Mexico is a real estate investor’s paradise. From the long stretches of untouched beaches to the fascinating cities steeped in culture and history, more and more Americans are turning their heads toward Mexico for their next investment.
Whether it’s for retirement, for return on investment in a rental property, or simply for getting away during the colder months to enjoy a vacation home on the beach, the Mexican real estate sector is an attractive investment.
If you’re an American or Canadian, you’ll be pleased to learn that you can, indeed purchase a home in Mexico. There are simply a few requirements to meet, and that dream is yours to have.
This article will get you started down the path toward investing in real estate in Mexico as a US Citizen.
The Facts About Purchasing Property in the Restricted Area
For real estate transactions with foreigners, there’s a restricted zone that includes the strip of 100 km along the land borders and 50 km along the beaches.
The thing that many people don’t know is that, as a foreigner, it actually is possible for you to buy real estate within the restricted zone. You can buy real estate in Mexico by setting up a trust or by establishing a Mexican corporation. For clients who plan to have more than two properties in Mexico, it’s recommended to set up a Mexican corporation to take advantage of the tax benefits.
Option 1: Open A Bank Trust (fideicomiso)
The system in Mexico allows non-Mexicans to purchase property in the restricted zones through opening a bank trust, which provides protection for the property owner and is very similar to simple ownership.
Once the trust is formalized with a Mexican Banking Institution, as the buyer, you’ll be designated as the primary beneficiary and can then designate substitute beneficiaries in the event of death in order to avoid any probate procedures.
The trust is initially established for 50 years, and then renewable for another 50 years after that. As the buyer, you’ll be able to use, expand, build and improve the property as you wish during and throughout this time period. You can also rent or sell it and receive 100% of the profits. Prior to the trust’s expiration, the trustee bank will let you know when it's time to extend the term for another 50 years.
A trust is authorized by means of a permit used by the Ministry of Foreign Affairs of Mexico (Secretaria de Relaciones Exteriores) and in accordance with article 27 of the Mexican Constitution. It’s important to mention that the properties held in said trust are not assets of the bank, and the size of the bank does not affect the properties that it represents. You don’t have to worry, in the event that the bank that you use encounters financial difficulties, the property you purchased will be transferred to another bank trust. You will not need to apply for a new permit.
In a few easy words: as an American using a bank trust in Mexico, you can buy a house on the shore of our beautiful Mexican beaches.
Option 2: Establish a Mexican Corporation
Another option for purchasing property in the restricted area is by establishing a Mexican corporation. Said company must be owned and managed by foreigners and it must be incorporated under Mexican law, since it will be a Mexican entity. This is the case even if its shareholders, members and offices are foreigners.
As an established Mexican corporation, you’ll be able to buy properties directly in the “restricted” area.
One of the reasons that many people chose option 1 over option 2 is that establishing and maintaining a Mexican company typically turns out to be more expensive in the long run than establishing a trust. Additionally, the new Mexican company must run operations in accordance with Mexican law
Do US Citizens Pay Taxes When Buying a Home in Mexico?
The seller must cover the ISR (Income Tax) and make the declaration of sale of the property. As an American, you must pay the same Property Acquisition Tax like any Mexican buyer.
Do US Citizens Have Access to Mortgage Loans in Mexico?
In Mexico, both financing and credit options are extended to foreigners. You can access these options by purchasing through a bank. A mortgage loan will give you fixed monthly payments.
Also, there are financial instruments that, as an American, you can dip into. For example, did you know that you can buy a house with your IRA? Buying with your IRA allows you to own real estate without penalties or tax consequences, as long as you use it as an investment property.
At TAO Mexico, we’re able to offer direct financing for foreigners who buy our properties. Our direct financing eliminates the need for a review of the clients’ credit history.
A non-Mexican can take possession of the property once the first 50% of the total price has been paid. Later, the developer will grant financing for the second 50%.
What does this mean? This means that our clients will be able to make use of the property prior to paying 100% of the property. This is unique to Tao Mexico and is not something that is offered by other developers in the area. By taking possession of the new home with only 50% paid, American and Canadian clients will be able to rent their condos and then use that rental income to pay the monthly installments of the remaining financing given by the developer.
Also, there are financial instruments that, as an American, you can dip into. For example, did you know that you can buy a house with your IRA? Many investors are still not aware of this fact. There are some stipulations that you’ll need to adhere to, but buying with your IRA allows you to own real estate without penalties or tax consequences, as long as you use it as an investment property.
Why Not Buy Your Next Home in Mexico?
If you’re an American planning to purchase a property in Mexico we can advise you and offer you excellent real estate and financing options.
Contact us today to buy your property in the Riviera Maya - or subscribe here to be one of the first to hear when there are investment opportunities in one of our upcoming Mexican destinations such as Cancun, Puerto Vallarta, Los Cabos or San Miguel de Allende.
We look forward to helping you take your next steps.