How to buy property in Mexico
Updated December 12, 2023
Buying property in Mexico can be exciting, and is one way to qualify for residency. However, there are some big pitfalls. Here’s a summary of a process we recommend to our clients when they’re thinking about buying property in Mexico:
What Every Expat Needs to Know about Buying Mexican Real Estate
- If you buy right, you can make good money renting out your property, especially in tourist areas.
- You need to vet your real estate agent more carefully as the industry is less well-regulated than in the US.
- You will need to work with lawyers/notaries for paperwork in Spanish.
- It’s much harder to get a mortgage, even with large down payments. Oftentimes, you’ll need to pay in cash.
- There are potential squatter rights to consider. If someone moves in without your knowledge while you’re not there and stays for as little as five years, Mexican law may allow them to claim ownership rights.
- The “gringo tax” is real. Being a foreigner may expose you to higher prices than a local would receive for the same property.
- You will also need to pay upkeep and maintenance costs if you don’t plan to live there full time.
- There are certain tax obligations and estate planning issues to consider, especially if you hold the property through an LLC or trust.
- You can’t buy property within 100 kilometers (about 62 miles) of any Mexican border or 50 kilometers (about 31 miles) of any Mexican coastline, the so-called “restricted zone.”
Mexico’s Restricted Zone
In 1917, Mexico’s constitution established a “restricted zone” to “protect Mexican sovereignty and national security.”
That means that Americans — and all other foreigners — aren’t allowed to directly own property within 100 kilometers (about 62 miles) of any Mexican border or 50 kilometers (about 31 miles) of any Mexican coastline.
The key here is “directly.” Mexico offers two legal mechanisms if you want to purchase property within the zone.
- You set up a Mexican bank trust (fideicomiso), where the bank holds title but you are the beneficiary with full property rights. You can expect to pay roughly $2,000 to set up plus a few hundred dollars each year to maintain. Such trusts last up to 50 years.
- You set up a Mexican company (that foreigners can fully own), which then buys property anywhere without restrictions.
Both options allow foreigners to acquire property rights in the restricted zone through proper legal procedures. Americans looking to buy beachfront or border properties will need to use one of these two structures to legally hold rights and title.
The Foreign Real Estate Buying Process
Here is a suggested overview process for buying property in Mexico as a foreigner:
Find the Right Property
- Decide on the area you want to buy in based on your goals – living full-time, vacation home, investment. Our 20 Best Cities and Communities for Expats in Mexico guide can help you narrow down options.
- Use online listings to browse initially. But we do NOT recommend buying sight unseen. Too many people have been cheated too many times for this to be a reliable option.
- Work with a reputable real estate agent and real estate lawyer who specialize in working with American expats.
- Before making an offer, learn as much as you can about your chosen place.
Make an Offer
- Once you find the right property, make a written purchase offer through your agent. This is a non-binding promise agreement. It’s worth noting that most sellers expect all cash offers – they don’t want offers that rely on getting mortgage financing.
- Put down an earnest deposit — usually 5-10% of purchase price. This will be held in escrow during the process.
Allow 15-30 days due diligence before signing final contracts and removing subjects.
Can I get a Mortgage in Mexico?
US Citizens can get mortgages on Mexican property. However, interest rates are higher than in the US or Canada.
Financing may also not be available in all parts of the country.
If you’d like to explore this further, one resource worth a look is: Mexloans.
- Hire a real estate attorney who works with expats to represent you. They will handle paperwork and oversee the process, including helping with translation.
- Verify title, ownership, liens, encumbrances, property taxes, and so on. Get official valuations and appraisals done.
If you’re buying within the restricted zone, you’ll need to set up a bank trust (fideicomiso) or Mexican company to hold the property, as discussed earlier. This will add a few thousand dollars in set up fees and a few hundred a year in maintenance costs to the purchase.
Closing and Possession
- You’ll need to pay the remaining balance of the property at closing. Closing costs themselves are around 5-7% of sale price.
- Once registered, the property is legally yours but can take 2-3 months for final registration.
- Start the process of changing over utilities, getting property insurance, make any renovations needed, and so on.
- Be sure to work with professionals you trust throughout the process who have experience working with expats – and specifically American clients. There are often unseen issues that come up that a professional can help guide you through.
- Make sure you understand all documents, even if in Spanish. You will need to rely on your lawyer, but you can also run documents through online translators to get the gist of what they’re saying. (Take with a grain of salt, of course – machine translators are known to make mistakes.)
- Be prepared to pay mostly, if not completely, in cash. Again, financing isn’t always available, especially for foreigners.
- Be sure you know the total costs beyond just the sale price. Like real estate transactions at home, there can be hidden costs. A good advisor goes a long way here.
- Do your due diligence before closing. You don’t want to get stuck with a lemon.
- Be sure you understand tax and reporting rules to the IRS. Real estate held in your own name is not reportable to Uncle Sam. Real estate held within a structure is. And if you generate income from the property, you will need to report that too.
- Update your estate plan to take your new property into account. Mexico has a different legal system than America (civil vs common law respectively) and wills drawn up in the US may not be recognized in Mexico.
Can I get a Mortgage in Mexico?
If you’d like to know more about buying property in Mexico, consider booking a free no-obligation consultation with one of our advisors to see how we might be able to help you.
How to Own Real Estate: Mexican Trust vs. Mexican Company vs. In Your Own Name
If you’re not planning on buying outside Mexico’s Restricted Zone, the simplest way is to buy in your own name. However, if you do, be sure you understand how it may affect your estate planning if that’s a consideration.
If you plan to buy within the Restricted Zone, the bank trust option is almost always best for residential property.
A Mexican corporation (Sociedad Anónima or SA) can only own commercial real estate and has ongoing Mexican accounting and tax compliance costs, including monthly tax filings. Mexican corporations must also have a minimum of two shareholders. There are also tax disadvantages for Americans who own foreign corporations.
(These disadvantages can be largely overcome with proper planning, but they require substantial accounting costs and ongoing reporting obligations.)
Another type of Mexican company — the Sociedad de Responsabilidad Limitada (SRL) — can also be used to hold property. An SRL is much like an LLC stateside in that it’s considered a pass-through entity for US tax purposes.
That makes is a lot easier from a US tax perspective. Unfortunately, though, this structure still requires two or more owners, and still comes with a lot of Mexican accounting and tax compliance costs.
So, which one is best? For most people, unless there’s a good reason to do otherwise, a Mexican trust is the simplest and cleanest way.
Pitfalls of Buying Property in Mexico
Although we share a long border, Mexico and the United States are quite different when it comes to living standards. Adjusting to a new culture can be a challenge. Here’s just a few challenges and compromises our clients have had to make in order to make their move to Mexico a success:
- Language barriers with landlords and rental contracts can be a real challenge. Work with a professional unless you have a lot of Spanish-language experience.
- Negotiating repairs and maintenance can be a challenge, especially if you’re Caucasian. We’ve often found it best to have a local ally who can help with such things, even if you oversee the day-to-day.
- Living spaces can be smaller than what you’re used to. By and large, Americans are used to larger living spaces than in many other places.
- Central heat and AC aren’t all that common in many places.
- Depending on your budget, you might need to be flexible on amenities, especially in higher-cost expat destinations.
- Outside of cities, life may be a bit slower than you’re used to. This can be quite an adjustment for some people.
Pitfalls of Buying Property in Mexico
- Other than the “restricted zone” issue, buying real estate in Mexico is similar to the US. You find a property, negotiate price, sign a promissory contract with any subjects, conduct due diligence, remove subjects and complete the purchase.
- We recommend working with a real estate attorney and real estate agent who have experience working with US citizens.
- We highly recommend doing a title search — some property transfers in Mexico offer possession but not legal title.
- If you purchase property in Mexico, be sure to update your estate plan accordingly. Not doing so can make things messy for your heirs.
- Total fees for buying a piece of property usually add up to 6-8% of the purchase price.
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