Buying Property in Mexico Made Easy
Mexico is a fascinating country with excellent climate (particularly the Ajijic – Chapala area), beautiful people and the home of the largest US and Canadian expat population in the world (after Florida). Many visit here, with no intention of buying property and then within a few short days have made a commitment.
We have had clients without checks or money for initial payments, with no budget, no idea of what financing they can get in their home country and they think that financing in Mexico is similar to elsewhere. The following information is a short guide to help you be educated and prepared. Even if real estate is not in your plans it is interesting to know some of the differences in various countries.
Real Estate: Although different Laws than the US & Canada and other countries, real estate is relatively easy and safe to buy in Mexico as long as you use a reputable and knowledgeable real estate firm and agent. There are many, many details that they will address on your behalf.
Deeds: Direct Deeds are the preferred method of owning property at Lakeside and in areas that are more than 50 km. from the coasts and 100 km. from the US – Mexican border and if the beneficiaries are direct descendents of a couple. Deeds require no annual payments as do Trusts. With a Deed, you own the land and construction as in the US/Canada. Near the coast you must buy through a Bank Trust allow there is talk of changing this.
Trusts: Properties within the above areas (the 50 & 100 km.) must be purchased through a Bank trust where the Bank is the trustee, and you have all the rights to live in, sell, lease or rent the property. Advantages of a trust include that beneficiaries can be any persons, or companies or organizations. Also upon the death of one of the owners, the property can more easily transfer to other persons specified in the trust. The disadvantage of a Trust is that there are annual fees to maintain it, a fee to set it up and one to cancel it. ( Approximately $ 500.USD/ yr. And to set it up or cancel) These typically increase a bit each year.
Real Estate Companies: Real Estate is not at the sophisticated level in Mexico as in the US & Canada but there is now an MLS ( Mulitple Listing Services ) at Lakeside and in a few of the major centers, with the LakeChapala area having the most modern system. There are about 15 real estate companies in this small area.
the Hernandez Realty Group has been in the Real Estate and Development business in the area for several generations and has a wealth of experience and knowledge to assist you.
We have a large staff to assist in :
*Buying New or Resale Homes
*Rentals and Property Management
*Architecture & New Home Construction
We have a modern office, in the new HUB of Ajijic- just west of the new WAL*MART Center, beside the Scotia Bank ATM, a new 55 Locales Mall, Central Laguna, all with excellent parking.. Client service and satisfaction and surpassing your expectations is our prime objective.
We are members of:
CAR- (Chapala Association of Realtors) (the local MLS group)- so have access to all the MLS listings in the area, and also abide by the strict Code of Ethics of CAR.
AMPI- (the Mexican National Real Estate Organization)
NAR- (the National Association of Realtors) in the USA and Internationally.
Real Estate Agents: Lakeside has about 100 real estate agents. Typically about 15 to 30 turn out at bi-weekly caravans to preview new homes and about 30 or 40 to the CAR (MLS) meetings following the Caravan, to keep up to date on current real estate events. (the old 20/80 rule). We are constant participants in the above.
CAR-(MLS): CAR is the local Lakeside Real Estate multiple listing service organization. All MLS listed properties are available on the web site www.chapalamls.com . This will give you some information on each property but remember that pictures can be deceiving and location and neighborhoods are also important and not always evident.
When you work with the Wright Team we will advise you on these and other items as they pertain to your criteria.
The Buying Process in Mexico
Standard CAR (Chapala Association of Realtors) Purchase Contracts require a 10% initial deposit (of the offered price) . Once this has been received the chosen property is removed from the market, so that you can be sure no other person will out-bid you and buy the property.
A large percentage of real estate transactions in Mexico are cash deals due to lack of an abundance of affordable financing. Although financing is getting easier it is still expensive.
This is too large a subject for here, but occasionally the a seller will take back a short term (perhaps up to 3 years), small mortgage (normally less than 50%). If this is done it is the easiest and least costly method of a mortgage. It obviously is very dependent of the Sellers need for cash.
Most properties in the Lakeside area are in USD although lots, smaller homes and properties away from Ajijic Centro may be in pesos. USD or pesos may be used at the equivalent amount, (current exchange rate). Other funds should be converted to the funds required. Initial Deposit funds can be by Cheque/Check or a Wire Transfer to the USD Trust Account of the Buyer Agency. (ie Hernandez Realty Group S.A. de C.V. account at Bank of San Diego, USA.) . Having a Bank in the USA normally means that funds do not have to be exchanged to pesos and back again. Also- Foreign Banks have no problem transferring money to US Banks.
Wire Transfer is the most common- especially with new fiscal rules.
Cash at Closing
Therefore the 90% remaining is required (typically by wire transfer) at least 96 hours before the closing date. Closings are typically 1 to 4 months from accepted offer but special circumstances can change this.
Offers at Lakeside, are made on CAR approved contracts that have undergone the “test of time” to be legal and protect all parties involved in the transaction. As mentioned, an initial deposit of 10% is required with an offer. This can be by check, or wire transfer. If by check, it is not cashed until the offer is accepted.
If the Offer is unacceptable to the Seller, a Counter Offer may be made to the prospective Buyer. This may be accepted or rejected by the Buyer.
Unlike in some other jurisdictions, one can not “counter” a “counter offer”, so if the “counter” is not acceptable to the Buyer and he/she still wants to continue to pursue the property a second offer would be made.
Notaries and Lawyers-
Unlike in the USA and Canada, Notaries are Lawyers with more experience and training in Real Estate and are appointed by the government to properly handle both sides of the property transfer transaction- ie for the Buyer and the Seller. Typically Lawyers are not required or used in the process as they are north of the borders. It is the right of the Buyer to choose the Notary. (We can help with this.)
Who Pays What?
Buyer: Pays: Closing costs- + (Capital gains only on Commercial Property)
Closing costs are somewhat higher than in the US and Canada but are typically compensated for by much lower property taxes.
Closing costs include 3 main costs:
1- The SREs or Buyers Permits , which every foreigner must possess to purchase property in Mexico. It is approximately $ 100.USD per person so for a couple buying property it would be about $ 200.00. ( Some wonder about having the property only in one name but it is strongly recommended that the property be in both names in event of the death of one- and the ease of later transfer.)
2- The other 2 major portions of the closing costs are the Property Transfer Tax
3- ???? and the Notario’s fees. These are based on the tax value (not sale value) of the property and are according to regulated schedules.
4- Prepayments of services for the year are prorated at the closing date so each party- Seller and Buyer, pay their fair share.
5- Generally, closing costs vary between 3 and 4 % of the sales price. This is calculated before closing and both Buyer and Seller closing statements are prepared.
Seller: Pays :
1- Real estate commission + (16% IVA on this)
2- Termination of Maid & Gardener (we help prepare this)
3- Capital Gains Tax- (maybe) (they may be exempt in some situations.)
1-The Real estate commission in the area is typically 7 % up to the 1st. 500K USD, and 5% on the amount above. The 16 % IVA (Mexican Value Ad Tax) brings the total to 8.16% of the selling price.
2- When you buy a home, the previous owner will have terminated the Maid and Gardener (if there were either), from a financial view point. You have the right to retain them (up to a 30 day trial). The severance amount is normally very small unless someone has had many years of service.
3-Capital Gains, again is not based on the sell – buy difference but on the difference in values on the deeds at the sell – buy dates. Please be aware that older deeds (approx. before 2010) may have Tax Value transaction on the Deed. Today- most transaction Values are on the Market Value.
However if this is your primary home - ie you have 6 months of electrical and telephone bills for the property- in your name,
And have a current Permanente Visa, if you are a foreigner to Mexico,
You will not have to pay Capital Gains on the house or land as long as the land is not more than 3 times the footprint of the home. If the lot is larger- some Capital Gains would be paid. (As of Jan. 2010, this applies to the selling of one house every 5 years vs one per year previously.)
Moving & Furniture:
We normally recommend that people minimize the amount they bring to Mexico for several reasons. This is a very personal thing and we work with experts in the field that can be of great assistance and allow you to estimate moving costs.
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