Buying your dream vacation home or investing in a short-term rental close to the beach in Mexico sounds attractive for many reasons. People often do not take action as they think buying a property in Mexico is complicated or even that they are not allowed to own real estate in Mexico. This couldn’t be further from the truth.
Foreigners are allowed to own property in Mexico. Acquiring a property in Mexico is not that complicated. That being said, like in every country, you need to know the process and work with people you can trust. This article should come in handy.
Who is Involved in the Transaction?
There are several parties involved in a real estate transaction in Mexico.
- You (the buyer)
- Your attorney: must be familiar with the local real estate laws so hiring someone local is recommended.
- Real estate agents (optional): the buyer and/or the seller could be represented by a real estate agent. Make sure the real estate agent does not represent both parties, as this could lead to conflicts of interest.
- The seller
- The seller’s attorney
- The escrow service
- The Public Notary: an experienced lawyer appointed by the state government who is allowed to register the deed to the land registry office
Step 1: Find an Agent (optional)
While having a real estate agent is optional, it is in your best interest to have a trustworthy and reputable ally to purchase a property in Mexico. Beware that their interest is for you to buy the most expensive property possible to get a commission as high as possible and they could take advantage of your lack of knowledge of the market. Because most foreigners make a one-off purchase in Mexico and are based overseas, agents are not motivated to do the right thing to develop a relationship or to safeguard their reputation. In this context, the best way to find a good agent is to get recommendations and interview them. This can be done remotely through phone calls or videoconferences.
Step 2: Visit Properties
Once you have selected a list of properties that you like, the next step is to go visit them. If you live outside of the area, you might want to arrange a trip and condensed as many visits as possible during this trip. As a result of the Covid pandemic, more people than ever buy properties sight unseen or after just a virtual visit. We would advise against this unless it is your only option and/or you are comfortable with the risks you are taking.
Putting boots on the ground is not just about viewing properties. It is also about seeing what is happening in the market, talking to people on the ground and meeting the people who will help you acquire and manage the property.
Step 3: Offer to Purchase
Once you have found the right property, the next step is to make an offer and start negotiations. The offer to purchase document must include the name of the purchaser, the property details, the purchase price offered and the general conditions that the buyer is offering to the seller.
Step 4: Promissory Contract
Once the offer is accepted, a promissory contract (contrato de promesa) will be drafted by your attorney. It will contain the terms and conditions of the purchase and bind both buyer and seller into a timeframe to execute the purchase agreement.
As part of that agreement, you will be required to put a certain amount (~10% of the purchase price) aside as earnest money. Make sure to read and understand the refund terms in case the deal falls through and that the money is held in escrow by a third party. Your attorney will most likely have a process in place to recommend.
Step 5: Due diligence
This is when the due diligence period starts. In the case of a resale, make sure you have copies of the paid water, electricity, telephone, homeowner’s association, cable and other utility bills from the seller. As unpaid bills remain attached to an address, you will need to make sure everything has been paid by the seller or they will become your responsibility. This applies to unpaid mortgages as well so make sure that any outstanding mortgage debt has been paid off by the seller.
If you buy pre-construction, make sure that you know who the developer is and that he is honest and trustworthy. Also, make sure he has access to enough money to fund the project. If he already has the construction permit, make sure that you get a copy of it. You can purchase prior to the developer getting his permit provided that all the money you pay him is refundable and in escrow until the permit has been granted. You would do that so that you can purchase as early as possible along the project’s timeline and get the best possible price.
Form Your Legal Entity
If you are a foreigner purchasing in the restricted zone which covers all land located within 100 kilometers (62 miles) of any national borders and within 50 kilometers (31 miles) of any coastline, you need to acquire the property under a Mexican bank trust (fideicomiso) or a Mexican Corporation (SRL). Fill out the application for the trust permit as early as possible as the application takes three to four weeks to be issued once all required documents are received. Likewise, make sure that your SRL is formed on time if you decide to go that route.
If you acquire a property outside of the restricted zone, you need to obtain a permit from the Secretary of Foreign Relations (SRE) and the transfer will be made directly into a fee simple deed.
If you want to learn more about the different ways foreigners can own property in Mexico, check out this article.
Public Notary’s Responsibilities
The notary will verify the property’s title by checking the title deed and also documents such as the lien certificate. This document will show the name of the owner of record and the details of the property (lay of the land, if it is commercial or residential). He will also request a non-lien certificate from the local tax authority to make sure that no taxes are due or unpaid. He will also ensure that no property related bills such as water or electricity are outstanding.
Title Insurance
The public notary will investigate the title to make sure it is free from encumbrances and that taxes have been paid. If you want additional safety, you can get title insurance for your property. A title insurance company will dig deep to ensure that there are no issues with the title.
We strongly advise you to not buy the property if the title is not clear.
Step 6: Closing
The purchase agreement (contrato de compraventa) is going to be drafted in Spanish by your attorney. You usually will get an English translation. The legally binding version of the contract is the Spanish one so make sure to have someone you trust check the Spanish version for you if you do not understand it.
Once the attorney, notary and eventually the title insurer confirm that the property’s title is clear and the purchase agreement is ready to sign, you will meet with the notary, the seller and your attorney for the closing.
At this point, you should have also created your fideicomiso (Mexican trust) or the Mexican corporation that will own the property.
Once the purchase is signed by both parties, you will get the deed (escritura).
You need to bring a check for the remainder of the payment. If you had the funds transferred into the escrow account prior to the meeting, have the escrow agent release the fund once the deed is in your possession.
The buyer and the seller pay their own legal fees but the buyer pays 100% of the closing costs, which generally amount to between 5% and 11% of the purchase price.
Closing costs – Breakdown
The buyer is responsible for the following items:
- Property acquisition tax: 2% of the purchase price
- Added Value Tax
- Public registry rights
- Appraisal by authorized valuator
- No liens certificate
- Notary’s fees and legal expenses
- Attorney’s legal expenses
- Bank Trust fees
- Notice for Mexico’s Foreign Affairs Department
- Escrow fee (if applicable)
The Seller is responsible for the following items:
- Capital gains tax
- Tax property certificate
- Any unpaid utilities
- Property taxes
- Sales commissions
Step 7: The Notary Registers Your Ownership
The transaction will be completely finalized when the notary will register the deed with the land registry office. While it is typically within three months from closing, it is a good idea to follow up with the notary to make sure it has been done.
Conclusion
As you can see, the buying process of a property in Mexico is pretty straightforward. There are three main documents to get through a real estate transaction that you will sign in the following order: the offer to purchase, the promissory contract and the title deed.
Having trusted advisors will make it even simpler. So do not hesitate and take action now! Start by finding the ideal location for your first Mexican property (Link to Article #10). It could become yours much quicker and easier than you initially thought.
If you want more information on this topic or any other topic pertaining to buying or investing in real estate in Mexico, reach out to us through the contact form.
