Buyer Frequently Asked Questions

1. Can Foreigners own property in Mexico?
Yes, foreigners may purchase real estate in Mexico. Please note that Mexico has a restricted zone. The land 64 miles from the borders and 32 miles from the coast is considered to be inside “The Restricted Zone”. Real estate not in the restricted zone may be purchased by foreigners fee simple but inside the restricted zone real estate must be held by an irrevocable bank trust known as a “Fideicomiso”.

Any Mexican national has the option to own real estate fee simple or may establish a Fideicomiso through a Mexican bank in order to purchase real estate anywhere in Mexico, including the Restricted Zone. Many Mexican nationals do so because the bank trust may be written to by pass probate upon the death of the primary beneficiaries and passes to your designated successors.

However, the foreign Buyer purchasing real estate inside the restricted zone must make an application to and request a Mexican bank of his/her choice to act as a trustee on his/her behalf as beneficiaries of the fideicomiso. The Bank obtains a permit from the Ministry of Foreign Affairs to acquire the chosen property in trust. The fideicomiso may be established for a maximum of 50 years and can be automatically renewed for another 50 years.

Any person with the knowledge and competence may write the trust but it must be accepted by the trust officer of the bank that will act as trustee. Most banks have standard trust documents that may be tailor made to meet the specific needs and request of the beneficiaries. Such as the succession of rights after your death in the U.S. we call the term tenants in common or joint tenants with rights of survivorship and per stirpes.

The Bank Trustee is responsible to the Beneficiary to ensure the fulfillment of the Trust, assuming full technical, legal and administrative supervision in order to protect the interests of the Beneficiary.

2. If the property is own through a trust, what are my limits as to what I can do with this property?
The property is available for the exclusive use of the buyer/beneficiary who has all of the benefits of a direct owner, including the ability to lease, build, remodel, make repairs, or transfer his/her rights to the property to a third party or a pre-appointed heir.

3. Can you get Title Insurance on the property? If so, what are the costs?
Title Insurance is available through the Mexican escrow companies. Based on a Title search, you can either obtain an “owners” or a “lenders” policy of title insurance securing your investment in Mexico. Insurance premiums are approximately $7.00 per $1000.00. Owner's Title Insurance not only will protect you against hidden risks that would not be disclosed by even the most meticulous search of public records, but also will pay the defense of your title as insured.

4. What percentage is paid for closing costs?
Closing costs are paid by the Buyer and depend on the value of the property purchased. Total closing costs varies from State to State because each State sets the amount of taxes. The average in the State of Jalisco for closing residential properties range from 3.2 to 5.5 % of sales price. Commercial property for new construction may be as high as 8 % because the I.V.A. Tax (a 15% sales Tax) of the sale price may be included in your closing cost. Other fees include payment for legal Notary fees, cost of the fideicomiso, a registration fee of .05% of the assessed value of the property, fees for the tax certificate, title search fees, .5% if a mortgage is included in the closing, a property appraisal, as well as miscellaneous office expenses of the notary that prepares and executes the transfer of the property.

5. What is the cost of a trust?
The normal annual trust fees are approximately $500.00 plus IVA. Costs to set up the trust is approximately $1200.00

6. What are the procedures for buying a piece of property?
Once your Offer to Purchase has been accepted, a deposit (usually 10% of the purchase price) is required. The money is placed in an escrow account. These funds are held during the time needed to close the sale. The balance is payable upon the signing of the Trust Deed at the Notary’s office.

The Notary will:
Ensure the property is free and clear by checking the Land Registry Office. This is guaranteed by obtaining a certificate of no liens and a tax statement from the treasury. Additional checks are made for outstanding utility bills and municipal taxes, and/or Home Owners fees ( if applicable).
Obtain a permit from the Minister of Foreign Affairs to establish the trust deed.
Prepare documents necessary for both buyer and seller to complete the transfer.

7. How much are Capital Gains taxes, and who pays them?
The Seller pays all capital gains taxes and real estate fees. Capital gains taxes are a percentage of the difference between assessed values at the time of purchase and sale, with adjustments made for inflation and capital improvements. Mexican nationals and foreigners that have dual citizenship or an immigration document known as FM2 may be exempt from capital gains if they prove that the residence they are selling is their primary residence, that they have lived in the residence for six months or more prior to the sale, they must have electric and water bills in their names and the same names on the trust deed. Real estate held by corporations and property used as a personal vacation homes do not qualify as being tax exempt for capital gains taxes.

8. What is the percentage amount of Property taxes?
The property tax, known as "predial" is a rate of .08% of the assessed value for private residences in the State of Jalisco but the rate varies from state to state. Commercial properties will be assessed at a slightly higher rate. The assessed value is determined at the time of the sale. Historically, property taxes have always been low.

9. Can my Property be used as a rental?
Property that you purchase here in Mexico can be used as rental property, providing that you register with Hacienda (Mexico's federal tax agency), establish residency and obtain an FM3, and that you acquire permission from the Minister of Foreign Affairs to do so. The language in your trust must include this permission. A Mexican C.P.A. can advise you on these procedures. Please note that your property tax percentage may increase once it becomes “commercial”.

10. Can I build on my property?
Yes, most property if it is located within a development will be subject to the CC&R's, a local building permit must be obtained and plans must be drawn and engineered by a licensed Mexican architect/ engineer.