Buying property in Mexico
Web Posted: 05/05/2007 12:01 PM CDT
Rachel Stone
Express-News Business Writer
The warm climate of Mexico, its low cost of living and the relatively cheap real estate draw Americans by the hundreds of thousands.
As many as 1 million Americans live in Mexico, according to the U.S. Census Bureau, and the real estate market there is growing like bougainvillea in the summer sun. Some areas, such as the Yucatan and Baja California, have seen property values grow by 50 percent and more in the past five years.
In San Miguel de Allende, a town in the state of Guanajuato that has been a favorite of Texans, property values have increased 12 percent to 20 percent a year since 2001, said Salvador Moreno of ABC Realty in San Miguel de Allende. Moreno has been in the real estate business for 31 years.
Mexican real estate could be a good investment, and retirees like living there because of the low cost of living and tropical climate.
But buyers must be cautious getting into the Mexican real estate market, said Jacob Casanova, whose San Antonio-based real estate firm, Casco Inc., has been facilitating cross-border real estate transactions since the '70s.
Casanova knows the horror stories — con artists selling property they don't own, crooked real estate agents or shady public officials. But in many cases, the problems can be traced to U.S. buyers who don't know how the Mexican market works.
When in Mexico
Casanova's advice for buying in Mexico is to think like a Mexican. In the Mexican business world, people generally wouldn't deal with anyone they didn't genuinely like and trust.
People there take the time to get to know their clients, vendors and partners personally before starting any business talk.
"You need to find someone who knows what they're doing," Casanova said. "Patience is the biggest thing you have to learn to do business in Mexico."
Get referrals, check references and, most of all, get to know the real estate agent before doing business, Casanova said.
But the idea that everyone in Mexico is out to scam U.S. buyers isn't accurate, said Alicia Willis Campbell, whose San Antonio company, Property Holdings International, helps Mexican nationals buy real estate in the United States.
She recently formed a partnership with a real estate agency in Mexico to help Americans find homes and commercial property there.
"Mexico has gotten more standards for things like inspections and appraisals," she said. "Everything is becoming more like it is in the U.S."
The National Association of Realtors last year formed a joint venture with its Mexican counterpart, the Mexican Association of Professional Realtors, known as AMPI. This year, all AMPI members also became dues-paying members of the National Association of Realtors, which sets standards for business ethics.
"It makes it easier for Americans to find Realtors over there who have the same standards as here," Casanova said.
Hiring someone who's an expert in the market where you're buying is key since real estate contracts in Mexico could vary depending on who writes them — they're not standard like contracts in Texas.
Purchasing real estate in Mexico usually requires hiring a lawyer as well as a real estate agent.
"Not only do you need someone who can read the contract, you need someone who understands the real estate laws," Casanova said.
A local public official — a lawyer known as a notario público —acts as a county clerk, title company and tax assessor. Foreigners should expect to pay as much as 10 percent of the purchase price in transfer taxes, notario fees, permit fees, appraisal fees and recording costs, said Mitch Creekmore, director of business development for Stewart Title's Mexico division.
Real estate agents in Mexico typically charge a deposit of $1,000 or more, which isn't put into escrow. And without an escrow agreement, it could be impossible to recover, Creekmore said.
"Real estate transactions are just more expensive in Mexico," he said.
Borrow in the U.S.
Along with finding a reputable real estate agent, Americans buying in Mexico must find a lender.
Real estate transactions in Mexico traditionally have been cash only, Creekmore said. That's because the nation lacks a mortgage market and because Mexican banks have charged exorbitant interest rates for loans — up to 30 percent and 40 percent. While those rates have dropped recently to more like 15 percent, that's still a hefty rate for a mortgage.
But lending is crossing borders.
Laredo National Bancshares Inc., for example, was purchased in 2004 by a Spanish bank, Banco Bilbao Vizcaya Argentaria, and will issue mortgages to Americans buying homes in Mexico.Many other lending institutions will do the same.
"The market is open like it never was before," said Alma Muzquiz, a real estate agent with Re/Max Associates in San Antonio and a Mexico native. "Now Americans have more flexibility and different avenues."
Stewart Title and other American companies have been issuing title insurance on Mexican properties for about five years.
Creekmoreof Stewart Title co-authored a book with Tom Kelly, "Cashing in on a Second Home in Mexico," which breaks down the buying process and explains the closing process in Mexico. It offers maps, charts and tips for American investors.
Where risk rises
For Americans who want to buy property within 50 miles of the coastline, the complications and risks increase considerably.
There are a couple of ways to get around the laws that prohibit foreigners from buying coastal property, but the most common is through a Mexican bank trust.
Americans can acquire property in the restricted zone through a 50-year Mexican bank trust, known as a fideicomiso, which is renewable every 50 years.
Foreigners are given the right to occupy property but don't have title to it.
When individual sellers finance the transaction, they can transfer title to a foreigner once the debt is paid.
But such an arrangement could be bad news if a buyer gets involved with a shady seller, Creekmore said.
For John Trice of Corpus Christi it has worked just fine.
He and his wife bought land in Nayarit, about 20 minutes north of Puerto Vallarta, through a "seller buyback" in 1998 and built a surfer cottage there. The arrangement allowed them to go through a friend, who is a Mexican national, who bought the land on their behalf and transferred the title to them.
"But there are horror stories where they will hold you at ransom to get their price," Trice said. "Or the person will go onto the land and just reclaim it."
It has been a good investment: Trice and his wife bought the land for $10,000 and now they think it's worth about $100,000.
Trice has spent a lot of time in Mexico throughout his life and had established relationships that helped him through the real estate buying process there.
He knew enough to play by Mexican rules.
"It wasn't something we rushed into," he said.