Buying real estate in Los Cabos requires time and patience to completely understand the process. We are here to make things easier for you. Los Cabos is part of Baja California, Mexico. Like any other place in the world, Mexico has its own set off administrative processes for buying real estate. If you are planning on buying real estate in Los Cabos, you have to be familiar with these administrative processes. The processes are neither easy nor difficult. The best way to start your real estate hunt is by getting an informed advice from a professional licensed Real Estate Broker who is both working and living in Los Cabos. Here are some FAQs and answers to help you start.
Buying Real Estate in Los Cabos FAQs
Foreigners Buying Real Estate
Can non-Mexicans (foreigners) buy real estate in Los Cabos?
Yes. Anyone, whichever nationality he or she belongs, can legally buy, hold, and sell real estate in Los Cabos. You may have heard from someone before that owning a property in Mexico is restricted for foreigners; this is true for “restricted zones” in Mexico. However, there is still a way to acquire property. We will get into details below.
How can I acquire a property ownership in Los Cabos?
There are three main ways on how you can acquire property ownership in Los Cabos.
First, any foreign born citizen can legally own any type of real estate outside restricted zones in Los Cabos. This ownership follows a fee-simple basis. This is also known as an ‘excritura’.
Second, foreigners can take the title again in a fee-simple title when acquiring a non-residential property. This is through the establishment of a Mexican or Foreign-owned Corporation. However, this type of ownership has two deed restrictions. If you acquire this type of ownership, you must submit to subject yourself to Mexican law. You should also submit that the property being held within the Mexican or foreign-owned corporation will be for the non-residential use and must be registered in the Ministry of Foreign Affairs. This type of ownership applies to real estate in and out of the restricted zones.
Third, if you plan to acquire a residential property within the restricted zone, the ownership must be within the Mexican Trust through the use of a Mexican Bank. On this option, the Mexican bank serves as the trustee for the trust, Fideicomiso.
Why is there a restricted zone?
Now, you must be curious why they have such zones. It is all because of the history. We all learn from history. Mexico’s history features invasions, wars, and losses, not only of people but also territory. Because of these the article about such zones was put into place to protect Mexico from having to subject itself again to foreign invasion and intervention. Since borders and coastlines are the most vulnerable locations, these were then added to the restricted areas. Although there should not be any threat of invasion in Mexico today, this rule is still part of their constitution so we definitely should pay respect to it.
Now that you have an idea as to why certain rules are in place, you will better understand matters in acquiring a real estate. Keep in mind that these rules are a legacy of the Mexican culture. They are definitely not a halting tool that discourages foreigners to invest, own, and retire in Los Cabos.
Don’t be discouraged now because the next thing we’ll talk about is Mexico’s action towards embracing, welcoming, and encouraging foreign investment. The government knows that they need to acknowledge the fact that Mexico is experiencing a rising tide of property investments. Back on the 28th of December 1993, the Mexican government enacts the law about foreign ownership “Fideicomiso”. To give you a glance about this law, the act protects the rights of foreign ownership within the restricted zones. It also ensures that foreign owners get the same safe and legal purchase, acquisition, and succession rights of real estates that Mexican citizens enjoy.
Where is the Mexican restricted zone?
Before buying real estate in Los Cabos, first, let us define and understand what a restricted zone is. In the Mexican constitution, a “restricted zone” is all land within 50 km or 31.6 miles of Mexico’s ocean coastline or inland lakes. It is also all the land that lies within 100 km or 62.13 miles of any borders with other countries. Los Cabos lies within the peninsula of Baja California making it part of the restricted zone.
What is a ‘fideicomiso’?
If you live in the United States, you must be familiar with Bank Thrust and Family Trust. Bank Trust in Mexico follows the same principles. Here is some notable information.
All trusts have a Trustee or Trust administrator. They are responsible for administering the trust and its assets according to the instructions within the Trust document drawn by the parties who establishes the trust. The Mexican Bank trust is drawn to specifications. Whether you need a joint, right of a survivor or LLC, they tailored the Mexican Bank trust according to your ownership needs. This makes family succession planning easier.
These trusts would normally require payment to the Trustee or Administrator in return of their services. Your Mexican trust also makes this provision by establishing a minimal annual fee paid to the Mexican Bank.
Here is another notable difference. In the United States, the Trust Assets do not belong to the Trustee administering the trust. On a Mexican Bank trust (Fideicomiso), the Trust is neither owned nor part of the bank’s assets.
Fideicomiso is not just a helpful tool for foreigners. Many Mexican nationals also use it as an instrument in Estate Planning. It eases the passing of property to individuals who are not direct family. Additionally, it helps them save on Capital Gain taxes.
Isn’t the ‘fideicomiso‘ (Mexican Bank Trust) just a lease?
Let’s define the term “lease” to better understand their differences. A lease is a contract between you and the owner of the property. This contract gives you the right to use their property for a specific length of time. Moreover, there may be a need for you to pay the owner with some compensation, generally monthly. They typically base the compensation on the market value of the property on lease. Now, here are our questions:
As the leaseholder:
- Will you be able to sell the leased space to another person legally? No.
- Will you be able to use the asset as collateral for a loan legally? No.
- Are you allowed to tear down or remodel the property legally? No.
Clearly, with the Fideicomiso or Bank Trust, you have all these rights and much more. Use your best judgment.
How long does the ‘fideicomiso‘ last?
Currently, Fideicomiso needs renewal after 50 years. If you want to renew for another fifty years, all you need to submit are the following: a Trust Application that confirms your updated personal information and choice of beneficiary, a new Foreign Ministry permit fee, a bank renewal fee and other fees. The fees go up to $3000 USD. However, it will definitely change in the future.
What is the typical purchase process in Mexico?
The real estate purchase process in Mexico is very similar to the process in Canada and the USA with a few notable differences. Of course, it all starts with you searching for a new home. Starting the search for you new home can be as easy as turning your computer on and checking pages online. You can instantly have an idea of any place as there will be images and descriptions provided. Of course, you will need to do quite a bit of research to have an idea of the price ranges. Then, you can decide which amenities to add and leave out depending on your budget.
Mode of Payment
When deciding on the budget, you have to be realistic on how much you can really afford. You have to ensure that the property you choose is within your means of paying cash. You need to consider if your available savings will be enough. If not, there are numerous other ways for you to afford a property. You may need to apply for a loan. If you do, you ought to check carefully on the amount of loan your income strength can qualify for. Will you be needing to pay a part of the purchase price in cash and a part through a loan? Once you figure out the mode of payment, be sure to discuss the matter with the seller and agree on the terms.
Offer to Purchase
After figuring out the best mode of payment, you can plan how to structure your Offer to Purchase. This process will be a bit different than what you know. Unlike the processes in other places, you will either need to submit a check made out to a third party escrow or a signed promise to deposit Earnest Money into escrow along with the Offer to Purchase for the seller to consider it. After this, there may be back and forth negotiations and counter offers between you and the seller until you reach an agreement.
Once your offer is accepted, the next step is to close the process. The closing process is another topic that needs to be discussed further so keep reading and we will discuss what happens in the next question.
What happens in the Closing of a Real Estate Transaction?
The closing process happens when the deed transferring ownership of the property is signed. It must be signed in the presence of the Notary Public, the Buyer or his legal representative, and the Seller or his legal representative. In Mexico, the Notary Public is an attorney appointed by the government. The Notary Public carries a fair degree of weight in terms of being jointly liable for ensuring the veracity of information. He is also liable in retaining taxes and other similar steps during the transaction. In this transaction, the buyer’s money is released from the escrow account to the seller and the real estate possession is granted to the buyer. After all legal documents are signed, the taxes are paid and the title deed is submitted for filing.
Here are some important bits of information to bear in mind during the process:
- The closing of a Real Estate transaction may be different from what you know or have done in your country.
- At the time you purchase, ensure that the Trust Deed shows the actual price you are paying for the property.
- Double check all important information in the Trust and ensure they are correct, especially the substitute beneficiaries’ names and their spelling.
- If you plan to build, ensure that your construction license is really based on the amount that you will be investing in the project. It is important to indicate the right value because if you use a lower value, it Capital Gains taxes will cost you more in the future.
- Before signing any legal document, read, understand, and digest all the information. Take your time. Make it a part of you! If you tried to read them and still get confused, you can always get an expert explain it to you.
- Once the closing is completed, let all utility services know about it. Update necessary information through them. This way, all the new bills will come under your name.
Can I will my real estate in Mexico to my friends or family?
Yes. You can enjoy all the rights of fee simple ownership and that includes leaving your property to family and friends. Another advantage of Fideicomiso is that as a trust, you can pass your investment to a 3rd party. All you need to do is to name them as a secondary trustee. This allows you to have control on the way and to whom the property would pass. It lessens the risk of probate inheritance taxes too.
These are just some of the things you should know about buying real estate in Los Cabos. Every process is unique. They can vary on a case-to-case- basis. We recommend that you talk to your agent, realtor, or broker about all the paperwork required for a smoother and faster process. You definitely have to know more! If you need more advice on buying real estate in Los Cabos, you may call us at +011 521 (624)164 2607. Are you ready to find your next home?