Mexico Living
by Tom Kerr
MEXICO LIVING
The cross-border real estate game is evolving quickly and
dramatically. Brave or foolhardy souls who bought Mexican land in
days gone by routinely assumed nerve-wracking and often catastrophic
risks. But these days it may be more financially risky to
procrastinate about buying property south of the border, because
prices are still attractively priced but may soon be out of reach.
Foreign investment into Mexico now averages about $20 billion a year,
and much of that capital infusion goes directly into real estate.
Price appreciation is robust in locations throughout the country.
Seven million North Americans travel to Mexico each year and the
State Department estimates that about 400,000 live there permanently –
nearly double the amount that did so just 10 years ago. In fact,
many Americans who used to reside in San Diego, for instance, now
commute to work from permanent homes in Mexico. They enjoy California
earning power and the relative strength of the dollar, but
simultaneously take advantage of Mexico's more desirable locations,
customized architecture, and bargain home prices.
In May of this year representatives from the National Association of
Realtors (NAR) met with Mexican Embassy officials in Washington, D.C.
to discuss the housing market and its relationship to buyers in the
USA. Antonio Ortiz-Mena, Head of Economic Affairs for the Embassy,
explained that housing prices in Mexico are continuing to gain in
appreciation, but have not gotten ahead of inflation as they tend to
do in typical "boom and bust" cycles. That economic pattern indicates
that Mexico now offers stability not seen in other countries, while
representing excellent sustainable returns on investment.
What may be more profound and significant is that, according to notes
from the meeting posted on the official NAR Web site, Mexico "may
also consider recognizing the US Real Estate license in Mexico."
Meanwhile the Embassy is working with both AARP and Medicare to
discuss how to facilitate the transition to Mexico for American
retirees. The Embassy plans, for example, to launch a test project in
nearly a dozen cities to find out more about how to make moving to
Mexico more seamless for citizens of the USA.
Fueling these kinds of initiatives is the historically unprecedented
fact that Baby Boomers are migrating into Mexico in astonishing
numbers in search of an affordable and more charming alternative to
increasingly expensive life in the USA. For many who are anxious
about their prospects for retirement – thanks to years of lackluster
stock market returns, plummeting home equity, and skyrocketing health
care costs – Mexico may be the only option that makes decent
financial sense. But our southern neighbor is in many ways the
superior choice. Mexico offers a rare combination of pristine natural
resources, beautiful but conveniently located destinations, colorful
and interesting cultural assets, excellent schools, talented
architects and builders, a cheap cost of living, and next door
neighbor proximity to friends, relatives, or second homes back in the
USA.
Baby Boomers (those persons born after 1945) make up almost 30
percent of the American population. There are 78 million in the USA
and the first of them turned 60 in 2006, representing the largest-
ever segment of American society to hit retirement age. The
purchasing power of this powerful demographic is peaking at a time
when Wall Street and the real estate market are both in complete
turmoil and lack the stability to promise reliable investment
quality. But American confidence in the Mexican economy and the
nation's political stability is stronger than ever, and this new
breed of young-at-heart seniors is not interested in retiring into a
life of convalescence.
A National Association of Realtors study found that the 50-plus age
group travels further distances than any other age group and spends
more time vacationing now than they did a decade ago, when they were
ten years younger. They are more active, wealthier, and more
interested in and experiences in different cultures than their aging
predecessors were. A recent AARP study found that they are, to put it
bluntly, more adventurous.
They are not, however, reckless. The same AARP research also found
that Boomers are prudent and careful when it comes to risk-taking,
and that extends to their investment outlook and management of assets
and finances. Lucky for them, changes in Mexican law have made it
significantly safer and easier for foreigners to own property, and
major U.S. companies have begun offering mortgages and title
insurance in partnership with Mexico's real estate industry. Such
practices provide needed reassurance, security, and comfort to
Americans considering purchases in a foreign country, because they
can transact business with trusted institutions according to familiar
terms, methods, and conditions.
Those planning to buy in Mexico should keep in mind that contracts
are drafted in Spanish and – at least for now – real estate agents in
Mexico are not required to be licensed. But many reputable brokerage
companies –including such prestigious ones as Sotheby's – have
branches in Mexico and can guide clients and offer help with
selecting competent and skilled local professionals including
lawyers, building inspectors, and contractors.
The most important restriction to foreign ownership of real estate is
contained in the Mexican constitution. It states that foreigners
cannot own property within 60 miles of the border or 30 miles from a
coastline. That used to be a compelling reason to avoid Mexico, but
recently the rules have changed to encourage investment. Now there
are two legitimate and easy ways to circumvent the problem, and those
are 1) the use of a Bank Trust and 2) corporate ownership.
• The Bank Trust or Fideicomiso
Several major Mexican banks can create the Trust (Fideicomiso) in
exchange for set-up and annual maintenance fees. Rather than give
direct ownership to the foreign buyer, it establishes a bank-managed
trust account to hold the legal title to the property on behalf of
the foreigner. Trusts can be established for 50 years into the future
and renewed at any time. The costs to set up the trust vary, but
average $500-$800 plus about the same amount in annual maintenance
fees. The property buyer is granted all rights of enjoyment of the
property including the ability to remodel, mortgage, sell, or leave
the property to heirs. Bank trusts are established by a Mexican
attorney, the forms are standardized, and the procedure – which
usually happens at closing – is routine, thanks to the large number
of foreign property owners.
• The Mexican Corporation
Ownership of property through a Mexican corporation is another
excellent option. As long as at least two people – for example, a
husband and wife – are in the corporation, it can be wholly owned by
foreigners. Once incorporated, the corporation can own property
outright, completely eliminating the need for a Fideicomiso trust.
Corporations can also legally rent and lease property, which is
advantageous for those who want to divide their time between the USA
and Mexico or who want to buy now but not live in the property until
a future retirement date. Establishing the corporation is a
relatively simple process that takes about six weeks and costs around
$2,000.
Traditionally, real estate purchases in Mexico meant paying a lump
sum in cash at closing. Fortunately, regulations have been updated
and now cross-border mortgages are available through major financial
institutions that have representatives in Mexico. Title insurance is
used to protect owners if the title turns out to be invalid or if
there are legal claims on the property, and works the same way it
does in the states. Large, well-known U.S. title insurance companies
can arrange insurance as well as escrow services to protect the
buyer's down payment until the transaction is completed.
Generally the seller will pay the real estate brokerage fees and the
buyer is responsible for other total closing costs such as escrow
fees and title insurance. The total cost is roughly comparable to
those typically paid in the USA. Real estate transactions in Mexico
are usually closed in about 60 days for a cash transaction or 90 days
for a mortgage-financed purchase.
Before buying property anywhere – even in one's own hometown – it is
important to gain a familiarity of the location to understand
particular nuances that cannot be realized by simply walking through
a home or driving around a neighborhood. Experience the area first
hand, by visiting or vacationing there. Get to know the neighborhood
and talk to people, including both natives and transplants. Putting
some time and effort into due diligence – or investing in the cost of
having someone trustworthy and knowledgeable do it for a professional
fee – is always recommended before buying real estate.
The best thing about doing this kind of research in Mexico is that
the project can be dovetailed into a wonderful excuse for a vacation
in one of the world's prime holiday destinations. Plan the excursion
ahead of time because it may also be possible to offset some or all
of the trip expenses as investment planning or a real estate business
deduction.
About the writer: Tom Kerr is a freelance travel and finance writer
based in the USA.