Perhaps one of the most discussed topics when considering Mexico as a retirement destination is Real Estate. Most foreigners believe buying Real Estate in Mexico is exclusive to Mexican citizens. In reality, foreigners can purchase Real Estate anywhere in the country, including the border zone and beach areas.
To clarify this important misconception, some history is in order. The Mexican Constitution of 1917 provided villagers with communal land or “ejido land”. Villagers were not allowed to sell the land, and only Mexican ownership was permitted, given the problems with foreign ownership before the revolution. In 1973, a constitutional amendment known as the Foreign Investment Law allowed foreigners to purchase property anywhere in Mexico, with the exception of the restricted zone. Article 27 of the Mexican Constitution states the restricted zone as all land within 50 km (32 miles) from high tide and 100 km (64 miles) from any border in Mexico.
The final restriction preventing foreign property ownership in the restricted zone occurred in 1994. With the introduction of NAFTA, the Mexican government passed another amendment to the constitution, allowing foreigners to own property in the restricted zone through the use of a bank trust or “fideicomiso”.
The Bank Trust or “Fe-day-co-me-so” is a legal procedure used when a foreign citizen purchases Real Estate in the restricted zone.
The Mexican government established the trust system for two specific reasons:
- to circumvent the constitution, allowing foreigners to legally own property in the restricted zone.
- as a way of protecting foreigners interested in owning property in Mexico.
Since any property purchased in the restricted zone must go through the trust process, the transaction is automatically reviewed, ensuring it is legal and unencumbered, thus providing security to the buyer.
The bank trust has the following attributes:
- The bank (trustee) holds the trust deed for the person or persons purchasing the property (beneficiaries).
- For all legal instances, the beneficiary of the trust is the rightful owner of the property and may lease, sell, mortgage or inherit the property.
- The bank is required to check ownership, insurance and indebtedness of the property, providing further protection to the foreign owner.
- Trusts are usually granted for 50-years and renewable at the end of the period. The owner has an additional 10 years to renew the trust with the bank after the end of the term.
- If you purchase property currently held in a trust deed, a new 50-year period can be established or the existing trust deed may be assigned to the purchaser.
- Trusts are renewable at any time by applying with your bank.
- The fee to open a trust account varies between $350 and $600 dollars. An annual fee applies during the life of the trust.
- To open a trust account with the bank, you will require the accepted offer of purchase, a photo ID and 10% of the purchase price.
- A bank contract should be given to you at the time of your deposit.
Properties purchased by individual buyers are not part of the bank’s assets and cannot be subject to any lien or attachment for any bank obligations.
It should be noted that the bank trust system is not a lease, as the government does not claim back the properties at the end of the trust period; rather, beneficiaries have the right to renew the trust period.
Referred to as “Notario Publico”, the notary is a highly qualified attorney with special instruction. In Mexico, every real estate transaction must be signed by a notary to attest its legality. As an unbiased government appointed official, the “Notario” functions as the attorney of record, providing its services during the closing process for the transfer of real estate property. The “notarios” have a fiduciary responsibility to both the seller and the buyer and sanctions the contract from a tax and legal point of view.
The government at any time can take away the powers given to the notary in the event that established rules and regulations are not properly followed.
One of the great advantages of owning property in Mexico is that property taxes are very low. Property tax or “Predial” is 0.1% of the assessed valuation, compared to the 1% property tax paid in the United States. Imagine paying $250 instead of $2,500 for your $250,000 home! Taxes are paid annually, with the assessed value determined at the time of sale.
Once you own property in Mexico, you should consider the capital gains tax breaks the Mexican government offers to Mexican citizens and qualifying FM3 or FM2 Visa holders when selling a property. The tax exemption is only given to those who have owned the property for at least two years and reside in México for more than 182 days a year. 
