Investing In Mexico

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Friday, July 18th, 2008 Subscribe To Our Feed

Buying interest in foreign markets is becoming a hot ticket item for many in the United States. With the growing middle class in so many other countries, aided by the influx of jobs from the U.S. and Canada, more foreign countries are seeing a build up of residential and commercial real estate that is fast outpacing the U.S. markets.

The weakening dollar is also a factor in foreign investments. When cashing in, the return on investment is typically higher when buying using yen, peso, Euro, or another foreign currency.

Obviously it takes some finesse – and a great deal of homework – to make foreign investments profitable. Simply buying available land or commercial property in another country because you can afford it, or because you vacationed there once and really enjoyed yourself, is not enough to protect you.

Additionally, there are many laws that govern other countries that make property ownership, investment, and development much different than it is here in the U.S. Assuming that the process is anything like what you’ve experienced before is extremely shortsighted.

Mexican real estate law and how it relates to foreign investment.

Mexico is one such country that has more detailed laws regarding the investment in and ownership of property, especially for foreigners. Their Constitution initially barred foreigners from owning land in Mexico; this was meant to stave off foreign invastion.

Specifically, Article 27 of the Mexican Constitution regulates the ownership of its territory by establishing that “in a zone of 100 km. (62 miles) along any border or 50 km. (31 miles) along the coast, foreign entities cannot acquire direct ownership of the land and waters.” Until recently, foreign investors were allowed ownership of real estate only located outside of the “Restricted Zone”.

Recognizing the demand by foreign interests for ownership of real property, and the importance of making these desirable properties available to foreigners for the potential positive impact on the economy, the Mexican government implemented a series of Foreign Investment Laws beginning in 1973, modified in 1989 and modified again in December of 1993 to incorporate the provisions of the NAFTA treaty. Because the Constitution itself cannot be changed, the country adopted the ability for land trusts to be established by foreign investors instead.

The fideicimosi.

This is a term that you will hear often when it comes to owning and investing in property in Mexico, and it’s one that American’s do well to familiarize themselves with.

According to Realty Executives, “For those who wish to acquire property for residential usage, and who have a valid entry visa, current Mexican law requires that title to the property be transferred to a Mexican bank. It is necessary to establish an individual land trust (fideicomiso) in which the foreigner becomes the beneficiary of that trust. The bank handles all of the paperwork including filing the permits with the Ministries of the Interior and Foreign Affairs.

The bank owns the real property rights, and the beneficiary (equitable owner) owns the personal rights to use, rent, modify or transfer his rights to a third party.”

The title to your land will be held on your behalf by the Fideicomiso bank trust as required by Mexican law. Title insurance will be covered by an individual title insurance policy on the property.

In other words, the bank may technically own the real property rights, but you as the beneficiary of the trust own the right to do what you want with the property, including have the profits from its use.

Inheritance in Mexico is actually easier than in the U.S. since the property can be inherited directly without the delays and expense of probate as long as a will is in place. There is no inheritance tax in Mexico as long as a will exists.

What types of properties are there in Mexico?

Buying property in Mexico, whether its land, a serviced apartment or a house, can offer good value for the money, especially in comparison to prices in the US and Europe. Mexico’s land costs can be lower, building and maintenance is cheaper, cost of ownership (taxes, utilities) is very low.

It’s important to remember that not all areas of Mexico are very well developed, and if you’re looking to buy unimproved land for development, you do need to be aware of the difficulties you would no doubt experience in trying to bring it up to grade before building on it.

The same can be said for residential and even resort property. These are not as typically well maintained as they are in other areas of the world; infrastructure of a country can mean a lot when it comes to having a smooth transaction in Mexico. Roads especially need to be considered; while a certain property may seem ideal itself because of its geography and location, it does need to be considered if there is adequate transportation in and out of that area.

This is where your homework comes into play. It’s not a good idea to buy a property simply because you like it or think it looks good, or you have a “gut feeling” about it. Speak to the locals if possible to see about the standard of life in that area and government support.

Doing your due diligence.

The Notary Public in Mexico will work with you to research the property and make sure there are no liens or other debts against the property. It is the notary’s job to be sure that all documents are in order and that all legal requirements have been met against the property as well.

Mexico can be a great place to invest.

Obviously there are many pitfalls you would want to avoid if you’re considering purchasing or investing in property in Mexico, however, there have been thousands of foreign investors who have already done so, with profitable results. Don’t let the lengthy legal process scare you off; as their economy continues to flourish, Mexico is sure to only grow in tourism, industry, and trade, thereby making your property investment that much more valuable.

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