1. How can I as a foreigner own ocean front property in Mexico?
In 1917 Mexico drafted a new Constitution. In the Constitution, there was a provision that created the Restricted Zone. This Zone is 100 km (62 miles) from the borders and 50 km (or 31 miles) from the coasts. Originally only Mexicans could own land in the Restricted Zone because it was considered the most valuable real estate in the country.
However, in 1970 Mexico realized that there was a lot more money outside of Mexico than inside of Mexico. To attract foreign investment, enabling legislation was passed in 1970 which permitted foreigners to own land in the Restricted Zone.
This bill stated that a trust, called a ‘Fideicomiso’, could be set up with the foreigner as the beneficiary. Since a Mexican bank is the owner and trustee, it satisfies the requirements to purchase land in the restricted zone. The beneficiary (foreigner) could occupy the land, rent it, improve it, sell it, etc… Because of this bill, major foreign investment flowed into Mexico; Cancun (now 36 years old), Cozumel, Acapulco, Puerto Vallarta, Ixtapa, Mazatlan, Yucatan Peninsula and other tourist areas.
There are, however, limitations to the Trust system. For each property you later purchase, you need a separate trust. The cost to set up each trust or Fideicomiso is from $3,000 to $5,000 USD. In addition, there is an annual administration fee to the Bank of $500.- $1,000 USD, for doing nothing more than holding the deed on your behalf. In addition, the bank charges an exit fee of $1,000 USD or more when you desire to sell your property. In order to avoid this fee, the Trust can be assumed to the new buyer ( foreigner).
To address the problems experienced with the old trust system, in 1994 Mexico passed the new corporation law. This law provides that a Mexican corporation, wholly owned by foreigners, can be the Mexican entity required by the Constitution to own property in the Restricted Zone. Now, foreigners can own the Mexican corporation and hold all the papers to it. Your Mexican corporation holds the deed, which means, you get to personally possess the deed. You no longer need to go through the bank to get approvals to build, sell, or improve your property and there are no bank fees.
An added benefit to establishing the Mexican corporation is that your corporation can own more than one property. You do not need to form a separate corporation for each property, as is the case with the Bank Trust system. Also, if you should decide to sell your property in the future, you can sell your entire corporation (all of your stock), sell part of it (some of your stock), or sell just the property out of it and keep your corporation.
The government intentionally made it very easy for foreigners to own land in Mexico. So much so, that in 1998, the Mexican Government noticed that the revenues from the Industry of foreign investment & tourism, surpassed the revenues from the Oil & Gas Industry. Foreign investment & tourism is now their main source of income and the Mexican government welcomes your participation.
2. Which is better the Mexican Corporation System or the Bank Trust System?
In addition to the above limitations of the trust system, Mexican law provides that the beneficiary of the trust (you) may not receive any income from the property placed in trust and furthermore may not engage in any gainful employment with the trust. The trust can last for up to 50 years and then renewed again for another 50 years. The corporation lasts for 99 years and may be renewed by the stock holders after 99 years.
You can get an FM-3 with both a Fiedicomiso and Corporation, whether you choose a working visa or rentista (non working), you can enjoy to live and/ or work in Mexico. The FM-3 can be renewed annually and with it you can obtain a Mexican drivers license, open bank accounts, get credit cards, earn an income (work visa only), and operate a business (with work visa only). There are benefits to both depending on your needs.
When creating your corporation, you have an option of creating a normal corporation or a limited liability corporation. You are only required to have a minimum of two stockholders in your corporation, but there is no limit to how many stockholders you may have.
3. As a foreigner, do I actually own my ocean front property?
Yes, but not in your personal name, you own it in the name of your Mexican corporation. Keep in mind that you own 100% of the Mexican corporation, so you do own the land. You do NOT need a Mexican national or Mexican citizen to be part of your corporation. Your Mexican corporation is recognized by the government to be a legal Mexican entity.
4. How do I form my Mexican Corporation if I need two stockholders?
If you are buying property by yourself, we suggest that you might have your Mexican accountant, or your Mexican attorney hold 1% of the corporation’s shares, with the agreement that he / she will not participate in any vote concerning your corporation or in any profit from your corporation.
5. Is the Mexican Corporation a 99-year lease?
No it is not. It is a legal corporation recognized by the state and federal governments. Every 99 years the corporation’s charter will need to be renewed. You may not be around in 99 years, but your heirs might enjoy your legacy.
6. Can the Mexican Government take my property after I close?
No. Mexico is a land of laws and there are real estate laws, just as in the United States and in Canada, protecting the rights of property owners whether they are foreign or domestic. Mexico has had a stable democratic form of government for the past 90 years, and has no plans of changing.
And, since Mexico is part of NAFTA (North American Free Trade Agreement), there are multi-billion dollar foreign trade ties to the United States and Canada. Any dramatic change in the Mexican Government could jeopardize the economic dependency which Mexico has with these two countries. No benefit would accrue to Mexico in taking away property from foreigners who are Mexico’s main source of revenue each year.
7. When are real estate tax notices sent out?
Tax notices are not sent out in Mexico. At your request your Mexican attorney can arrange to pick up your tax notice, advise you of the amount to remit and take care of the payment on your behalf.
8. How much are annual real estate taxes?
Annual real estate taxes in Mexico’s Yucatan Peninsula are really quite remarkable. For an average ocean front lot the real estate taxes will be less than $200 USD per year, and depending on location, may be less than $50 USD per year.
9. How do I know the land I am buying is really the land I saw?
This is very simple. You can compare the survey of the land to the legal description on the closing documents. Your Mexican attorney will know if the legal descriptions compare and match up. You can also compare the property survey to the corner markers on the ground. This way, you can determine that the property and the survey are the same.
Additionally, your Mexican attorney will match the legal description on the survey to the deed, and to the legal description in the Notario’s books, the legal description in the Land Registration Office, and that the properties tax ID number matches on all documents.
10. Will the sellers negotiate?
Some sellers will negotiate price and some sellers will not. The main reason that some will not negotiate is that they feel that they have no reason to. When you choose not to pay their asking price that is your decision and yours alone. You have absolutely no obligation to pay it. However, with the entire infrastructure going into place at the government’s expense, ocean front property values are rising. By choosing not to pay the sellers asking price, you are allowing the seller to continue receiving the benefit of the properties price appreciation.
The question you may want to ask yourself at this point is whether you want to be earning the appreciation, or do you want the seller to continue earning it. Sellers will normally wait and adjust their prices as more infrastructures go in, and then they usually re-list at a higher price.
11. What is the price per square foot?
There is no price per square foot. That is NOT the way to value beachfront property. Beachfront property is valued according to the amount of beach frontage, the quality of the beach (rock or sand), the elevation above sea level, the quality of the trees and foliage, the shape of the lot, zoning, the nature of the neighborhood, the beaches susceptibility to erosion (avulsion) and flooding, stability of the sea floor, proximity to infrastructure, and last but not least the sellers motivation to sell.
12. Can squatters take my property?
Yes it is possible, but it is a long and difficult process for them. It is actually easier in most states in the U.S. for a squatter to take your property, than it is in Mexico. In Mexico, to be granted title to land you do not own, but are living on, or ‘squatting on’, the squatter must prove to the court that he has been residing on the property for 5 continuous years in an obvious manner. This means that the squatter must make it known to everyone that he resides there. He usually does this by building on the property, farming the property, fencing it, or baring others from entering the property. The squatter cannot simply hide out on the land for 5 years, and then petition the court for the title.
If a squatter is living on land in this manner, most of the time the owner will know it, because the squatter has to make his presence known to the public. If the owner does not notice this adverse use of his property, the squatter may after 60 months of continuous use, petition the court to be granted ownership of the property.
The court will then require the squatter to also present the court with evidentiary documentation that ownership has been assumed by and / or conveyed by the property owner to the squatter. Such documentation for example, may include a promissory contract of sale between the property owner and the squatter and copies of paid tax receipts paid by the squatter. Failing to meet the above criteria, the squatter’s petition will fail.
If the squatter’s petition meets all of the above criteria, the court must then make every attempt to notify the owner of the squatter’s petition by certified mail and by placing a legal notice in the principle newspaper of the owner’s last known address. Upon receiving such notice, the owner may contact the court and advise them that he does not consent to having his deed transferred to the squatter.
If the owner does not respond to such notices, the court has the authority but not the obligation to transfer the land to the squatter. As you might imagine this type of thing does not happen very often, and has never happened to any of our clients.
13. How are capital gains computed on the sale of real estate?
Capital gains are computed based on ‘Stated Values’ that are provided by the Notarios at the time of sale. The actual transaction price, therefore, is not a matter of record and is not recorded in the land registration office as it is in some other countries. In Mexico, the government does not depend on the revenues from real estate taxes nearly as much as in most other countries. The ‘Stated Values’ are usually very nominal. ‘Stated Values’ can vary widely depending upon location and may be anywhere from 4 % to 14 % of the actual transaction price. Remember that the actual transaction price is known only to the buyer and to the seller – it is not a matter of record – and has nothing to do with the ‘Stated Values’.
As an example, let us assume that we purchase property at an actual price of $100,000 USD and the ‘Stated Value’ provided by the Notario is $10,000 USD. Let us further assume that we sell the property the following year for $200,000 USD. and the ‘Stated Value provide by the Notario is $20,000 USD.
The capital gain will be computed as the difference between the two ‘Stated Values’ ($20,000 – $10,000 = $10,000 capital gain).
Assuming a tax rate of 27%, the tax on the capital gain will be $2,700 USD. Since the actual capital gain is $100,000 USD and the tax we pay is $2,700 USD, the effective tax rate on our actual gain is 2.7%. It seems indisputable that this tax system is user
14. Is there a conflict of interest for YUCATAN HOME FINDERS to represent the seller and the buyer?
Not really. The sellers are familiar with Mexican procedures. If the sellers wish to hire an attorney they can. We do list the property for them and must respect their asking price for the property. However, they understand that we have an obligation to represent the people who buy the property. With this in mind we must advise them prior to listing their property, once the asking price is determined, our interests lie with you, the buyer, and not the seller. This is why we want to have the best real estate lawyers represent you. And this is why our customer referral rate is 41% (including repeat purchases).
15. What do I do about water when I build my house?
The limestone substrata underlying the entire Yucatan Peninsula is honeycombed with a fresh water aquifer. This aquifer is running gradually toward the sea. Well water can easily be obtained at depths starting from 15 to 25 feet. Because the aquifer is not very deep, the water is not recommended for drinking purposes unless you have a water purification system installed in your home. Many people, when building, have a residential reverse osmosis system installed by their plumber. These systems are extremely popular and very affordable.
16. How much does it cost to build?
Our customers have found that the average cost of building in the Yucatan Peninsula is between $55 and $85 USD per square foot on average. At this price, you can expect to have the following amenities: Solid concrete construction footed into the bedrock, 10 foot ceilings, kitchens and baths, and standard fixtures.
17. What is included in closing costs?
Closing costs include EVERYTHING needed to place you in legal ownership of your property. This includes, the formation of the Mexican corporation OR Fiedicomiso (bank trust) registration with the Ministry of Foreign
Investment, transfer taxes, Notario fees, and legal fees for your attorney. Anything and everything is included.
18. Who owns the property?
Generally speaking these properties have been owned by a variety of Mexican families some of whom have had them in their families for generations. This is the main reason they are often unwilling to move off of their asking prices. They have owned the land so long that it is now like new found money. If they have to wait another 6 months to get their price, they don’t care. If you have owned it for 50 years, what’s another 6 months?
19. Do I have to come back to close on my property?
You do not need to return for the closing if you don’t want to. In fact, if you would like to save the cost of the return visit, you may close in absentia. The closing is handled via FedEx by your attorney. You may, just as in the U.S or Canada., authorize your attorney to execute the final documents for you to close in absentia. This is a common practice but most of our clients choose to be present at closing.
21. What happens after I sign an offer to purchase?
The process is easy. After you choose your lot and sign a contract to purchase the property, you will need to send a deposit to hold the lot. The deposit required is between 10% – 20%. If for any reason you are unable to close the purchase, your deposit is NON refundable. Once your deposit is received, the property is taken off the market pending settlement and your attorney is notified that we have received your deposit in escrow.
Your offer and personal information is transmitted by YUCATAN HOME FINDERS to your attorney who will then contact you to answer any questions you may have and confirm the arrangements for closing. If you do decide to close in absentia, your attorney will provide you with the necessary documents for your signature and you then return them to his office. YUCATAN HOME FINDERS will continue to coordinate with you and your attorney and to assist with any questions or information during and after the closing process.
22. What is the Federal Zone?
The federal zone is exactly what it says it is. It is an area on the beach which is owned by the federal government. The Federal Zone extends 66 feet (20 meters) back from the high tide mark. Since it is owned by the federal government, you may not build your house in the federal zone. On inland bodies of water such as lakes and rivers the federal zone extends 33 feet (10 meters) from the high water mark. The federal zone is uniform throughout Mexico.
23. Can the federal zone move?
Since the federal zone on the coast is always 66 feet (20 meters) wide, the federal zone is migratory. That is, if the property sustains erosion and is partly washed away over time, because the federal zone never changes and is always 66 feet, the federal zone will move back with the shoreline and the beach lot will shrink. Conversely, if the property sustains accretion and the shoreline moves out, the federal zone will also move out and the beach lot will grow in size. This is why it is extremely important when selecting beachfront property to work with a professional company who has evaluated the beach classification of the property being purchased.
24. What is a beach concession?
The beach concession is a permit which can be obtained by your attorney after closing. This permit enables a property owner who owns property adjacent to the federal zone to use the zone, for example, for the construction of a boat dock, a patio, deck, or gazebo. It does not permit the property owner to construct any part of his house in the federal zone. To keep the beach concession an annual fee must be paid each year