As a foreigner, there are essentially two choices to own property in the restricted zone where we are located: Fideicomiso (bank trust) or a Mexican Corporation. Request clarification from your broker or real estate agent for either the bank trust or corporation.
Over 1,000,000 foreigners own property in the restricted areas of Mexico and since the change in the Foreign Investment Law in December 1993. Foreigners can now own residential land in the restricted zones through a Fideicomiso (Trust). (Think of this trust to be similar to a inheritance trust or a living family trust in the US The restricted zone is defined as land within 30 miles of the beach and 50 miles of the border.
Foreigners acquire irrevocable and absolute ownership rights to residential property in Mexico through a 50-year perpetually renewable and transferable Bank Trust called a Fideicomiso. This Trust is a legal substitute for deeded (commonly referred to in the U.S. as fee simple) ownership and is provided specifically for non-nationals to own residential property in the restricted zones (border and beach areas.) established in the actual Mexican Constitution. The Trust system of ownership is sanctioned by the Mexican government, provided for under the Mexican Constitution, and secured by the Central Bank of Mexico; thereby offering powerful protection.
A foreigner can purchase property in Mexico with a simple "Tourist Visa." We would recommend at some point soon after your purchase to visit a Mexican Consulate in the United States to begin the process of receiving "Residencia Permanente" or permanent residence. The residencia permanente application which begins in the US is completed at the immigration office in La Paz or Cabo San Lucas.
Yes, you have every right to rent out your property in a bank trust or Mexican corporation. We highly recommend that you or your corporation be registered with "Hacienda" (Mexico&'s IRS) and pay obligated income taxes.
This depends on the size of the home and how much it is being used. Typically water bills are between $10-$20 USD per month. Ejido water can be $30 per month. Electric really varies, the bills come every 2 months. If you do not use air conditioning, the bills are low. In the summer if you use air, they are much higher. Gas runs about $20 per month for your hot water and stove if needed. The Internet ranges from $20- $45 USD per month. Maintenance for a house can run anywhere from $100-200 per month. Management fees range from $75- $200 per month. The gardeners are usually $20-$35 per week. That covers around 4-6 hours. Annual bank trust fees are between $400-$500 per year, and annual property for a home is approximately $200-400 USD per year.
Water is obtainable through the municipality or the Ejido in most areas. The municipality is now requiring that you need to show a house plan and are ready to build before they issue a new water contract. Ejido (farm) water is available in some areas where city water is not. On the hillside of Pescadero and in the Los Cerritos area people truck in their water. The cost for a water truck is between 700-900 pesos or about $40-$50 USD per truck and a truck is equal to 10,000 liters.
Most good builders range from $90- $180 per square foot. Obviously the level of construction and the finishes used will make a difference. Seems we have had great success with the builders who are in the $75 USD -$ 100 USD per square foot range.
Permanent residency is when you have a permanent residence card which does not have to be renewed. You can still leave the country and you also have exemption benefits with capital gains taxes if you are registered with Hacienda. Temporary residence is like a tourist visa that needs to be renewed each year. You can purchase property with this status. Citizenship can be obtained after a certain amount of years with your permanent residence card. You do not have to give up citizenship in your country of origin and will be given the rights of a Mexican citizen but you will not be able to be president. We always recommend that you speak to an immigration lawyer for any step of all three processes. More than likely they will instruct you to start the process in your native country and then work with you here.
While there are a few escrow companies providing this service in Mexico, most of the companies hold the funds or conduct their operations in the US. The escrow company writes in their agreement that the State where the funds are being held or where the company headquarters are located regulates the escrow agreement. Using an escrow company your funds will be secure and regulated by U.S. law. There are some companies with a physical presence in Mexico yet the funds are handled in the United States.
The Buyer will pay all of the fees, costs, and taxes incurred in with the purchase of the property including but not limited to the escrow fees, permit fees if obtaining a new fideicomiso, bank fees for a fideicomiso, acquisition tax of 2% on the purchase price, certificate of no liens, certificate of no debt for the property taxes, a mandatory municipal appraisal on the property, notary fees (not like a US notary), property registration fees, legal fees, confirmation of property points, title search and title insurance policy (if desired), home inspection, and any other form of due diligence called out in the purchase offer. Make sure you get a closing cost estimate from the closing agent/attorney of your choice before starting the process.
The Seller will pay the capital gains taxes for the sale of the property, the applicable commission based upon the listing agreement to the real estate agents involved, any pending bank trust fees for the fideicomiso, and pending property taxes, the cancellation of the Seller’s existing bank trust if the Buyer does not need it to close, any pending utilities due up until the day of the closing, the liquidation of any and all employees even if the Buyer will be contracting their services, and other obligations established in the sales agreement.
While we always recommend that both parties be present at the closing it is not required by law. Seller and Buyer can either sign personally at the closing or through their duly appointed and authorized representative. If the Buyer or Seller will not be here for the closing then they will either need to assign a power of attorney which will be prepared by the closing attorney and ratified by a Mexican notary. If the power of attorney is executed in the United States or any other country, it will need to be signed in front of a notary in your and then accompanied with a letter of Apostille from the State Department of the State for where you signed. The letter of Apostille authorizes that the notary that witnessed the signature is an authorized notary for this State. Not all countries have letters of Apostille (such as Canada) and in this case in lieu of a letter of Apostille, the power of attorney will need to be certified by the nearest Mexican consulate. If the Seller already has an existing a power of attorney then it might be very difficult to reassign this especially if it is irrevocable.
The closing process to purchase or sell a property in Mexico is much longer then what a person might be accustomed to in another country (45 days to 12+ months). There are different ways to take title in Mexico and I will outline each one.
Let's start with the process that most foreigners use in taking title which is in the form of a bank trust (fideicomiso). On average the process will take around 90-120 days if you are acquiring by means of a new bank trust (fideicomiso) from a Mexican national (seller). If you are using a foreign entity such as an LLC or living trust, you can expect a longer closing process since these legal documents must be authenticated with the Apostille, must be translated and reviewed by the bank in a more thorough manner.
If you are acquiring a property through a bank trust (fideicomiso) where the seller already has title in an existing Mexican corporation then the process should take around 120-150 days assuming that the seller's corporation is active and all is ready for the sale.
If you are acquiring a property where the seller already has an existing bank trust (fideicomiso) that you are either going to take over or have them cancel, then the closing process can take anywhere from 180-365 days depending upon the bank that holds the trust. The cession of rights of an existing bank trust (fideicomiso) is usually a shorter closing period than the cancellation of an existing bank trust (fideicomiso), as in the cancellation process you are now involving two different banks.
If you are acquiring a property in a Mexican corporation you can expect to close in a time frame of approximately 250-350 days if you need to start a new corporation or if you have to first cancel the seller's existing fideicomiso. The reason for this is that you must first start the corporation, register it in the municipality as well as Hacienda, have a legal representative for the corporation who can sign on behalf of it, and have a legal address for the corporation and show proof of this address. Eventually, you will also need to begin the process of starting a corporate bank account and obtaining visas for the representatives of the corporation. This process can be set up during the closing or afterward.
If you are acquiring a property as a Mexican national from another Mexican National or a Mexican corporation you can expect to close in a time frame of approximately 45-90 days. If you are acquiring a property as a Mexican national from a seller who has an existing bank trust (fideicomiso) the bank trust has to be canceled or extinguished then you can expect a closing time frame of approximately 150-200 days.
There are a few urgent care centers, pharmacies and private doctors and dentists. Major hospitals and other medical facilities are located in Cabo San Lucas and La Paz, approximately 45 minutes to an hour away.
Cabo San Lucas and La Paz have big stores, like Costco, Mega, Home Depot, WalMart, Sam's Club, etc. But Todos Santos has a large population of smaller stores and shops that will supply you with most of your basic needs, and often at an equal or better price.
The most "swimmable" beach is Cerritos Beach, located approximately 10 minutes to the south by car. It still possesses a very strong current that one must be aware of when swimming or surfing. People do swim at Palm Beach and other areas but it is not recommended.
The source of water for everyone living here is the Sierra Laguna Mountains to the east, which feed the entire aquifer for Todos Santos and points north and south. All of the water comes from wells that are tied in to this aquifer. Water may be acquired by setting up an account with either the local municipality, the local Ejido group (a farm cooperative of Mexican nationals) or purchased directly from a water truck. What source is available to you depends on what area you choose to live in. Whatever the source, water is usually stored in a cistern. It is then pumped into a metal "bladder tank" to be pressurized before entering a dwelling.
Essentially we are in a mostly Cash Market. If you are looking for financing in the Todos Santos area it would have to come from the Seller of the property. There is now private loans being down here accompanied with high interest rates. Your source of income for your Mexican property will most likely come in from your income, investments, or from a loan source in your country of residence.
The foreign population in Todos Santos is full time around 10% and during the season that may increase to 25%. The majority of the foreigners living in the area from the US and then Canada. We are seeing more Europeans in the area from places such as Italy, France and Belgium. We are also seeing quite a few residents from South America (Argentina and Uruguay).
Annual property taxes on just raw land can be $10-$200 US dollars depending on the value, size, and location of the property. Annual property for a home is approximately $200-400 USD per year also depending on value and location.
The building costs down here run between $70-150 USD per square foot. This depends upon your builder, the type of finishes you would like and the quality of construction. Prices like any area will vary upon the level of construction and the detail and extras that you would like.
You can use the services of Ricardo Amigo Property Management to pay these on your behalf. If you wish to pay your property taxes you must physically be here to do so. You can prepay the year ahead starting in the end of October and receive a 30-35% discount on the property taxes due for this year and any other previous years owed. For your fideicomiso you can either wire the funds, send a check, or set it by credit card payment. For utility bills you can prepay water and electric and have a credit but we do not recommend this.
My answer is that if you are just going to be purchasing one or two properties then the bank trust is the best vehicle to use. Even the initial costs are higher than setting up a Mexican corporation the bank trust does a great job of giving you the rights to the property and spells things out clearly for inheritance and beneficiary. It is also transferrable. A corporation is much more involved and despite being less expensive in the beginning it will wind up costing you more money in annual fees and taxes. A corporation should be used in the purchase of a property when the Buyer will be running a business on this property and/or will be purchasing multiple properties for sale or for commercial use. Maintaining a corporation involves paying an accountant, monthly corporate taxes, as well as having an employee for the corporation. Operating and maintaining a foreign owned corporation is a commitment.
Most areas have access to either municipal or Ejido water and a large percentage of the area has access to electricity. There are still some areas where you have to truck in your water and there are still some areas where you will need to live on solar power or another alternate energy source. Many people live off grid here and it is just fine.