If you’re thinking about a real estate investment in Mexico, I know there can be a steep learning curve and am writing this to offer some general information and guidance.
Here are some of my common responses to frequently Asked Questions Regarding San Pancho and Purchasing Property in Mexico:
How do foreigners (e.g. Americans and Canadians) purchase land/property in Mexico?
Americans, Canadians and other foreigners may obtain direct ownership of property in the interior of Mexico. However, under Mexican law, foreigners cannot own property outright within the restricted zone (near the coast and borders). Instead, a real estate trust must be set up to hold title for the foreigner. Since foreigners are not able to enter into contracts to buy real estate in the restricted zone, they must have a bank hold title on their behalf, similar to how a trust is used to hold property for minors because they also cannot enter into legal contracts. The following is a brief outline of the law regarding such trusts, known as “fideicomisos”, but potential buyers should always get advice from a certified AMPI broker or have all real estate transactions viewed by a licensed Mexican attorney, which we provide for all transactions we facilitate.
Normally, there are three to four players involved in any real estate transaction in the restricted zone which is defined as the territory comprising 50 kilometers from the Mexican coasts and 100 kilometers from the Mexican borders:
• A real estate company
• An escrow company
• A Mexican bank
• A public notary
There is a common misconception among foreigners investing in Mexico that once the trust expires, the beneficiary loses all rights and benefits over 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 or lease 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.
Has the cost of real estate in San Pancho and surrounding areas gone up over the past year? 2 years? If so, by what percentage? If not, how much has it gone down?
The exchange rate reached 20 pesos to every U.S. dollar in 2016 and has remained close to that number ever since, prompting a wave of new interest in Mexican real estate among international buyers, especially Americans and Canadians. The reason is simple: Every U.S. dollar goes further than ever, buying around 43% more pesos than it did only two years earlier. Although prices in Mexico have risen a bit in response, there is still an enormous increase in the purchasing power of expats, and that includes buying real estate in some of the world’s most popular vacation destinations.
Mexico has always offered good-value real estate. Even million-dollar beachfront properties in Mexico would likely cost two to three times more in Southern California or in Victoria, British Columbia.
Although many properties listed in Mexico are already either priced in dollars or have been pegged to the U.S. dollar since the peso started to slide, real estate prices here are still highly competitive and making money in Mexico is easier than ever before, especially if you invest in a property that provides an almost guaranteed rental income. Also, maintenance costs in Mexico, such as utilities, property taxes and other expenses are much more affordable than you will find in the U.S., Canada and much of Europe.
What would you say are the pros and cons of buying and building versus buying an existing property?
Advantages of building:
1. A good investment
Like anything else, if you buy low and sell high, it’s a good investment. Land values remained steady, but it’s still possible to find bargains and build your own dream house. You’ll go through the challenges of the building process, but you’ll likely have a home, which will be worth more than you paid. The construction process is very different in Mexico; but there are good contractors and good architects to help you.
2. You get exactly what you want
This is obvious. Go on tours of homes and understand what you want. Depending on your skill and background in building homes, you can design it yourself or hire competent professionals to assist you.
Disadvantages of building:
Mexico may have a different culture than you are used to and things may not always happen on schedule. It may take longer than anticipated. Be prepared for delays in getting materials and labor. Patience and determination are very important if you decide to build.
It is very important to use recommended and trusted contractors to avoid common pitfalls of building. It is important to get good references for a contractor. We can help you with this process as we’ve been in the area for a long time and worked with many different contractors.
What else do you think is important for us as Americans & Canadians to know about purchasing a property in Mexico?
I think it is really important to have defined goals for your purchase.
Are you buying to live in the home year round or part time? If you are buying to live here part time, which part of the year? The climate is very different here in the winter than in the summer.
Do you plan to rent your home? If so, is your goal to rent it in order to offset expenses or do you need to turn a profit?
Our rental season in San Pancho is very strong in the winter and weaker in the summer although summer rentals are strengthening every year.
If you plan to occupy your rental property for part of the year it is important to understand how the dates you select will impact your rental income so you can set your expectations correctly.
Real Estate Logistics in Mexico
Role of the Real Estate Agency:
• Providing guidance and assistance to sellers and buyers in marketing and purchasing property for the right price, under the best terms.
• Determining clients’ needs and financial abilities and proposing solutions that suit them.
• To provide an educated team of honest professionals with clear communication.
• To provide a smooth and hassle free Listing/Sale Service.
Role of the Notaria Publica:
• The Notaria Publica is a government appointed law firm. They are solely licensed to carry out the purchase and sale of Real Estate property in Mexico.
• They process and certify all real estate transactions and write and review all real estate closing documents, thus ensuring the transfer of title.
• The Notaria Publica will request a certificate from the public registry to ensure the property is free and clear of any debt or lien, after a complete property search.
• They will communicate and coordinate with the banks involved to extinguish the existing trust, if applicable and also to initiate a new trust for the buyer.
• They require a statement from the Municipality regarding water bills, and other taxes that might be due and ensure they are paid and up to date.
• They coordinate with the chosen bank to obtain a permit from the Mexican Ministry of Foreign Affairs to acquire the property in trust.
• They coordinate an appraisal of the property, required by law, for tax purposes.
Capital Gains tax (Seller)
The gain from the sale of the property is taxed at a rate of up to 35%. In order to determine the gain, the following costs and expenses are deducted from the amount for which the property is officially sold:
• The original land cost and the depreciated construction cost, based on the number of years the property was held and adjusted for inflation according to the official consumer price indexes.
• Additions, remodeling and improvements, made on the property.
• Commissions paid to real estate brokers by the seller.
• The closing costs, including all expenses, taxes and fees paid by the seller. The Notario will retain the calculated gain after deductions forwarding it to the Mexican tax authorities. The seller can deduct this amount against his/her annual tax return, which becomes an adjustable tax credit in the U.S.
• If the property is held under a Persona Moral, (limited liability company, Mexican corporation, etc.) then the capital gain is calculated by that entity’s chosen accountant.
Closing costs (Buyer)
• It is common practice that the buyer pays the transfer or acquisition tax as well as all other closing costs including the Notario fees and expenses.
• The seller, pays the capital gains tax and the broker’s commission (which is deducted from the capitol gains tax.)
• The Real Estate transfer tax in the state of Nayarit is 2%. (Paid by the buyer)
• The entire closing cost a buyer must be ready to pay is roughly 4-5% of the sale price.
• Some costs are fixed like the permit from the Mexican Ministry of Foreign Affairs so the percentage can be less for higher value operations and more for lower value operations.
General information real estate considerations in the area:
Real Estate markets in Lo de Marcos, San Pancho, Sayulita, Litibu Punta Mita and Bucerias afford great opportunities and desirable amenities compared to other markets and, with more and more people discovering this area, many experts believe the long-term investment prospects will remain attractive for a long time to come.
The culture and services here are very welcoming of foreigners. While Spanish remains the primary language, it is also true that more and more people speak English, enabling Americans and Canadians to have a comfortable experience even if they are still learning Spanish. All in all, the area feels very accessible (just 45 minutes from the Puerto Vallarta international airport and in general the people are very welcoming and friendly.
There are approximately 90 million people in the United States between 50 and 70 years old. This segment of the population is prone to seek vacation homes, retirement locations and real estate investments. The demographics in Mexico also support continued strength in the area’s real estate market with more upward mobility and a stronger middle class in Mexico than ever before.
The Bahia de Banderas’ warm climate is attractive to many from the northern latitudes, including the United States, Canada and Europe. For decades many people have enjoyed vacationing here. “Purchasing” property can be the natural next step.
Over 1 million Americans now live full time in Mexico. Along with residents who have moved from other countries, this large population shows the safety and viability of life in Mexico. The actual number of expats is probably underestimated. Even more foreigners, especially from the US and Canada live in Mexico seasonally for the winter months and are generally not counted since they come and go on tourist visas. The Bay of Banderas which begins South of Puerto Vallarta and encompasses Punta Mita to the north, is the number one destination for North American expats in the world! Litibu, Sayulita, San Pancho and Lo de Marcos have naturally become part of this strengthening trend.
There is a wide array of interesting and fun things to do here. From horseback riding, polo matches, weekend soccer games, scuba, fishing, incredible cuisine and pristine beaches, there is something for everybody. In addition we are ideally located to provide easy access to local golf courses, tour activities and cultural events in nearby Puerto Vallarta.
We hope this information helps you make an educated decision and we very much look forward to assisting you with this exciting adventure if you decide to embark on it!
About the author, Nathaniel Rodriguez:
My family is based in San Pancho full time and we have been involved in the local real estate market since 2005. I am a dual citizen of Mexico and the USA and am fluent in both languages and cultures, having grown up between the two countries.
As a co-broker team with my wife Allison our, certifications and accomplishments include, CCIM designee (Certified Commercial Investment Member), California Bureau of Real Estate licensee, UCSB Graduate in Business Economics and AMPI associate (Mexican association of real estate professionals).
I am very grateful for the support my family has received in this town and strive to practice real estate here in a conscientious manner that takes into consideration the impacts of development on our community and it’s resources.