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Can Foreigners Own Mexican Real Estate?
Contrary to popular belief, foreigners can own property in Mexico both out right and within a bank trust. Confusion comes in when we talk about property along coastal water. The Mexican Constitution places restrictions on foreigners owning property within a 60 miles of coastal waters and 100 miles from the country's borders. Out side of these restrictions, foreigners can own property outright. Within these restriction, foreigners own property title through a Mexican Bank Trust. To promote foreign ownership and investment, Mexican lawmakers established the Foreign Investment Act. The act is a process where by non-Mexican nationals would receive full benefit of property ownership - beneficiaries are legally entitled to own, rent, borrow against the property, have a right to full use of the property and benefit from the sale of the property.
The act essenically allows non mexican nationals to take title to property in the restricted zone through a mexican bank trust . When a foreigner purchases property in the restricted zone, a bank trust is established to hold title to the property. Technically the bank trust is the owner of the property. The bank acts as the fiduciary of the trust and manages the trust in accordance with the rules laid out in the trust document while keeping within the jurisdiction of Mexican real estate and taxation law. All disputes concerning the title are heard in the Mexican legal system.
The owner of the property is the beneficiary under the terms of the trust. The bank is the trustee. If an owner has secured a loan to purchase the property the lending institution is the primary beneficiary and the owner take the contingent beneficiary position. When the loan is paid in full the buyer will assume the primary beneficiary position.
As a real estate agent in Rocky Point, I often receive a question about how long can I own the property. Many people believe incorrectly that ownership is limited to x number of years. This is somewhat incorrect. The bank trust is in effect for a period of 50 years with another 50 year renewal option. The heirs of the property have a right to renew the trust for another 50 years. Essensially, there is no time limit.
For the banks management services of the trust, the bank will charge an annual fiduciary fee, usually around $400 dollars, depending on the sales price of the property. If you have a mortgage on the property, the trust fee will be escrowed as part of your monthly payment and paid by the loan servicer annually. Cash buyers will receive an annual invoice from the trust company when the trust fee is due.
As in the case in the United States, owners of the property are required to pay annual property taxes. However, the annual taxes are substantially lower than in the US, usually $200 dollars on a $360,000 dollar property. The real tax expenses comes in the form of an acquisition tax, which is usually 2-3% of the valuation of the property. A government approved appraiser is required to appraise the property and figure the tax. The buyer is responsible for paying the tax at closing. The seller is responsible for paying a capital gains tax on the difference between the purchase price and the appreciation of the property. If you rent the property, you are required to pay income tax to the authorities on a monthly basis. You must obtain a tax id number (Hacienda) from the Mexican revenue service. You must also obtain an FM3. The FM3 allows you to work legally in Mexico and receive payment.
At Realty Executives Rocky Point we have a network of trusted Mexican Real Estate attorneys, accountants, title companies and FM3 Specialists that we us to securely and safety handle your luxury property transaction. These specialist provide you with the level of service and knowledge needed to get through the red tape of purchasing, renting, and selling Mexican real estate.
For more information on the process of purchasing luxury ocean front property in Puerto Penasco, Mexico, please contact me at Realty Executives Rocky Point.
