Investing in Mexico 🇲🇽

[Erica Lopez]

Hi!

I have some experience investing in short-term vacational homes here in the U.S. but I want to start investing in Mexico (Playa del Carmen and Tulum) 

How can I get financing for these types of investments that are out of state? 

Does anyone know of a bank or mortgage broker that finances real estate property in Mexico?

[Sebastian Papworth]

Quote from @Mike Lambert:

@Sebastian Papworth

I almost fell off my chair reading this and the article. Like everybody else, I totally understand, appreciate and respect that, as a realtor, you'd help your clientele secure financing if they can get any. I'd do the same if I was in that position. However, do you really think that suggesting that there are many options and that you could finance a property in Mexico for as low as 4.2% is a good idea (knowing that nobody will get that), especially when you get featured as the resident expert in the article? If I hypothetically had to help clients find financing in Mexico, I'd  be careful about what I write if I want to help and not risk ruining my credibility. The great thing about forums like these is that we can write what we want but we can't write just about anything, as we'd stand corrected if we do. Even a little nobody like me who' doesn't have a fiduciary duty towards clients pays attention to what he writes. 

But let's get to the substance of things and have a healthy debate/conversation, for everyone's benefit.

You have a list of developers offering developer financing. As you mentioned in your article, it's not common and, as you know, it's even less so now than when you wrote your article. While I totally understand that anything starting with 1 name and can get empty at times, is list not giving a wrong impression?

Speaking of lists, you refer to your lists of mortgage brokers. I don't know if you've ever financed a property in the US or Canada but there's no such thing as a mortgage broker in Mexico like we know them in the US and Canada and certainly not for foreigners. It'd make no sense given the lack of attractive offerings and the very limited number of potential clients. Are you talking about the cross-border financing companies mentioned in your article, which there are only two of? More on those further at the end of this reply.

Getting to your article now.

Can you explain how your number 1 financing option is even financing? That's merely a payment plan and that's what I've called fake financing in my replies here, as some unscrupulous developers sell it as financing. That's an especially outrageous thing for them to do given that, in fact, the buyer is financing the developer and not the other way around. If that qualified as financing, it'd mean that every developer would be offering financing.

Nobody can have a loan in Mexico to finance a property at 4.20%! Can you give us the details of that loan and I'll explain why that's not a loan to finance a property in reality. Like since when is a personal loan a loan to finance a property, in Mexico or any other country for that matter? In any case, what would be the point of suggesting you can get a loan to finance a property in Mexico at 4.2% when, in reality, you can't get a loan close to or well into the double digit interest rates, which has always been the case in Mexico. Anyway, everybody understands that you can't get a loan to buy a property in Mexico at a rate (much) lower than that of a mortgage in the US. After all, while the FED funds rate in the US stands now at 2.50%, the equivalent in Mexico stands at 7.75% or more than 5% higher. If you can get me a real loan on a Mexican property at anything close to 4.20%, I become your best client and we buy the whole country together. Seriously! ;-)

I'm not sure what special tool you have to compare the interest rates between Mexican banks as these are all over the internet. However, what's the point anyway? Wouldn't have it been more helpful to your readers to mention that interest rates are well in the double digits before people get false hopes and lose their time investigating that option? After all, do people really care whether they pay 11% with bank A or 12% with bank B? It's likely few people will be interested in these loans when they find out how expensive they are. If you get a great deal, such an interest rate could still work but then, does it even make sense to buy a property in USD that generates income in USD and you borrow in Mexican pesos? You'd be taking a huge foreign exchange risk, especially when the peso is close to historic lows against the dollar. But I guess people who sell these loans figure that you've got to figure that out by yourself. Finally, the general rule is 50% LTV. 70% is rare, especially for foreigners.

Finally, the cross-border finance companies. I'm surprised you'd send clients to those, unless they have no other option and absolutely need the money. Can you explain what great results have you been able to get? These are the companies (I mentioned in my reply above) who advertise very low interest rates but, get this, your principal increases over time! So if you convert the cash-flows into a normal-style mortgage, you find out that the real interest rate is between 10 and 20% rather than the advertised 2.4% and 3.6%. Most of the people who have taken these "innovative" loans are in the early stages of the duration of the loan so they have low monthly payments so they might be happy. But wait for a few years and they're gonna realize the mistake they made as their payments balloon. Then, they might want to get out of the loan but the creators of these loans aren't stupid. The prepayment penalties have been determined in such a way that, whatever you do, you end up paying a double digit interest rate over the original lifetime of the loan.

Just the fact that companies would sell such a complex product under false pretences and not explaining to people how these exotic products really work tells me all that you need to know. As I have repeated over and over again in my replies to posts, Mexico offers great investment opportunities and the country isn't full of crooks like some people suggest. However, let's not be naive either. Yes, you need to work with people who know what they're talking about but you also need people who tell you the things like they are. Unlike with these finance companies who advertise a super low interest rate when, in reality, the real interest rate is super high.

If, outside of developer financing, anybody bumps into some cheap financing in Mexico, feel free to send me a DM. We'll calculate the real cost together and, if it's really low, we'll share with everyone .

 @Mike Lambert 

Mike, I just read this, honestly, what´s up with all the hate in your response, I understand that people have a need to be right all the time but you don't need to do that by bringing others down just to reaffirm your sense of power and knowledge in a bigger pockets forum. Drop the sarcasm and please stop writing about risking my credibility, especially when you misread the article. We are both trying to help people invest safely in the Riviera Maya. We are both humans and we are not perfect but I do the best I can to share the knowledge I have by being an investor, realtor, and developer in the area for 8 years. 

You wrote: "Even a little nobody like me who doesn't have a fiduciary duty towards clients pays attention to what he writes." I encourage you to also pay attention to what you read, I invite you to reread it carefully, so you don't invest the readers and your valuable time writing a response on something that you read incorrectly:

You wrote I suggested that someone could get a loan in Mexico at a 4.2% interest rate, in the article, I mention this rate under Financing Option number 3 on the article is: 

"3. Financing in the US or Canada in USD"

"A client recently secured a 4.2% fixed interest rate, which is the lowest interest option we have found at present."

The client I am mentioning in the article refinanced in the US and got this rate a couple of years back, I never wrote about a buyer getting this rate in Mexico.

We do have a list of developers that offer in-house financing, this list has currently 10 projects, and they all have different financing options. If anyone wants to know what is being offered I am happy to share it on a DM because it changes frecuently. We also have a list of 5 mortgage brokers who have access to all the Mexican bank products available for foreigners.

It's my responsibility to share all the options with investors and then let me judge what is the best option for them. As far as cross-border finance companies in Mexico there are way more than two of them, we don't use them frequently but we have closed a couple of transactions with one of them. 

I mention in the article multiple times that interest rates in Mexico are higher than in the US and Canada, I also mention that 90% of foreign buyers are CASH buyers. The real estate market in Mexico is a cash market, which is definitely a big plus since it gives stability and lowers the risk of home loans defaulting.

I wrote this article back in 2019 (Most of the article is up to date however I am going to update it, there are a couple of figures that have changed, especially after the Fed raised interest rates in the US.)

I will also record a video about this topic with a couple of mortgage brokers we have worked with especially with interests rising in the US, these options in Mexico might become more attractive to investors. I will send the link once ready. 

I bought my first STR property in Tulum through a Mexican mortgage and prepaid it in full four years later without any penalty, even though the interest rate was 8% fixed I didn't have any other option, and I am happy I made this investment.

Happy and safe investing!