Why It is a Great Idea to Buy Property in Puerto Vallarta and North and South of the Bay of Banderas…the most frequently asked questions and answers
1. Is it safe to purchase property in Mexico
NAFTA (North American Free Trade Agreement): Mexico has gained a lot, by entering into this agreement in 1993. In return, Mexico has had to give something as well. Mexico has in fact provided and greatly benefited a massive real estate development to accommodate all those buying or renting property there. In the first place, it is the revision of Mexican Law governing the ownership of real estate by foreigners. Then, it is the elimination of the double taxation (U.S. citizens no longer have to pay taxes in both countries (rather, they can chose where to settle their taxes), and an investment treaty with the U.S. are other factors that have boosted the interest of Americans to invest and buy in Mexico. The treaty has also opened doors for American companies to expand their operations south of the boarder. Thus today many U.S. retailers including Wal-Mart, Sam’s Club, Office Depot, fast food chains such as MacDonald’s, Burger King, KFC, Pizza Hut and Chucky Cheese are represented in Mexico. More American companies, including Seattle-based Costco, have announced the future openings of Mexico operations. This all contributes to the fact that Americans buying or renting property in Mexico now feel “at home”.
2. What kind of investment return can I expect?
The fact is that most of buyers of new residential properties in Mexico are foreigners who are buying a second home. Typically, they plan to use this property for their personal purposes, but they also may wish to rent it out to derive some extra income. It is nothing unusual that properly marketed rentals can not only offset the mortgage payment for the property, but also can yield significant extra income and profit. A typical 2-3 bedroom condo on the beach that can cost around $300,000 can derive an annual net income of about $50,000. These figures are very attractive to many potential buyers, and Ask Gringo Realtors has understood this need from the beginning. For this purpose, we have formed a separate company, Gringo’s Palapa that specializes in rentals. The rental services, management and marketing of rentals are offered to Ask Gringo Realtors customers at greatly discounted rates.
3. What Property Ownership Rights will I have when I purchase property in Puerto Vallarta or other areas of Mexico?
rights to your Mexican property do you have as a foreign buyer? Before we answer this question, we should ask what rights do you have or what is the legal definition of owning a property in the U.S.? The layman’s definition of owning a property in the U.S. says that “to own a property means that one owns Bundle of Rights in that property. And what are those rights? They are:
This trust deed assures the foreign buyer of all rights and privileges of ownership. The Foreign Investment Law, a Constitutional amendment created in 1973 and amended again in 1994, allows the trust to be established for a term of 50 years and is renewable any time during its existence, forever.
a. Right to possess property
b. Right to enjoy property
c. Right to encumber against property
d. Right to dispose property by any mean (sale, rent, deed it to someone (hears) or destroy it).
These very same rights one owns as a Beneficiary of Fideicomiso Trust. Therefore, to own a property in Mexico whose title is being held by a Mexican bank is exactly the same as owning it in the U.S.
4. What is Fideicomiso Trust?
There are Three parties are involved in the trust:
1. The trustor (the owner of the original property)
2. The trustee ( the bank)
3. The beneficiary (the person who will receive the benefits of the trust.)
The Bank (trustee) holds the trust deed for the property purchaser (beneficiary). The property is not part of the bank’s assets and cannot be liened or attached for any other obligations. The purchaser (beneficiary) has all rights of enjoyment of the property including:
1. the ability to remodel
2. lease
3. mortgage
4. pass to their heirs
5. sell the property at any time.
Bank trusts are established by a Mexican Notario (Notary), following the receipt of a permit by the Minister of Foreign Affairs. a routine procedure due to the numerous foreign property owners. The forms are standardized and the entire process is usually completed by the notary as part of the closing procedures.
The bank holds technical, legal and administrative responsibilities and protects the beneficiary’s interests. The control of the property is in your hands.
5. What are the rules about living and working in Mexico
Residency: For persons wishing to reside beyond 180 days or retire in Mexico.
Immigrant Permits: If you wish to live in Mexico short or long term. Applications accepted at Mexican consulates.
Full resident status does not require you to give up your natural citizenship. Full resident status enables you to the same rights as a Mexican National except for the right to vote. You are permitted to live, work, claim state benefits and pay taxes. Work Permits / FM3 may prohibit you from working in certain industries.
Work Permit / FM3: Yes, foreigners can legally work in Mexico, for any length of time, provided they obtain the required permission from the Mexican Immigrations Office. Permits are obtained from the Mexican Government and are issued to people who are sponsored by companies in Mexico (or foreign companies with Mexican operations / subsidiaries), or by people with specific skills required in Mexico. You can enter Mexico to work for a foreign company provided that you do not receive any remuneration directly from a Mexican company or subsidiary.
What kind of work can I do?
You can set up a small business like a bar or a restaurant. Sell consulting services, either in business development, and especially in IT and Internet related fields.
Teaching English as a Foreign Language is a popular work placement. You will need to hold the TEFL certificate (as a minimum) and with it, you’ll have a chance to work in one of the many private schools and language centers based in Mexico. Learning English is an absolute requirement for Mexicans who want a professional qualification. Most private schools teach at least half of their lessons (including math and sciences) in English.
You may also take part in community and social projects. By doing so, you can assist the local people by sharing your knowledge and experience and talents.
Sales & Purchasing Agents, Importers, Exporters, for attending board or director’s meetings of Mexican companies, to conduct business that will require notarial certification, and for persons participating in any legal or court proceedings or appointments to American consulates in Mexico.
Technicians and Engineers, who intend to repair, maintain, or install machinery; train or advise personnel; or to take tools or machinery into Mexico.
6. What are the property taxes in Mexico?
Property taxes:
Historically Mexican property taxes are very low. The property tax, known as “predial” is a rate of .08% of the assessed value, paid every bimester. The assessed value is determined at the time of the sale.
7. What are the capital gain taxes in Mexico?
Capital gains taxes are 35% of the difference between assessed values at the time of purchase and sale, with adjustments made for inflation and capital improvements and are paid by the seller.
Tax law in Mexico requires a Capital Gains Tax to be paid on the profit received from the sale of your property, this is calculated from your ‘cost basis’-the amount recorded by the Notary at the point of transfer/sale. It is important that you understand how this works, to avoid future loss that could have been a profit!
The only people exempt from capital gains tax in Mexico, are those who have had their primary residence here for two or more years. You are allowed only one primary residence to secure the tax advantage; this includes property you may hold in the States. This law is for Mexican Nationals or Foreigners holding their FM3 or FM2 visas and work permits.
8. How does the Mexican buying property process work?
a. Fideicomiso Trust (see above)
b. Notary
Should you decide to own property in your own name, a deed called an escritura, must be prepared by a Mexican notary public. In some states in Mexico it is now possible to name beneficiaries in the deed, but if this is not the case it is well to have a Mexican will prepared to avoid expensive legal fees and probate at the time of death.
The Notary ensures the property is free and clear by checking the Land Registry Office. This is guaranteed by obtaining a non-lien certificate and tax statement from the treasury. Additional checks are made for outstanding utility bills and municipal taxes.
Obtain a permit from the Minister of Foreign Affairs to establish the trust deed.
Prepare all documents for both buyer and seller.
When the above has been completed, the notario will present your representative with a statement of remaining funds due and, once paid, will present the legal transfer papers to be signed by the seller. The entire closing process takes between 30 and 60 days.
In Puerto Vallarta and all of Mexico, the notary public (notario público) is a public official appointed by the State Governor. He has the capacity to attest and certify documents and business and legal transactions that require authenticity. He also provides for strict security of original records and documents.
Their services are required for the legal transfer of real estate. They are an unbiased, official representative of the government and have a fiduciary responsibility to both parties and sanctions the contract from a tax and legal point of view.
9. What kind of closing cost can I expect?
Paid by the Buyer and depend on the value of the property purchased. They include a transfer tax (ISAI) of 2% which goes to the Mexican government, an average of 2% for legal Notary fees, a registration fee of .05% of the assessed value of the property, fees for the tax certificate, title search fees and property appraisal, as well as miscellaneous office expenses.
10. Is there Mexican Financing available?
To finance your dream, MexQuest has attractive U.S. loan programs not only make it possible to own a piece of paradise today, but make it an affordable investment as well. Learn more about financing options available by clicking the logo to the right.
Ask another question
Who can I trust to protect my interest in buying property in Puerto Vallarta, Nuevo Vallarta, Bucerias, La Cruz, Sayulita, Punta Mita, San Pancho and other Mexican Pacific Coast areas. Read more about our One Stop Shop Puerto Vallarta Real Estate Services.
Tell me more about the actual facts of purchasing property in Mexico and why so many baby boomers are flocking south of the border to invest their savings.
http://www.askgringorealtors.com
or
papagringo@askgringorealtors.com
