What to Watch Out For When Buying Property in Mexico

A recent report in the International Herald Tribune ascertained that the property buying process in Mexico has vastly improved in recent years and the newspaper cited a number of examples of how insurances and regulations have enhanced things greatly for the North American buyer in particular. 

The real estate transaction process in Mexico has more in common with the American system though, and so for British and European buyers there are a number of things to consider when doing your due diligence on the property market.  This article details what to watch out for when buying property in Mexico so that there are no nasty surprises along the way.

Mexico has grown in popularity in terms of its attraction as a location for holidays, holiday homes, retirement and a low cost, high standard of living - and today not only is it a highly regarded location among North American baby boomers, it is becoming a destination that even those from Northern Europe are considering as being an attractive and affordable place to invest or retire.

The fact that you can now get a range of sophisticated mortgage products to buy property in Mexico means the market is far more open to overseas buyers.  In addition to this positive fact you can now get title deed insurance for your Mexican home and you can even find an estate agent affiliated with the American National Association of Realtors…but none of this really means you can let your guard down!

The first thing you as an investor need to know is that there are restrictions on foreign buyers in Mexico.  You cannot own property within 50km of the coast or 100km of the nation’s borders for example, and many overseas buyers have to purchase through a bank trust to get around a number of the more limiting restrictions.  In itself this issue is not terribly difficult to get around but it is worth bearing in mind that there will be additional expenses involved in the purchase process other than the usual taxes and fees.

Buyers really need to allow for at least 10% on top of the purchase price when buying property in Mexico to ensure they have enough to cover all additional expenses.  Prices for real estate in Mexico are usually displayed in US dollars as the American buying market is the largest, and for the moment at least this means British and Europeans are getting far more for their money in Mexico.

This may be why more people are considering investing in Mexican property with a view to buying off plan and flipping or buying, remodeling and reselling.  Please note that capital gains tax can take a hefty chunk of any gains made though, and advice should be sought before reselling assets to legitimately avoid CGT as far as possible.

There are another few hurdles when it comes to reselling that investors need to be aware of.  Firstly it can take a long time to get title deeds through and until the new buyer has them in their name it can mean they cannot resell.  Additionally, those buying a resale property need to check the value the property was last sold for…just like in Spain it was and sometimes still is common practice to declare a ridiculously low amount as the sale price so that capital gains tax can be avoided by the previous vendor which can come back and bite the new buyer on the backside when they come to sell and declare the value they are selling it for.  The discrepancy in prices at this point can leave you with a huge CGT bill!

Other things to watch out for when buying property in Mexico include the fact that some land is owned by co-operatives which can make getting everyone’s permission to sell impossible, even though the National Association of Realtors has signed a memorandum of understanding and agreement with the Asociación Mexicana de Profesionales Inmobiliarios little inspection and ongoing regulation of Mexican agents is currently possible, and finally….buyers need to be so careful and ensure that the land or real estate they are buying is actually private property that the vendor has the right to put on the market.

Needless to say engaging the services of a competent, experienced, professional and preferably recommended local solicitor is essential - and as the International Herald Tribune article implies, apply for title insurance and if the insurance company won’t touch your chosen property let this be sufficient warning to you to walk away from the deal.

Special Reports: Property News for Mexico

Mexico Guide for Real Estate Investors
Real estate prices in Mexico are increasing consistently but there remains massive potential for growth for international property investors.

Mexico Purchase Process for Real Estate
To successfully purchase investment real estate in Mexico an investor requires patience, time and the assistance of a good lawyer

Mexico Real Estate Investment Guide
Real estate in Mexico offers an investor potentially high gains and high rental yields in a safe emerging environment.