It is common knowledge that many Americans are finding that investment property in Mexico may provide an interesting option. Is buying property for sale in Mexico still a good way to reposition equity from appreciated domestic property?
Trends show older people and retirees are looking for inexpensive places to live and enjoy the rest of their lives and are finding places like Mexico very attractive. Should you be the one who sells or rents this property to Americans? Is this a good way to put some of your appreciation from your property in the United States to work? We will explore some factors for you to consider:
Overall, the appeal of owning investment property in Mexico is evidenced across the country. For example:
In the last couple of years there has been a land rush in the Riviera Maya, a small idyllic slice of Mexico's Yucatan peninsula. It is this combination of beautiful beaches (or other geographical features) with inexpensive cost of living this bringing Americans by the hundreds to this place and many others.
From the long-time artists' enclave of San Miguel de Allende in the hills of central Mexico to fast-growing sports-fishing and beach communities of the Baja peninsula to Puerto Vallarta on the Pacific coast, there is plenty to lure a sun-seeking retiree.
No place has boomed in recent years like the state of Quintana Roo in Mexico's far southeast corner. Anchored by the high-rise resort destination Cancun at one end and cosmopolitan Playa del Carmen an hour to the south, Quintana Roo is the country's fastest-growing state, with over a million residents. An estimated 1,500 to 3,000 American citizens live there more than six months out of the year, along with a few thousand more Canadians, Europeans and South Americans.
The hottest section is near Tulum, just down the beach from a massive Mayan fortress overlooking the Caribbean. While the area retains a funky 60's vibe (there's a nude beach--unusual for conservative Mexico), in the past several years some swanky hotels and real estate developments have been launched.
Indeed, with more than 70 million American baby boomers expected to retire in the next two decades, many without adequate pensions or health plans, some experts predict a vast migration to warmer--and cheaper--climates. Often, such buyers purchase a property 10 to 15 years before retirement, use it as a vacation home, and then eventually move there for most of the year. Developers are increasingly taking advantage of the trend, building gated communities, condominiums and golf courses and are selling directly to the retirees and to those wishing to hold the property as part of their real estate investment portfolio.
On the negative side, there are a couple of factors to keep in mind:
First, if you are planning on using investment property in Mexico as a repositioning strategy, remember you cannot use the popular 1031 exchange approach because the rules limit replacement properties to domestic replacements (i.e. land in the United States).
Also, many land-seekers are encountering a variety of obstacles with the investment itself, including skyrocketing real estate prices and confusing laws. Under the Mexican constitution, foreigners are allowed to own land outright anywhere except within 50 kilometers (31 miles) of the coastline or 100 kilometers from a national border. Within the restricted zone, they can hold the property in a trust, or fideicomiso. While they don't officially own it, they retain the right to use it and sell it for a renewable 50-year period. For example, in Tulum, several miles of virgin beachfront are claimed by an ejido--a form of communal ownership that's fairly common in Mexico. Under current law, ejidos can be "privatized," subdivided and sold, subject to unanimous approval by ejido members and time-consuming government approvals. Until that happens, foreigners are blocked from buying pieces of it.
Finally, if you're interested in investment property in Mexico, experts say there are a few basic steps to help avoid heartache. First, ask a prospective seller to provide three documents before proceeding with any negotiations: 1) a copy of the title, known informally in Spanish as an escritura; 2) a certificate of freedom of liens and encumbrances; and 3) the latest tax statement for the property. These documents will help establish that the seller really owns the property free and clear. Second, hire a reputable attorney before signing any documents. The nearest U.S. consulate can provide a list of attorneys in good standing. Third, arrange for title insurance. In recent years major U.S. players such as Stewart Title and First American Title have gone into business in Mexico and there is a thriving locally based industry, as well. For a cost of about $5 per $1,000 of property, a title insurer will protect a buyer against prior liens by tax authorities in the event that somebody else claims title. Finally, make sure to place the property in a fideicomiso, or trust. Fees run around $1,000 to $1,500 up front, plus about $400 a year, but that is offset by the very low property-tax burden.
By tavevan
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