“Is it safe to buy property in Mexico?” is a question we are often asked. Some people think that buying real estate in Mexico can be very risky. While we do not agree, we understand where they come from. We are therefore devoting this article on the topic of investment safety. In it, we look at risks that are often associated with investing in Mexico, whether real or perceived. We left preconceived ideas at the door and tried to be as objective as possible.
The Security Situation in Mexico
Sadly, Mexico has been the victim of drug-related violence for years and this certainly has deterred certain people from buying property there. This is unfortunate as Mexico is, in our opinion, one of the best countries in the world to invest in real estate. In this article, we detail why we think that is the case.
In spite of the violence, an increasing number of folks from around the world vacation, retire or move to Mexico temporarily or permanently and buy properties in Mexico. Why is that? Because the violence, often sensationalized by the media, is largely related to drug cartels and not directed at vacationers or their properties.
As long as tourists continue to flood the country and foreigners continue to rent and buy property there, there is no reason to think that your property might lose value or its ability to generate rental income. Also, drug cartels have no interest whatsoever in targeting foreign visitors or their assets as it would be harmful to their activities.
It is noteworthy that the murder rate in Cancun is lower that of New York City or Los Angeles. Will you refrain from visiting or investing in either of those cities because of their high crime rate? You’ll probably just avoid some areas. It is the same in Mexico.
The Mexican government is also taking measures to prevent trouble because of the strategic importance of the tourism industry. On top of the federal, state and city police, they have created the tourist police in some of the tourism hotspots. It will be called in the not-so-frequent situations in which a foreign tourist is involved.
You might have read or heard of stories of people having had their property expropriated in Mexico. This is rare and could have been prevented. It results from the purchase of a property without a clean property title. To avoid this situation, proper due diligence will go a long way. Also, during the purchasing process, the public notary should make sure that the property has a clean title. In addition, you can drastically diminish the risk of missing any issue with the title by purchasing title insurance. The title insurance company will dig even deeper to make sure that the title is clean and that, if any problems arise with the title, you are insured. If you want to know more about the transaction process and how getting title insurance fits in, check our article about the 7 steps to own a property in Mexico.
For true cases of expropriation, history tells us that we have to look at countries like Venezuela or Cuba, not Mexico. Generally, it is never in the interest of governments to expropriate. They need to continuously attract foreign investors, tourists and retirees, and news about government expropriation of foreign-owned real estate is not the sort of publicity they want or can afford. This is especially true for Mexico, whose economy is heavily dependent on foreign investment and tourism.
As mentioned in our article on the topic, pre-construction properties are oftentimes the best real estate deals to be had in Mexico. However, these deals come with specific risks, which unsuspecting or uninformed buyers tend to overlook when looking at the project’s glossy-looking marketing material.
There are two main risks pertaining to these kinds of properties. The first risk is that the developer is dishonest and disappears with your money. Therefore, you would need to find out whether the developer is trustworthy.
The second risk is developer-related too. Developers usually use the money from pre-sold units to start the construction as soon as they sell their first units. This is a problem because, if they cannot sell enough units later on, they will have to halt construction when they run out of money, their project is going to go bust and the buyers will lose their money.
Another version of this risk arises when the developer uses the money from his first buyers for anything other than construction like personal expenses for example. As a result, he might not have enough money to complete the project if future sales are lower than he forecasted.
Investing in pre-construction properties can be very risky if done wrong. It is not very risky if done right. The key here is to deal with honest and trustworthy developers and make sure they have enough pre-sales when they start building. Of course, you have no control about when they start building but you can decide to buy in a project only if the majority of the units are already sold. We have made exceptions to that rule only when we personally knew the developer.
The Additional Risks of Investing Overseas
Buying real estate in Mexico can actually carry additional market, currency and political risks compared to buying in your own country, depending on which country you live in. Yet, even if that is the case, the overall risk of your entire portfolio might actually decrease because of the benefits of diversification. Many Americans found out in 2008 that having all their properties in their home country was a very bad idea. It is also important to note that more risk does not mean too risky and that, generally speaking, the higher the risk, the higher the return.
Conclusion: Is it Safe to Buy Property in Mexico?
The key when buying a property in Mexico is to manage risk appropriately, which can be done with proper knowledge, education, trustworthy local contacts and market information.
Also, let us keep in mind that, at a portfolio level, buying property in Mexico can be a wise way to decrease overall risk through increasing asset and geographic diversification.
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.