Buying property on the Yucatán peninsula is a lot easier for expats than it once was.
Today, in most of the large communities across the peninsula, there are real estate agents that provide tailored services to foreigners wishing to purchase property in a safe and secure manner. These services include; bilingual agents and administrative staff, standardized contracts, secure earnest money and escrow accounts, legal assistance, title insurance, funds wiring, monetary exchange banking, closing/final statements and continual brokerage services.
A good real estate firm will build solid relationships with their clients, helping them with a range of issues that will confront the foreign buyer wishing to live and/or do business here.
Additionally, a good real estate firm will have good connections for the best (often multi-lingual) attorneys, accountants, contractors, architects, doctors, professionals and service providers.
After selecting an agent, buyers need to check the various real estate websites and choose the properties they would like to tour. The agent will then need to contact the various owners and agents to schedule appointments. It is a good idea to try to keep your selections to fewer than six to eight properties a day. Trying to tackle more will prove to be frustrating and confusing.
If you are looking for property on the beach, or in the countryside (ranches, haciendas or quintas), the driving times can be considerable. If you are searching for homes in Mérida, keep in mind that traffic in Centro Mérida can be daunting and parking is often at a premium.
Invest a few days to do a thorough search of the properties that fall within your parameters. It will not take long for a prudent buyer to establish a sense of value and know the best buys available to them.
Your agent should be able to help you to know if a property is over-priced or a good buy. Some agents may charge a small daily fee for taking you around to see property. Their time has value. Many foreign buyers are here on exploratory trips, gathering information and getting a feel for the area prior to investing in a foreign country. Many do not buy. Most agents will refund the fee at closing if the prospective buyer turns out to actually be a buyer. A knowledgeable and experienced agent is worth the effort. They can provide a ton of invaluable information they have been gathering for many years in the business and in the region.
After you have identified the property for which you wish to make an offer, your agent will draw up a standardized “Offer to Buy” contract. The offer will be presented to the seller and they will either, decline, accept or counter the offer. Negotiating on purchase price, closing date, inclusions and other details is common. However, do not be disappointed if the seller holds out for full price. Every seller, like every buyer is an individual. If your offer is accepted and everything is signed, it is time to provide the earnest money deposit and meet with your notario or attorney.
While touring properties with your agent, you will want to engage in a conversation about Fideicomisos and FOMC (Foreign Owned Mexican Corporations) to determine which is the best vehicle for you to utilize to hold title. Both have advantages and disadvantages.
The fideicomiso (bank trust) is a trust agreement that you establish with a bank to hold title of the property (you and the bank are both named in the title documents). The bank has a fiduciary responsibility to represent your interest in the property.
Advantages of the fideicomiso:
- The fidiecomiso gives you the rights and the vehicle to hold title to the property in perpetuity.
- The fideicomiso is a 50-year trust agreement that is renewable every 50 years by you or your heirs.
- You can transfer your rights in the fideicomiso to another buyer, when you re-sell.
- You may rent, sell, remodel or dismantle the improvements on the property.
- Your heirs can inherit the rights to the fideicomiso, effectively by-passing probate, should you depart without a proper will.
- There are tax advantages pertaining to capital gains taxes when you sell.
- The fideicomiso is easy to maintain by paying the annual fee to the bank.
If the title papers, property dimensions and corresponding documentation are not perfect, the bank will not issue the fideicomiso. We will discuss title irregularities in a future segment.
The main disadvantage of the fideicomiso is that it is restricted to hold a property of 2000 square meters or less. (There are exceptions and you can request a permiso for acquiring a fideicomiso that allows for a property larger than 2000 square meters. Another disadvantage of the fideicomiso is that it is limited to one specific property. Sometimes you can put two adjoining properties into the same fideicomiso. But, generally speaking the fideicomiso is only applicable to an individual property.
The FOMC (Foreign Owned Mexican Corporation) is a vehicle that allows foreigners to open a business and work in Mexico. The corporation is a Mexican entity, and as such, has the right to hold title to real estate.
An attorney or notario can help to set up your corporation. It is important to know what your goals are in respect to the property, business and type of investment prior to setting up the corporation.
Creating the corporation requires a minimum of two individuals (stockholders) of any nationality who are at least 18 years of age. One of the stockholders will be the managing partner. The managing partner will be required to acquire and maintain a proper visa. Additionally, the corporation is required to make monthly reports to HACIENDA (the Mexican Department of the Treasury) to report income and expenditures. The reporting needs to be done by a certified accountant.
Advantages of the FOMC:
- Allows for the purchase of properties larger than 2,000 square meters.
- No limit to the number of properties it may own.
- Allows for one or more of the stockholders to legally live and work in Mexico year-round.
Disadvantages of the FOMC:
- The corporation requires more hands on attention than the fideicomiso.
- Does not have the ability to avoid capital gains taxes when it sells property.
- Requires a managing partner with a proper visa.
- Monthly reporting of financial activity through a certified accountant.
I hope this blog has provided you with a good overview of purchasing property in Yucatán. Next time I will discuss the role of the notario, the closing process and taxes.