Buying Property in Mexico as a Foreigner
Who can buy property in Mexico?
Foreigners are allowed to own property in Mexico, but certain restrictions apply to properties located within the "Restricted Zone." This zone encompasses areas within 100 kilometers (62 miles) of the border or 50 kilometers (31 miles) from the coastline. Within this zone, foreigners cannot directly own land. Instead, they can acquire property through a "fideicomiso," a trust agreement established with a Mexican bank. Under this arrangement, the bank holds the title to the property, but the foreign buyer retains full rights to use, lease, sell, or bequeath it. Outside the Restricted Zone, foreigners can own property outright without any additional legal structures, holding the title in their own name, similar to Mexican citizens. This process is simpler and provides direct ownership rights.
Do the research
Investing in Mexico's real estate is an attractive option due to the country's thriving tourism industry, affordable property prices, and increasing demand for vacation homes and rental properties. Mexico's diverse landscapes, from beautiful beaches in places like Cancun and Los Cabos to charming colonial cities such as San Miguel de Allende, appeal to both domestic and international buyers. The growing middle class and steady economic development further drive demand for residential and commercial properties.
Mexico's proximity to the United States, favorable exchange rates, and relatively low cost of living make it especially appealing to foreign investors and retirees. Additionally, the government encourages foreign property ownership through the fideicomiso (trust) system for coastal and border properties, providing legal frameworks to ensure secure transactions. With steady appreciation in property values, opportunities for rental income, and a welcoming environment for foreign investors, Mexico's real estate market offers a compelling mix of stability and growth potential.
Below are some sought-after destinations for real estate investment in Mexico:
- Mexico City - As the bustling capital and economic hub of Mexico, Mexico City is a prime destination for real estate investment. Popular neighborhoods such as Polanco, Condesa, and Roma Norte are highly sought after for their mix of modern amenities, cultural attractions, and vibrant nightlife. Investors are drawn to opportunities in residential apartments, commercial spaces, and luxury properties in these areas.
- Cancún - Renowned for its stunning Caribbean beaches and thriving tourism industry, Cancún is a hotspot for vacation homes and rental properties. Key areas like the Hotel Zone and Playa Mujeres are ideal for those seeking resort-style living or profitable short-term rental investments.
- Playa del Carmen - Located along the Riviera Maya, Playa del Carmen is a fast-growing coastal city known for its laid-back atmosphere and appeal to international tourists. The city offers a mix of luxury condos, beachfront villas, and boutique developments, making it a favorite for investors focused on rental income and lifestyle properties.
- Puerto Vallarta - Nestled on Mexico’s Pacific coast, Puerto Vallarta combines old-world charm with modern luxury. The city’s Romantic Zone and Marina Vallarta are popular areas for real estate investment, offering beachfront condos, villas, and properties with strong rental demand, especially from North American retirees and tourists.
- Tulum - Known for its bohemian vibe and eco-conscious developments, Tulum is a trendy destination for real estate investment. Areas such as Aldea Zama and La Veleta attract buyers seeking sustainable luxury properties, boutique hotels, and vacation rentals. Its growing international appeal and natural beauty make it an investment hotspot.
- San Miguel de Allende - Famed for its colonial charm and vibrant arts scene, San Miguel de Allende is a UNESCO World Heritage Site that attracts retirees and expatriates. The city’s cobblestone streets and traditional homes make it a unique destination for real estate investments focused on historic preservation and cultural living.
- Los Cabos - Situated on the southern tip of the Baja California Peninsula, Los Cabos encompasses Cabo San Lucas and San José del Cabo. Known for its luxury resorts, pristine beaches, and world-class golf courses, the area is a prime destination for high-end real estate investments. Beachfront villas, luxury condos, and vacation rentals cater to an affluent clientele, making it a lucrative market for investors.
Where to find properties online:
Financing
Foreigners can obtain mortgage loans in Mexico, though the process and terms may vary depending on the lender and the applicant's nationality or residency status. Many Mexican banks and financial institutions offer mortgage options to foreigners, but these often come with specific requirements. Borrowers are typically required to provide proof of income, credit history, and legal residency status, although some institutions cater to non-residents as well. Interest rates for foreigners can be slightly higher than for Mexican citizens, and loan-to-value ratios may range from 50% to 70% of the property’s value. Additionally, foreign buyers may need to make a larger down payment, usually around 30%, and provide documentation translated into Spanish where necessary. Working with local financial advisors or mortgage brokers experienced in cross-border transactions can simplify the process and help identify the best loan options.
Due Diligence and Sales Contract
Due diligence in Mexico involves a thorough review of the legal and regulatory aspects of a property transaction to ensure a secure investment. The primary objective is to identify potential issues, such as liens, encumbrances, or disputes, and confirm that the seller has clear ownership and the legal authority to complete the transaction. This process includes verifying the property's title, reviewing zoning regulations, and ensuring compliance with any restrictions, particularly for properties within the Restricted Zone.
In Mexico, a property purchase agreement is referred to as a "Contrato de Compraventa." This agreement outlines essential details, including the property's description, sale price, payment terms, and any specific conditions agreed upon by both the buyer and seller. For properties within the Restricted Zone—areas near the coast or borders—foreigners usually acquire property through a fideicomiso (bank trust) or by setting up a Mexican corporation, depending on the intended use of the property. The Contrato de Compraventa is typically signed once both parties have finalized the terms, serving as a precursor to the final deed (Escritura Pública), which formalizes the transaction. The finalization process involves a Notario Público, a specialized legal official who ensures the transaction complies with Mexican law and oversees the registration of the property with the Public Registry.
Property Buying Costs and Taxes in Mexico
Transaction Costs |
||
Who Pays? | ||
Property Transfer Tax | 2.00% - 5.00% | buyer |
Notary Fees | 0.50% - 1.00% | buyer |
Legal Fees | 1.00% - 1.50% | buyer |
Real Estate Agent's fee | 3.00% - 6.00% (+ 16% VAT) | seller |
Costs paid by buyer | 3.50% - 7.50% | |
Costs paid by seller | 3.00% - 6.00% | |
ROUNDTRIP TRANSACTION COSTS | 6.50% - 13.50% | |
Source: Global Property Guide, PWC |
Footnotes to Transaction Costs Table
The round trip transaction costs include all costs of buying and then re-selling a property - lawyers' fees, notaries' fees, registration fees, taxes, agents' fees, etc.
Acquisition Tax (Impuesto sobre Adquisiciones o Transmisión de Dominio)
Acquisition tax is levied at progressive rates set in the tax code of the federal district. The buyer is liable to pay the acquisition tax. Rates are approximately 2.00% to 5.00%
Notary Fee
Services of a notary public (notario publico) are required in a real estate transaction. Based on the law, the Notary Public must ensure that all documents are in order and that all legal procedures have been adhered to. Notary fees are set by the federal district but generally fall between 0.50% and 1.50%
Other Fees
Foreign buyers should allot an additional 0.50% to 1.50% for setting up a bank trust, foreign office permit, and legal fees.
Set-up fees for a bank trust range from US$450 to US$1,000, with an annual service charge of around the same amount. The permit from the Mexican foreign affairs office is around US$1,100.
Most foreign buyers hire Spanish-speaking lawyers to deal with the notary public and to check the contract.
Title Insurance
Since there is no State guarantee of title, title insurance is highly recommended. Several US companies offer insurance for Mexican real estate at around 0.50% to 0.70% of property value.