Buying a dream vacation home or investing in a short term rental close to the beach in Mexico sounds appealing for many reasons. Owning a property in Mexico is affordable and can be extremely profitable if you buy the right kind of property. We are often asked the question “can foreigners own property in Mexico?”. In spite of many rumours to the contrary, the answer is a definite YES! There are some things to consider and be aware of though.
The Restricted Zone
Since 1917, the Article 27 of the Mexican Constitution defines the area within 50 kilometers (31 miles) of the coastlines and within 100 kilometers (62 miles) of Mexico’s borders as off-limits to direct real estate ownership by foreigners. It was enacted in order to limit the risk that Mexico would be invaded by foreigners.
This includes the areas where foreigners have been wanting to own property in Mexico (by and close to the beach). Therefore, the restriction was stifling foreign investment in the country. As a result, the Mexican government created a new type of trust in 1973 called a Fideicomiso, to sidestep these requirements and attract more foreign investment.
Fideicomiso (Bank Trust)
A “Fideicomiso” is a Mexican bank trust. It is a three-party contract by means of which the seller (settlor/fideicomitente) irrevocably transfers to a bank (trustee/fiduciario) the property title so that a third party (beneficiary/fideicomiso) can use and enjoy such property as the legitimate owner. The transfer of the real property from the seller to the bank is a definite and irrevocable transfer of title.
The Mexican Government issues a permit to a Mexican Bank of your choice to act as a purchaser and owner of the property. The bank acts as the “trustee” for the trust and you, as the foreign buyer, are the “beneficiary” of the trust. A trustee takes instructions only from the beneficiary of the trust.
The beneficiary has the right to use, occupy and possess the property, including the right to build on it or otherwise improve it. The beneficiary may also sell the rights and instruct the trustee to transfer the title to a qualified owner. For all intents and purposes, the beneficiary is the owner and has all the rights and obligations of the owner. The bank has no rights or obligations related to the property.
The Fideicomiso is actually even better than owning the property in your own name from an asset protection point of view since your creditors will not find your name in the property registry. Nobody can put a lien on your lot, simply because it is not in your name, so your potential legal or economic issues will not affect your ownership of the property.
Another benefit is that it works like a will. In the deed, you designate beneficiaries who inherit the trust upon your death by presenting a death certificate and a simple letter.
The initial term of the trust is 50 years. The trust can be renewed for an additional period of 50 years within the last year of each 50-year period, and this process can be continued indefinitely, providing for long term ownership of the asset. This is therefore not a lease.
Once established, certain life events may require updating the fideicomiso, whether it is due to the end of a relationship, entering a new one, or the death of a benefactor. It is obviously possible to update. Processes exist to remove one party or change the benefactor from the fideicomiso.
There are two costs associated with the fideicomiso and their amount may vary by bank:
- The setup fee is a one time fee to create the fideicomiso and will cost you between USD 2,000 and 3,000. It covers the government fideicomiso permit fee, bank setup fee and the first annual maintenance fee.
- The maintenance fee is a yearly fee paid to the bank to maintain the trust. It is approximately USD 500 and 600 per year.
As an alternative to using a fideicomiso, a foreigner can use a Mexican corporation (SRL) to acquire property in Mexico. Corporations come with many more restrictions and reporting requirements than fideicomisos. A certified accountant is a must-have to take care of the accounting requirements and a Mexican corporation is expected to report monthly tax reports on all income and expenses. Therefore, owning a property through a Mexican corporation comes with higher maintenance costs. As a result, buying through a corporation makes sense if you buy multiple properties in Mexico, like for investment or business purposes.
Ejido Land and Expropriation
An Ejido or “propriedad comunal” is an area of communal land mainly used for agriculture, on which community members farm designated plots and collectively maintain communal holdings. While this was the original intention and was once an accurate description of Ejido activity, today many Ejido properties are abandoned, with no farming activity taking place. You can find Ejido lands for sale. While their price will be very appealing, it comes with high risks as by law foreigners are not allowed to be owners.
You might have read or heard of some people having their property expropriated in Mexico. Though scary, this isn’t a case of government-led expropriation. It results from purchasing a property without a clean property title (Ejido for instance) which most often happens from trying to cut corners and not appropriately doing proper due diligence.
For true cases of expropriation, history tells us that, unless you invest in a country like Venezuela or Cuba, it is very unlikely to occur. Normally, it’s never in the interest of governments to expropriate. They need to continue attracting foreign investors, tourists and retirees, and news about government expropriation of foreign-owned real estates isn’t the sort of publicity they want.
So Can Foreigners own Property in Mexico?
Foreigners can definitely own property in Mexico. If it is in the restricted zone, establishing a fideicomiso is the easiest and most common route. Owning real estate through a Mexican corporation is also an option but comes with more maintenance and costs associated.
Beware of Ejido land and make sure you buy properties with a clean title. The key here is managing the risks through thorough proper research, due diligence, education and trustworthy local contacts.
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.