Your agent may not even be aware of this issue, so ask.
Utilities — You have to pay them in Mexico too — the good news is you won't freeze to death if the power is cut off in winter. Most utilities cost the same or less than in the U.S. and Canada, and if you keep your electricity use below a certain threshold, the Mexican government will even subsidize your bill! CFE is Mexico's national electricity company.
A Little More About the Notario — The Notario is the ONLY entity in Mexico that can transfer title to real estate. The Public Notario is not like a notary public in the U.S. or Canada. To qualify, a Notario must hold a Mexican law degree, be at least 35 years old, have at least three years' experience in a public notary office, pass a stringent exam, and be appointed — for life — by the state governor. The Notario's fiduciary responsibility is to the federal government (one of the little secrets you need to understand, and the main reason you need professional representation in a Mexican real estate transaction). He will verify that a contract is legal, but he is under no obligation to counsel you on the wisdom or terms of that contract.
Have a question about buying in Mexico? Email me directly at john@mexicolife.com — or start searching the MLS right now at Mexico Life Realty for properties across Puerto Vallarta and the Riviera Nayarit.
Photography of Puerto Vallarta & the Riviera Nayarit via Wikimedia Commons, used under Creative Commons licenses: aerial coastline & bay by Luisalvaz and Miguel Naranjo (CC BY-SA 4.0); infinity pool & Río Cuale by Another Believer (CC BY-SA 4.0 / 3.0); Punta Mita beach by Lynx Burgos (CC BY-SA 3.0); beach stroll by Peon In Politics (CC BY-SA 4.0); Banderas Bay sunset by Another Believer (CC BY-SA 3.0); Nuevo Vallarta sunset by Netzaa (CC BY-SA 4.0).
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