No matter what the guy on the next bar stool or the sweet woman in the tropical print dress and straw hat tells you, there is only one way to buy real estate in Mexico, the right way.
In most of the areas you will be looking for property (coastal areas), there is only one legal way for foreigners to hold title, which is through the fideicomiso (“fee day co mee so”). The fideicomiso is a legal instrument used by agencies and individuals to hold assets in a secure trust.
In 1973, to protect and reassure foreign buyers of Mexican real estate, the Mexican government changed the constitution to allow foreigners to buy properties using the fideicomiso. In 1994, the life of the trust was increased to 50 years with a 50-year renewal. Holders of older fideicomisos are allowed to apply to the office of the Secretary of Foreign Affairs to have their trust extended to the 50-year term with 50-year renewal. Actually, the fideicomiso may be renewed in 50 year chunks ad infinitum.
The areas that are within 31 miles of a coastline or 62 miles of an international border are called the restricted zone. The majority of Realtors selling property in Mexico are selling property in the restricted zone. The entire Baja Peninsula is in the restricted zone. In the old days, and the practice still persists today (illegal though it is), you would hire a presta nombre, a Mexican citizen that you trust who would “own” your property. I really should not put “own” in quotes because, in fact, they do own the property. So in the old days, you would identify the property, find a trustworthy Mexican, pay the seller her price, and the new title would be drawn up in your presta nombre’s name. You would then execute a contract with the presta nombre stating that you were in fact the owner. Since the contract is based on an illegal action, it has no validity. Nowhere in the eyes of Mexican law are you listed as the owner. And Mexican law is the only law that applies to your Mexican property. Uncle Sam cannot help you.
Would you do anything like this in the USA? Never! Why would you knowingly break the law in a foreign country when your government cannot help you? But people do this. Lots of good, hard-working people like you. You know why? Because their agent told them: “That’s the way we do it here.” Or: “It will cost you a lot of money to get a fideicomiso. You know what I say to that? Pay me now or may me BIG TIME later!
So what is a fideicomiso?
Well, as I said, it is an instrument that is used by Mexicans like a trust. In the case of foreigners, when buying in the restricted zone, it is the only legal way you can own property.
The fideicomiso names you as the beneficiary and you can name heirs or substitute beneficiaries. The trust is held by a bank and the trustee is called a fiduciaria. BANORTE is a major Mexican bank that offers very nice rates and good service on a fideicomiso. As stated earlier, the fideicomiso runs for 50 years and can be renewed in chunks of 50 years. During that time you have these rights:
- You may improve the property
- Sell the property
- Mortgage the property
- Bequeath the property, and
- No probate
Let me explain “no probate.” Since the fideicomiso is a trust, when you die; your heirs (substitute beneficiaries) receive ownership immediately. And all of the rights of the trust go to them.
There is a one-time setup fee of US$400–500 and an annual renewal fee of the same amount. The fiduciaria does not send you a notice to pay; you must remember to renew it each year.
The upfront costs of a fideicomiso are very small and the annual renewal is the cost of having the privilege of owning your dream home in paradise.
Keep in mind that your property taxes are very low, so this fee is small, as well. The fideicomiso is like your deed. Former owners and beneficiaries are listed, as are the metes and bounds of the land itself, and the price you paid for the property. You can have the purchase price of your home listed in dollars. This is the best practice.
When it comes time to sell, the notaria must calculate capital gains tax. The value of the peso will have changed; these are time-consuming calculations. If the value of the peso is low at purchase and then increases, you can be in for a capital gains tax. Since the dollar is stable, the value at any given time does not become an issue.