Owning in Mexico

During the last few years, purchasing property in Puerto Peñasco – in fact, in virtually all of Mexico – has become a viable and, for many, a successful investment strategy. This has brought a much needed sophistication to the issue of foreign ownership of property in Mexico. No longer are prospective purchasers content with a handshake and a promise that “everything will be alright”. What the new breed of purchaser demands is a level of responsibility identical to that which they expect “north of the border”. US title insurance, bonded escrow accounts, full title searches are all now a part of “doing business” – and about time, too!

That is not to say that there are not differences. The most dramatic – and often the most confusing – of these is, the Fideicomiso.

What is a Fideicomiso?

Given the extraordinary interest in purchasing property in Mexico, especially in resort areas, the Mexican Government recognized that it was essential to make foreign investment in Mexican property safer and easier than it had historically been.

Unfortunately, the Mexican Constitution prohibits foreigners from holding title to any property within 60 miles of an International border or within 30 miles of the Mexican coast. To allow foreigners the right to acquire and hold property within these areas a newer, safer, method of purchasing property was created.

Similar to the Estate Trusts that many of us have already created to protect our assets for the future generations of our families, the Fideicomiso allows property ownership through a Mexican Property Trust.

How does a Fideicomiso work?

The Department of Foreign Affairs in Mexico City issues a permit for the Mexican Bank of your choice to create the trust (Fideicomiso). The bank will hereafter act as the “Trustee” of the Trust, with you and your heirs as its “Beneficiary”. It is important to remember that the Trust owns the property, the bank simply manages the Trust for you.

Much like the Estate Trust mentioned earlier, or even like a Living Will, the Trustee (the bank) takes its instructions only from the Beneficiary (you). You have the right to possess the property and use it as you see fit. This includes all of the same rights that you have with the property you “own” at home. You can build on and improve the property, use it yourself, rent or lease it to others, even sell it.

You, as the Beneficiary, enjoy all of the same rights as a property owner in Canada or the United States, including the right to bequeath the property to an inheritor. This means that future generations of your family can continue to enjoy the benefits of, and ultimately profit from, your shrewd judgment in purchasing property in one of the fastest growing – and fastest appreciating – real estate markets in the World.

Is this a “Land Lease”?

No. Although many people have enjoyed the property they have acquired through a Land Lease – these are very common in other parts of the World – a Fideicomiso is actual ownership of real property. The only difference is that the Title to the property is held by the Trust, not you personally. However, insofar as you are the one who directs and controls the Trust, it is the same in practice as if you did.

Perhaps what confuses people is the issue of renewal. With a Land Lease, which is established for a specific period of time, you will eventually have to renew – and often renegotiate – the lease. The actual ownership of the property never leaves the possession of the original owner, who can change the terms of the lease or even refuse to renew it.

A Fideicomiso is completely different in this regard. Insofar as it is the Trust that owns the property, with you as Beneficiary, nothing regarding the control of the property will change until such time as you decide that it should. There is a predetermined period, or “term”, of the Trust – this is commonly 50 years – but you have the right to renew the Trust for additional periods of 50 years indefinitely. There will be a small fee for doing this, just as there are yearly operating fees paid to the Trustee (the bank), for managing and maintaining the Trust for the Beneficiaries (you and your family).

How long does it take to get a Fideicomiso?

This is, for many people unfamiliar with the process, a seemingly long and complicated ordeal. In actual fact, it is very simple and straightforward. What is causing the delays lately is the astonishing number of properties being acquired in this manner by foreign investors. The local legal community is currently rushing to complete a great many Fideicomisos for those who have come before you. Don’t worry. With the increasing demand for property in Mexico, more highly trained and accomplished legal professionals are becoming involved in the business of establishing Mexican Property Trusts. On average, you should have your Trust within 60 to 90 days, but some have actually been delivered in as little as a few weeks.

Should you get Title Insurance?

Obviously, this is a matter of personal choice, but it seems reasonable to do so. After all, you have insurance on your car, your home, even your health, why wouldn’t you purchase it for one of your largest investments – your Mexican property. There are a number of both US and Mexican companies that are now offering Title Insurance policies for any qualified property in Mexico.

In Conclusion

You will hear a lot of stories about purchasing property in Mexico – both good and bad – but remember this one thing: Always seek out the most qualified professional available to you – real estate agent, lawyer, Notary Public, developer – and ask them every question that comes into your mind. The only “foolish” question is the one you “forgot” to ask.

Fast Facts

Fact: Until you have received your Trust, and all rights to the property have been transferred to you, the legal owner of record in Mexico is still the previous owner.

Fact: You cannot bypass Mexican Taxes and/fees by not getting your Trust, even if you sell the property to someone else before you have your Trust in place.

Fact:US Title Insurance is available for properties in Mexico purchased by US Citizens.

Fact: Just because you have a Trust it does not mean that you have free and clear title to the property. Always insist on a full and comprehensive title search.

Fact: You can name a US Corporation as the Beneficiary of the Trust. This is perfectly legal.

Fact: If, however, you sell more than 25% of the shares in the US Corporation, you have created a real estate transaction in Mexico and all Mexican Taxes will apply.

(This is Article 151 of the Mexican Revenue Code and is also declared in the International Tax Treaty between Mexico and the United States. If you do this, and you do not pay the Mexican Taxes, you will have created a tax burden on the property for the next owner.)

Fact: You can own a property in a Mexican Corporation and take title in “fee simple” form only if the property is for either development or investment purposes.

Fact:You cannot own property through a Mexican Corporation simply to by-pass the Trust process.

Fact: It is against Mexican Law for a foreign national to own property through a Mexican Corporation solely for residential purposes.

Fact: Any property purchased in Mexico, regardless of whether it is purchased through a Mexican Corporation or through a Mexican Property Trust, will be subject to Capital Gains upon your selling it at any point in the future.

Fact: If you do not have your Trust in place, you should not begin construction of your home. Without the Trust document, you cannot be granted a building permit in your name and you will run the risk of not being allowed to deduct your land or construction costs when you come to sell the property.

Fact: Annual property taxes are relatively low in Mexico, but Capital Gains are not. Registering an artificially low amount for either the purchase of the land or the construction of your home will cost you much, much more in the long run.

Purchasing property in Mexico is a great thing to do – both as an investment and simply for the enjoyment of you and your family – as long as you do it “right”. Always seek out the most qualified and experienced professionals you can find and ask all the questions you need to feel comfortable with your purchase.