Investing In Mexico

[Kelby Kraft]

I'm down here in Queretaro, Mexico, central region. This city was founded in the 1500's. It's crazy to think it was founded almost 250 years before the USA was founded. It is currently booming like crazy mainly due to all the US factory jobs that have migrated here. People are driving in nice cars and some of the developments of homes are beautiful. My wife's parents live in a home they built for $125k about 10 years ago. It is currently worth about 6 million pesos or $300k, crazy!

Has anyone ever thought about a development of any sort in Mexico? Houses are being built like crazy here and the labor is so cheap! Here it only takes about 5 guys total to build a home from the ground up. The same 5 guys do all the plumbing, foundation, electrical, everything! It is just mind blowing coming from the US where it seems there are almost 100 different contractors on a build before it's said and done.

Just food for thought, watching these developments go up like crazy here has my wheels turning in my head! Has anyone else thought of potential of investing here?!

[Mike Lambert]

First some general comments here. There is a lot of misinformation here and elsewhere about investing in Mexico and a lot of the undeserved negative stuff comes from people who have never invest there. My best advice: if you want any advice about investing in Mexico, ask people who are doing it. If you have a question about your teeth, would you rather ask the dentist or the butcher?

@Nick Belsky

Even though you haven't invested there, you brought some great points.

You are correct in that, going to court in Mexico against a Mexican national puts you in a less favourable position than if you were to go to court in the US (but a Mexican going to court in the US against a US national would face issues as well). However, it isn't the case that Mexico doesn't have proper laws and regulations. People tend to forget that there are billions of dollars of US money invested in Mexican real estate and the amount keeps growing year after year. This would never have happened if it was the jungle, as too many people unfamiliar with the situation suggest. That's not your question and your suggestion that people should know what they're doing (I'm trying to do my little contribution to that day in day out) and deal with the right people.

A few points when it comes to so-called bribes:

1. Whatever you call them, these payments are only relevant to developers or people who are having a property built (basically anybody who might need a permit). If, like most people, you buy a property from a developer pre-construction or you buy a resale like most people, it won't apply to you.

2. These payments have nothing to do with drug cartels; they're paid mainly to the municipal authorities.

3. Most importantly, I wouldn't call all these payments bribes because most of them are legal and, as Nick rightfully said, accepted by society.

Let's take two examples.

First, let's assume that you want to build a building on 4 floors in an area where only 3 floors are allowed. In the US or Canada, you can't do that and, if you do, you'll most likely be asked to demolish to conform to the code. In Mexico, you can provided that you pay a fine. This is allowed because it's a win-win: you're not gonna create much nuisance by having just one extra floor and you'll replenish the coffers of the city, which has plenty of unmet needs for your money. Now, let's be clear; if you want to build a 28-storey tower in that same area, no amount of money will let you do that and you'll be stopped.

Second, let's assume that you build a new development in an area that isn't connected to the electricity grid yet. The city tells you that there is a queue and that your area will only be connected in a year or so. You can pay to jump the line. Again, it's seen as a win-win.

The amount of these payments is in foreseen in the city rules for everyone to see. Just that is a clear indication that these aren't bribes.

You can also think about the similarities with everyday life in the US. Let's say that you're in urgent need of a parking spot and you can find any and you park in a forbidden spot. You're going to park in a forbidden spot because you know what the maximum fine will be and it'll be a much less dire consequence than missing your important business appointment. It's a bit the same kind of reasoning when you think about it.

Nick, I'm not sure why @Kelby Kraft or anyone else for that matter should worry about the amount of development for sale in Mexico. Thankfully, there is plenty indeed but there is way way more land available for development for sale in the US. And the thing is people don't want to buy land in the middle of nowhere. They want to buy land in places like Playa del Carmen, Tulum, Puerto Vallarta or Los Cabos, where land in the better areas has become scarce and very expensive by Mexican standards.

Property taxes in Mexico are indeed so low it's a steal. While most buyers pay cash with many using a HELOC, you don't necessarily have to do that if you have the right knowledge and/or connections.