Frequently Asked Questions

1. Can Foreigners own property in Mexico?
Any Mexican national has the option to own real estate fee simple or may establish a "Fideicomiso" (Bank Trust)through a Mexican bank in order to purchase real estate within the restricted areas which are 50 km along the coast line and 100 km along the borders. Many Mexican nationals do so because the bank trust may be written to bypass probate upon the death of the primary beneficiaries and passes on to their designated successors. However, the foreign Buyer purchasing real estate within the restricted zone must make an application to and request a Mexican bank of his/her choice to act as a trustee on his/her behalf as beneficiaries of the fideicomiso. The Bank obtains a permit from the Ministry of Foreign Affairs to acquire the chosen property in trust. The fideicomiso may be established for a maximum of 50 years and can be automatically renewed for another 50 years. Any person with the knowledge and competence may write the trust but it must be accepted by the trust officer of the bank that will act as trustee. Most banks have standard trust documents that may be tailor made to meet the specific needs and request of the beneficiaries. The Bank Trustee is responsible to the Beneficiary to ensure the fulfillment of the Trust, assuming full technical, legal and administrative supervision in order to protect the interests of the Beneficiary.

2. If the property is owned through a trust, what are my limits as to what I can do?
The property is available for the exclusive use of the buyer/beneficiary who has all of the benefits of a direct owner, including the ability to lease, build, remodel, make repairs, or transfer his/her rights to the property to a third party (including national or foreigner) or a pre-appointed heir.

3. Can you get Title Insurance on the property? If so, what are the costs?
Title Insurance is available through some Mexican escrow companies. Based on a Title search, you can either obtain an “owners” or a “lenders” policy of title insurance securing your investment in Mexico. Insurance premiums are approximately $7.00 per $1000.00. Owner's Title Insurance not only will protect you against hidden risks that would not be disclosed by even the most meticulous search of public records, but also will pay the defense of your title as insured.

4. What percentage is paid for closing costs?
Closing costs are paid by the Buyer and depend on the value of the property purchased. Total closing costs varies from State to State because each State sets the amount of taxes. The average in the State of Nayarit for closing residential properties range from 3.2 to 5.5 % of sales price. Sales taxes are 2% plus 0.9% for a total of 2.9%. Other fees include payment for legal Notary fees, cost of the fideicomiso, 5% of the assessed value of the property, fees for the tax certificate, title search fees, as well as miscellaneous office expenses of the notary that prepares and executes the transfer of the property. Ask your agent to provide the notario estimated total costs before signing the contract.

5. What is the cost of a trust?
The normal annual trust fees range from $400 to $550.00 USD plus IVA 15% sales tax, Costs to set up the trust is approximately $2200.00 USD that includes the first year annual fee

6. What are the procedures for buying a piece of property?
Once the offer to Purchase has been accepted by both parties, and the required deposit paid to the seller, the offer will be forwarded to the notary for the preparation of the required documents to complete the transaction. The balance is payable upon the signing of the Trust Deed at the Notary's office. Some developers will offer certain discounts for early payments or will offer a payment plan as an incentive.
The Notary will: Ensure the property is free and clear by checking the Land Registry Office. This is guaranteed by obtaining a certificate of no liens and a tax statement from the treasury. Additional checks are made for outstanding utility bills and municipal taxes, and/or Home Owners fees (if applicable). Obtain a permit from the Minister of Foreign Affairs to establish the trust deed. Prepare documents necessary for both buyer and seller to complete the transfer.

7. How much are Capital Gains taxes, and who pays them?
The Seller pays all capital gains taxes and real estate fees. Capital gains taxes are a percentage of the difference between assessed values at the time of purchase and sale, with adjustments made for inflation and capital improvements. Mexican nationals and foreigners that have dual citizenship or an immigration document known as FM2 may be exempt from capital gains in some cases if they prove that the residence they are selling is their primary residence, that they have lived in the residence for six months or more prior to the sale, they must have electric and water bills in their names and the same names on the trust deed. Real estate held by corporations and property used as a personal vacation homes do not qualify as being tax exempt for capital gains taxes.

8. What is the percentage amount of Property taxes?
The property tax, known as "predial" is a rate of 0.08% of the assessed value for private residences in the State of Nayarit . Commercial properties will be assessed at a slightly higher rate. The assessed value is determined at the time of the sale. Historically, property taxes have always been low.

9. Can my Property be used as a rental?
Property that you purchase in Mexico can be used as rental property, providing that you register with Hacienda ( Mexico 's federal tax agency), establish residency and obtain an FM3, and that you acquire permission from the Minister of Foreign Affairs to do so. The language in your trust must include this permission. A Mexican C.P.A. can advise you on these procedures. Please note that your property tax percentage may increase once it becomes “commercial”.

WHAT IS THE:

Restricted Zone
In Article 27 of the Mexican Constitution it clearly states, “Foreigners cannot own property within (100) Kilometers of the Border and (50) Kilometers of the coastline”. This is called the Restricted Zone. However, in the 70's the Mexican Foreign Investment Law created two options that help foreigners that want to purchase property in “The Restricted Zone

Corporation
If you wish to purchase property through a Mexican corporation, it may be 100% owned by foreigners. A provision in the by-laws of your corporation must state that the share holders must accept and will be subject to Mexican laws. You cannot live by the laws of your own country. The property must be registered with Foreign Affairs Registry.

Bank Trust (Fideicomiso)
Both foreigners and nationals may establish a Fideicomiso. (An Irrevocable Bank trust). This trust is created with a Mexican bank. The bank accepts the fiduciary responsibilities of a Trustee. The Fideicomiso allows you to purchase anywhere in Mexico including the restricted zone. The Notario at the request of the buyer requests that a bank of your choice act as a trustee on your behalf. The bank then will receive a permit to acquire the chosen property in trust. The trust is irrevocable and is established for a maximum of 50 years then it may be renewed for another 50 years. You are the beneficiary of the trust and have all the benefits of direct ownership. This includes the option to sell, remodel, lease, mortgage, or transfer the rights to a pre-appointed heir or another third party. The trust may also include language to by pass the probate court with joint ownership to transfer with the rights of survivorship. You do have the absolute right to transfer the title to another party at any time.
Responsibilities of the trustee to the buyer include; exact fulfillment of the trust. Mexican Law also states the trustee will assume full technical, legal and administrative supervision.
Usually, the total cost to set up a trust including the first annual trust fee is: $2200.00 USD. After that there is an annual maintenance fee of $400 to $500 USD )depending on the bank chosen). You will pay the yearly fees directly to your bank.

Notario Publico
A Notario is an attorney appointed by the governor of the state in which gives him the authority to handle all real estate transactions among others he is licensed. The position of the Notario is held with very high esteem and they have responsibilities under the Mexican law. Only a Notario has the right to register and record all real estate transactions and are responsible for the registration of deeds at the State and local government. They also collect taxes for the Federal, State and Local Government, which is a large part of the closing cost. The Notario ensures proper transfer of all documents and will draw up and review all of the closing documents including deeds, trust, and registration papers. In addition, other work done by the Notario include powers of attorney, the formation of corporations, writing of wills, and the well-known notary stamp and seal on numerous legal documents. The Notario´s work is in a manner similar to a U.S. title company because the Notario verifies on the date of deed transfer that back taxes have been paid on the property, collects capital gains taxes from the seller if any are due, request a letter that verifies maintenance fees are current in the case of property with a homeowners association and that there are no liens or encumbrances against the property. You receive a clear title to the property.

Closing Process
It is going to take between 45-60 days to complete the closing process if the property is ready for occupancy. Commonly, the buyer pays for the closing costs as well as the transfer or acquisition tax. In many closings, it is not necessary for the buyer to be present for the closing. The closing costs are paid on the value of the property purchased. Most Notarios require that you pay for ½ of the estimated closing cost when they start your paperwork and the final payment at closing. An Estimate may be requested from any Notario and varies marginally in the cost of the closing from one Notario to another. Closing costs are as follows:

Note: The recent closing for a condominium that sold for $254,000 US dollars the closing cost and the trust fee were $9,697 US dollars or 3.8 per cent. Another recent closing of a condominium that sold for $440,000 US dollars and the closing cost and the trust fee were $14,080 US dollars or 3.2 per cent.
Property Taxes
Your property taxes is much lower compared to the US or Canada. The assessed rate is set by each state. In the State of Nayarit the rate of 0.08% of the assessed property value which is determined when the sale is made, not the actual purchase price.
For example: a $300,000.00 US dollar residential property is a little less than $280.00 US dollars per year. Compare that to what you are paying in your home State and you will see another advantage to owing property and retiring in Mexico.