Mexican Real Estate- Introduction
Mexico is a very diverse, culturally rich country with amazing beaches, mountains and deserts. Mexico is home to one of the world’s largest cities, Mexico City. A neighboring country of the United States, Mexico offers great potential for low prices and potential profits and beaches to relax on.

Mexican Real Estate- Restrictions on Foreign Ownership
As a foreign buyer, you are technically not allowed to purchase property within 50 kilometers of the high tide line, or within 100 kilometers or 62 miles of an international border.

Foreigners may not own ejido land. This land is similar to Indian land in the Untied States. Ejido land is granted for use by members of local ejidals by the Mexican government. This type of land can be converted into private property but the process is long and complicated. It is recommended that as a foreign buyer of real estate in Mexico, you do not even consider ejido land, and the title of any land purchased is investigated to ensure the property has never been ejido land. It is not worth the risks that may arise in the future.

Mexican Real Estate- Ownership Options
There are three ways as a foreigner to own property in Mexico:

1- Fideicomis
In order to own desirable property in the tourist, industrial zones alone the coast, purchasing such properties is possible through a Mexican bank trust. The ‘restricted zone’ is property that lies within 50 kilometers of the high tide line or 100 kilometers of an international border. In 1973, from all the interest in these ‘restricted’ areas, an amendment was made that allows foreigners to buy these properties through a Mexican bank trust, fideicomiso.

The bank acts as trustee in a fideicomiso, and the foreign buyer is the beneficiary of the trust. The fideicomiso trustee must be a regulated banking institution that has been authorized and regulated under Mexican banking laws. The same rights of full use and economic benefit that a Mexican national has, the foreign buyer or beneficiary will have as well with equity ownership of the real estate would have; you may live on the property, rent it out or make necessary improvements. You may sell the rights, allowing the bank to transfer the title to different qualified owner.

The fideicomiso has an initial term of 50 years, and may be renewed for another 50 years by application in the last year of the 50-year period. This can be repeated indefinitely providing long-term control of the asset.

Property outside the restricted zone can be owned by use of a bank-deed structure. In the colonial cities many people own their property through bank trusts.

There are several advantages of owning property through a trust deed:
1. More than one person may be listed as a beneficiary, which means that a husband and wife can be ‘co-owners’. If one partner should die, the other has immediate 100% control over the property with this structure.

2. A ‘heir” can be listed, meaning that if both co-owners die, a new beneficiary is already in place. The beneficiary does not need to be related to the original co-owners. A letter of instruction can be written to the bank naming the heir. When the bank is presented with the death certificate the bank will immediately and seamlessly pass the title to the heir without him or her having to physically in Mexico.

Not only does this allow you to avoid inheritance taxes, it allows the simple and easy transfer of control over the property and avoids the drama of figuring out ownership in the Mexican courts.

The bank holding your trust my not send you notice of when your annual payment is due, and it may be up to you to send in the payment. It is important to find out if the bank sends out statements, if the trust fees are not paid on time you will be charged a penalty.

Established by the Mexican government, the trust agreement was made to protect the foreign buyer. By making ownership pass through the trust process, an automatic review of the transaction would take place to ensure it was legal and unencumbered. Ownership, insurance, and indebtedness of the property are checks that the bank is required to do. This provides the foreign owner with further protection.

The fee for opening your trust with the bank is between $400 and $600. Additionally an annual maintenance fee ranging from $400 to $600 must be paid. The right to raise the amount by 10% every five years is held by the banks.

2- A Mexican Corporation
Setting up a Mexican corporation and buying property through this is one way to avoid the annual payments connected with a fideicomiso trustee. You must qualify for this type of purchase; you must intend to use your Mexican property for commercial purposes, non-residential. Some may say that renting out your property is commercial use, and so it is possible to hold a residential piece of property through a Mexican corporation.

There is a clear difference between commercial property and residential property that is rented for income. If you purchase a beachfront home as commercial property, legally you cannot live in it. If you purchase the property through a bank trust as a residential property you can live in it or rent it out for income or do both. If you are not really doing business in Mexico the difference in gain of holding your property in a corporation or trust is not much.

A Mexican corporation must produce profit or show losses through formalized receipts, and you probably will not save money. An accountant will need to file your corporate taxes monthly, and that could become costly, maybe up to $100 or more a month for the services.
At least two shareholders will be needed to form a Mexican corporation, and it is not necessary for them to be Mexican. Setting up a Mexican corporation will cost between $1,500 and $3,000 plus the monthly expenses of having an accountant file your corporate taxes.

One Mexican corporation can own as many pieces of real estate as it wants. For individuals, a separate fideicomiso must be established for each piece of property purchased.

3- Through Direct Deed
Owning property through a direct deed, escrtura publica en dominio directo, is a structure that will work for foreigners wishing to by property outside of the restricted zone, in the colonial cities, but not along the border or coast.

With this structure, a property may be owned outright. The direct deed shows names the current legal owner, and will state the history of ownership for a specific property.

When holding the direct deed to a property you will pay no yearly administrative fee to maintain it as you would with a trust. However there is a one-time fee of around $300 for each foreigner whose name appears on the deed. For married couples make sure both names, yours and your spouses appear on the deed.

Similar to a trust a ‘beneficiary’ can be designated on the deed so the property will automatically transfer to that person in the event of your demise. If this is the case, the beneficiary must be related directly by blood, a parent or child. It is not wise to leave anything to chance and you should have your attorney draw up a will in Spanish, that clearly states to whom your property and possessions should be transferred to in the event of your death. This way your intent and the intended legal ownership of the property will be clearly stated.

Before buying Mexican property talk to your attorney and/ or real estate agent about these options. Many factors will contribute to the kind of structure you use including the location and size of the property and how you plan to use it.

Questions to ask your attorney:
1. What options do I have according to the property’s location?
2. How does each structure affect taxes?
3. How will the different structures affect my estate?
4. How does each structure cost?

For detailed instructions relating to foreign ownership of land in Mexico you may contact the Consulate General of Mexico: 2827 16th St. N. W., Washington D.C. 20009; tel. 202.736.1000, fax 202.797.8458

Mexican Real Estate- Buying Property in Mexico
As a foreigner in Mexico it is legal to buy whatever you desire, a long-term rental apartment, a vacation house on the coast of the Caribbean, a beachfront property to build on, you will be able to find what you desire.

1- Make offer
An offer is usually made by way of an “Offer to Purchase Agreement”, Oferta, or a “Promissary Agreement”, Contrado de Promesa. Your attorney or real estate agent will draw up the needed document. A standard form usually will be provided by your real estate agent. When an off you make is accepted, ask your real estate agent and the notary for an estimate of the closing costs.

2- Put aside 10% as earnest money in “escrow”
A certain amount of the purchase price, usually 10% will be needed to set aside as earnest money, depositos condicionales  in “escrow” with a third party once your offer has been accepted.

It is important to not give your money to the seller. Mexico does not have any official “escrow” accounts. Notarios may seem like a logical, neutral third party to hold the money will not keep it in their bank account's, they will not want the tax liability on the funds.

If working with a real estate agent, the agent will likely have a system set up where they act as the escrow agent. One arrangement may be that the agent holds the deposit in dollars in the United States. When the deal is near closing, the agent will transfer the money to their own Mexican bank at the current exchange rate. This way, the problem of exchange rate can be avoided.

Another option is for the buyer to have a cashier’s check drawn up in the seller’s name and have your notario, broker or a trusted third party take care of the check themselves. The title insurance company you work with may provide escrow services as well.

Please note that in the U.S., escrow agents are licensed and legally responsible to see that the conditions of a contract are met before any money is released. It does not work like this in Mexico. Consider asking the title insurer to keep the escrow account. This way you can ensure that you will get your money back if the deal fails. If the real estate agent is honest, you should not have too much to worry about, if they are not honest and they take your money and run, there is not much you can do.

3- Title insurance inquiry
It is recommended for your protection that you use the services of a title insurance company. A notary will investigate a property’s title to be sure it is free from immediate encumbrances and that the taxes are paid, however that research may not extend back through the entire history of ownership. The title insurance company will do the research to ensure that there are no surprises. Do not buy a property if the title is not clear.

4- Wait while the notary and your title insurer investigates the title, gets appraisal and prepares the closing papers
At this point, you will need to have a “Purchase Sales Agreement”, Contrado de Compraventa drawn up. Normally your attorney will do this, but if you are working with a real estate agent, then his office may be able to take care of this for you. It should be in English for you and Spanish for the authorities in Mexico.

Do not let the seller’s attorney draw this up for you. You want to make sure your interests are not compromised for any reason.

Depending on the structure you have chosen to purchase the property, your attorney can draw up the papers for a direct deed, help you form a Mexican corporation, or create a bank trust. He will get the papers in order to register your purchase with the Ministry of Foreign Affairs.

The title insurer and the notary will verify the property’s title while you wait. In this process they will request a copy of the lien certificate, Certificado de Libertad de Gravamen from the land registry, which will show the name of the owner of record, as well as the deals of the property, including details of the land and its status, commercial or residential etc…

The title insurer will also request a non-lien certificate, Certificado de no Aduendo from the local tax authority. If issued it will show that no taxes are due or reveal unpaid back-taxes. Additionally they will ensure that are no other property-related bills such as water or electricity are outstanding, and they will have the property appraised to establish its assessed value.

Other papers to have- If purchasing a home, make sure you have copies of the paid water, electricity, telephone, homeowner’s association, cable, and other utility bills from the seller. Unpaid bills will become your responsibility, not the prior owner’s because unpaid bills remain attached to an address. If the seller employed a maid or gardener, make sure you have from each a signed letter stating they have received their severance pay and their rights are satisfied.

5- Closing
Once the title of the property is proven good and the “Purchase of Sales Agreement” (Contrado de Compraventa) is ready to be signed, a meeting with the notary, seller and your attorney or broker will take place for the closing.

You will receive the deed, (escritura), and bring a check for the remainder of the payment, or have the funds transferred into the escrow account. Whoever is acting as escrow agent will release them once you are on possession of the deed.

The buyer usually pays the closing costs. In a regular transaction, fees for closing should be between 6% and 7% of the cost of the property and should cover an acquisition tax, property registration fee, fee for the tax certificate, title search fee, property appraisal fee, notary’s fee and an other clerical fees plus a value added tax on anyone whose services were engaged in facilitating the transaction i.e., the appraiser, the notary etc. An estimate of these fees can be provided from the notary and/ or real estate agent when you make the initial offer.

The real estate agent fees should be paid by the seller, somewhere between 6% and 10% of the sale price. If the real estate agent has kept the escrow account, the fee will usually be taken from those funds.

The seller will also pay a capital gains tax. If the seller owns the property through a bank trust or direct deed, and has been living in the residence full-time (in most places four to six months) and can prove it by providing consecutive electric, water, telephone or other bills at the address in their name as well as an FM-3 or FM-2 visa, then the seller is exempt from the capital gains tax. If you are selling make sure you check with your real estate agent or lawyer about the timeframe and bills that qualify for capital gains exemption in your area.

6- Ownership is registered by notario
Although you will have copy of all the paperwork relative to the property, the transaction is not complete until the notario registers your deed with the land registry office. Make sure the notario completes this last crucial step, by following with the notario or real estate agent.

When the deed is in your possession, look for a seal on each page and for a certificate of registration which should be included with the documents. With these papers you can go to the land registry office where they will look at the registration number on the certificate and show you how the transaction has been listed on their books.

7- Mexican will drawn up by your attorney
Mexican property may be transferred to your requested heirs as stated in your U.S. or Canadian will, but this is not the most desirable way to ensure they get it. If other arrangements have been made besides a Mexican will, your heirs will spend a long difficult time dealing with Mexico’s bureaucracy over your estate.

To ensure a proper, timely transfer of your property to your heirs, have your attorney draw up a Mexican will in Spanish that disposes of your Mexican possessions and property. It will simplify things in a good way.

Mexican Real Estate- Transaction Costs
The buyer usually pays transfer taxes and all other closing costs in Mexican real estate transactions, including any notary fees that are usually around 2% of the purchase price. The seller pays capital gains tax and any real estate agents commission. As a responsible buyer, it is highly recommended to set aside 5% to 7% of your budget devoted to cover closing costs.

Mexican Real Estate- Taxes
In many parts of Mexico, it is common to use the “assessed value of the property as the basis for calculating taxes, however, this official assessment can be considerably lower than the market value of the home, often only 30% or 40% of the actual sale price. For example: a $100,000 home may have an official “assessed” value of $40,000.   

Even though you may save considerably on transfer taxes, a value that is under declared may come back to give you hell when it is time to sell. Buyers finding themselves in this situation will usually end up paying capital gains taxes at a significant higher rate than if they had used the transaction value. Make sure to protect yourself by declaring the value on the deed is as close to the full transaction cost as possible.

Transfer tax:  A 2% acquisition tax is payable by the buyer when the property changes hands.

Inheritance/ Gift tax: Although Mexico does not impose as estate or inheritance tax, there is a tax on certain gifts involving real estate payable by the recipient. Gifts of real estate between spouses and direct family members are not taxable.

Property tax: Property tax in Mexico is called predial. The cost of the predial is quite reasonable when compared to property taxes in the U.S. It is a local tax and is payable quarterly in most areas. The average cost is 0.1% of the assessed value of the property at time of sale.

Rental income tax: As an owner that does not reside in Mexico, but rent out your Mexican property, your renal income is subject to withholding tax at a rate of 21%. For residents, rental income is taxable at the regular income tax rates.

Capital gains tax: Mexican tax residents are exempt from capital gains taxes on the sale of residential property, as long as the home was used as their primary residence during the two years prior to the sale. If this is not the case, Impuesto Sobre la Renta or ISR (the Mexican equivalent of capital gains tax) is either: 25% of the declared value of the transaction, or 35% of the net gain, less the improvements made, commissions paid and other allowable expenses.


Note on notario’s: Translated, a notario is a notary. The duties of notario’s in Mexico encompass more than verifying signatures, they are a public official appointed for life by a state governor. A notario must be a Mexican citizen, at least 30 years of age with a law degree and at least three years experience in a notario’s office.

One obligation of a notario is to inform those who ask for their services as to what the proper procedures are. He is to receive, interpret, and put into legal form a client’s will and consent, and he has the authority to draw up the proper documents to make a transaction legally binding.

In Mexico, the services of a notario is necessary to make the transaction legally binding. As a buyer that has made an offer on a piece of property and the offer has been accepted, you must choose a notario who will do a title search and get the necessary paperwork in order.

The notario will be present at the closing to verify your full name, civil status (name of husband or wife, indicating joint or separate ownership), domicile, occupation, immigration status, and date and place of birth. The notario will also make sure that all the paperwork necessary is filed after the purchase to register you as the proper owner. If you’re working with a real estate agent, be assured that the agent has a notary with whom they work with regularly.

Note on protecting yourself: It is common for properties to be sold with all furnishings included. It is also not unusual for buyers to learn that the furnishings they saw before the sale have been replaced with less expensive furnishings.

Protect yourself by doing a thorough inventory before you make your offer, and list the items to be included with the sale. Make sure you get detailed descriptions and brand names and serial numbers of appliances. Take photographs of all items on your inventory list, including: light fixtures, door handles, book cases, fireplace grates, cooking utensils, carpets, doors, toilets with seats, etc… If an item is to be included in the sale and can be removed in any way, make sure you document its existence and precise description.