Is buying property in Mexico safe?
The purchase of property in Mexico is safer than ever. In the last twenty years, real estate in Mexico — and even more notably in Baja, has absolutely flourished, becoming an intelligent and lucrative investment strategy. Third Party Escrow, as well as comprehensive title searches are now the industry standard.
Furthermore, investors can trust that their ventures are secure and protected by established regulations regarding foreign nationals owning land in Mexico. These regulations not only protect the ownership rights of the Purchaser, but also promote real estate sales to foreign investors. The crux of purchasing in Mexico is the perpetually renewable property trust, known as a “Fideicomiso.” The trust has a 50 year term, and can be renewed indefinitely, allowing long-term control of the asset, or to will the property from generation to generation.
Q: What is the Mexican property trust, or “Fideicomiso?”
A: With the arrival of the North American Free Trade Agreement (NAFTA), the Mexican government realized that it was vital to encourage foreign investment in Mexico by making it safer and easier for non-Mexicans. Because the Mexican Constitution prohibits foreign nationals from owning or purchasing real estate within 60 miles of the United States international border, or within 30 miles of the Mexican coastline, a secure and innovative form of holding title was designed. This method allows foreigners ownership through a Mexican property trust, or “Fideicomiso.” This is a trust agreement (such as estate trusts in the U.S.), which bestows the Purchaser with all ownership rights. To gain the rights of ownership, the Department of Foreign Affairs issues a permit to the Mexican bank of the Purchaser’s choice, allowing the bank to act as Purchaser of the property. The bank acts as the “Trustee” for the trust and the Purchaser is the “Beneficiary.” The trust is not an asset of the bank, however; the bank simply acts as the Trustee in order to hold the trust.
Q: What is the primary function of the trustee bank?
A: Similar to living wills or estate trusts in the United States, the Mexican bank (or Trustee), only takes direction from the Beneficiary of the trust (the Purchaser). The Beneficiary has all rights to use, occupy, lease, and possess the property; as well as the right to build or otherwise improve upon it. The Beneficiary may also sell the property at his or her own discretion, by instructing the “Trustee” to transfer property rights to another qualified Purchaser (or bestow the property to an Inheritor). The trust’s initial term is 50 years, however, the trust may be perpetually renewed for additional 50 year periods, affording continuous control of the property.
- What rights am I entitled as a purchaser of Mexican real estate?
A: The Purchaser is entitled to the same rights as property owners in the U.S. or Canada, such as the right to enjoy, sell, rent, improve/renovate the property, etc. Not to be confused with a land lease, the purchased property is placed in a trust with the Purchaser named as the Beneficiary of said trust — the Purchaser is not a tenant/lessee. If the purchased property is already held in a trust, the Purchaser has the option of adopting that trust, or conferring the property to a new trust.
Q: How long does establishing a trust require?
A: At Global Real Estate, we work hand in hand with State notaries for all closings in order to secure the trusts. A “Notario Publico” in Mexico is much different than a Public Notary in the U.S. In Mexico, Notarios are specialized attorneys who operate on behalf of the state and federal governments in relation to any transaction. They are best compared to a U.S. Clerk of Courts. On average, Global Real Estate will obtain your trust within 45-60 days, and in many cases we can have the title transferred in as little as three weeks. We oversee the entire process and ensure that you understand each and every step involved in therein. Many of Mexico’s real estate purchases have only a simple buy/sell agreement between Purchaser and Seller as evidence of ownership. This is not a safe method of ownership, therefore neither Global Real Estate nor our Third Party Escrow providers support, endorse or recommend these insecure arrangements; we pride ourselves on the safety and protection afforded by our business policies.
Q: When do I pay for the property of purchase?
A: The Purchaser should only release his or her funds when he or she holds clear title. Utilizing a Third Party Escrow service, your payment is held in a uniquely numbered escrow account until the time your trust is complete, and transfer of the property rights have been concluded.
Q: How can I ensure the ownership of the property that I intend to purchase?
A: Within the trust document, the Purchaser must name a Beneficiary or foreign Owner of the property. The purchaser can be identified as an individual, or multiple partners. The Trustee (the Mexican bank) will be under instruction from whomever is named as the Beneficiary.
Note: You may name a U.S. corporation as the Beneficiary of the trust — this is entirely legal.
- If you sell shares in an associated U.S. corporation, you create a real estate transaction in Mexico and as such, all Mexican capital gain taxes apply.*
- You may only own a property in a Mexican corporation if the property is used in conjunction with development or investment purposes.
- You cannot own property through a Mexican corporation in order to bypass the trust process.
• It is illegal for a foreign national to own property through a Mexican corporation in a residential capacity. Contact us for information.