Can Foreigners Really Purchase Real Estate In Mexico?

Can Foreigners Really Purchase Real Estate In Mexico?
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It is surprising how many people think the answer to this question is “No”.  The answer is definitely “YES”!  Not only can foreigners acquire Mexican real estate, the return on investment can be extremely lucrative in comparison to their country of residence.  Perhaps that’s why so many people are interested in making such an investment.  The big difference is in that the purchasing process, it is very different from common law countries such as the United States or Canada.

Mexico is a civil law country, and therefore has a completely different legal system and rules.  While it may not be common to hire an attorney in connection with a real estate transaction in the other North American countries, it is unwise – and potentially quite costly to do so in Mexico.  In fact, you’ll want to hire a local real estate attorney, as your U.S. or Canadian attorney will not likely have expertise to properly advise you in an foreign investment transaction.  Mexican real estate attorneys do act as closing agents, more like as an escrow agent, as they commonly do in the East Coast of the United States.  Understand that when they do, they are not representing the buyer.  Often they don’t represent the seller either.  They may simply a neutral third party that prepares the necessary documents.

A contract of sale or purchase agreement may be provided to the buyer in English, but the contract that is legally binding will be in the language of the country that you are purchasing in which is Spanish. Sometimes the contract is presented with the English and Spanish, with the two versions side by side.  You need to know that if there is a dispute, or the need to go to court, the Spanish language version with prevail.  Ask your attorney to explain any terms that you do not understand, and make sure all necessary terms are not only included, but also correct!

Under Mexican law, foreigners may acquire direct ownership of Mexican real estate.  Direct ownership of residential property within a “restricted zone”, which is located approximately 62 miles from the Mexican border and 31 miles from the coast, is not allowed.  The Mexican government established the fideicomiso, or bank trust, in 1973 as a legal way for foreigners to acquire residential property in the restricted zone.

That means foreigners may acquire the same property rights that Mexicans are entitled to. In the restricted zone foreigners commonly purchase rights that are very similar to direct ownership, through a “fideicomiso”.  The property rights are obtained by creating a renewable bank trust that is authorized by the Mexican government. The trust period is for 50 years and grants foreigners the right to use, rent, modify, or sell the property.  The trust can be renewed for 50 additional years, with no limit on the number of times it may be renewed. The beneficiary can be a corporation, individual, married couple or another legal entity.

A fideicomiso is a safe way to hold property in the restricted zones. It basically grants the title to a bank. You, as the buyer, can choose which bank you want to use from a list of banks approved by the Mexican government to act as trustees if you’re setting up a new fideicomiso. Although the bank is the trustee of the property, it can only act on the instructions of the beneficiary of the fideicomiso. The foreign owner is the trust beneficiary, and the beneficiary retains complete control of the property.  A fideicomiso provides purchasers with the same bundle of rights that fee simple ownership includes: the right to live in it, to sell it, improvement it, mortgage it, pass it to your heirs, and build on it. You may do whatever you like with the property, just just the same as fee simple ownership. More than one beneficiary may be named, thereby allowing for co-ownership.

The other way property may be purchased by foreigners in the “restricted zone” is by setting up a Mexican corporation. Commercial property is available for purchase by foreigners without creating a bank trust, provided the property is held through a Mexican corporation with restrictive by-laws. Foreigners may own 100% of a Mexican corporation unless it is engaged in activities within a restricted industry.

The fideicomiso also provides benefits when it comes to capital gains tax. Naming an heir in the trust eliminates the necessity of going through probate. Upon death of a beneficiary, the named heir becomes the new beneficiary and it also avoids the necessity of owing inheritance taxes. Trust-held property may not be listed as an asset of the bank, or permitted to be used by the bank, it merely acts as a trustee. It is the beneficiary’s responsibility to pay all costs associated with the property such as real estate taxes, insurance and maintenance.

Buyers may be wary of acquiring real estate via fideicomisos, however they are an extremely secure method of holding property.  Many foreign buyers have used fideicomisos to purchase coastal property in Mexico for nearly fifty years!  Many countries do not permit foreigners to own oceanfront land in Mexico, buying it using a fideicomiso allow you to do that.

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