Legally owning Real Estate in Mexico as a foreigner

Today I will focus on a few legal questions that have come up lately as I look to buy more rental properties in Mexico. I think anyone wanting a deeper understanding of the legal aspects of foreign ownership in Mexico will get something from this information. We reached out to Easy Legal Mexico in Merida. I would highly recommend this group not only for their legal expertise but also their professionalism and prompt responses.  *I wrote this article in July 2019

1. What is the most important thing an American should know prior to buying a property abroad?

The fideicomiso. If the property is 50 km from the coast or 100 km from the border they can´t acquire it in their personal name, they will have to form a corporation or a fideicomiso, that is the biggest difference in buying property in Mexico against buying property in their country of origin. The fideicomiso is an outdated law that goes back to reforms made after the Mexican Revolution. It essentially ends up being a “gringo tax” that the foreign owner pays a bank to set up and maintain a trust. On top of yearly fees, you have to pay to open and close one (when you buy or sell the property). The good news is that it is offset by Mexico’s low property tax, called the predial. Mexican nationals can own property in these areas under their name meaning they are not subject to these extra fideicomiso fees.

2. What is the most common mistake you see when Americans buy a property in Mexico?

To think that they need or that it is safe, to put the property in the name of a Mexican national, either because they trust in him/her or because they are lead to think they have to do it that way. This never ends well. A common mistake is to believe they need a Mexican in the corporation to form it, which is completely false. Also, it’s a very common mistake to believe that by just signing a deed the process has ended; it is very important to follow up on the inscription process to make sure the closing cost funds that were paid by the client were used properly. Many discover years later that their deed was never inscribed leaving the door open for a second sale from the original owner, resulting in liens and a variety of other issues.

3. If you have a portfolio of 5 or more rental properties, does it make more sense to set up a fideicomiso for each property or to start a corporation?

It definitely makes more sense to start a corporation. It will lower your closing costs when you purchase the properties and if you put money into the properties you can get facturas (receipts for reporting taxes) and deduct those expenses at the end of the year for tax purposes.

4. What are the advantages a Mexican has over an American as far as owning a property and paying taxes in Mexico?

First, you don´t need a fideicomiso or corporation. Second, the tax structure is a lot simpler. Third, knowing the language makes all the difference in not getting taking advantage of. Other than that the process is quite similar.

5. Do you guys offer accounting services or have an accountant you can recommend to Americans who own rental properties in Mexico?

We recommend an accountant in the area for that particular service, his name is Ignacio Rivera Chapela and his email is [email protected]

6. Does a fideicomiso have any sort of protection like a limited liability company (llc)? Let’s say you have a rental property set up under a fideicomiso and a tenant suffer damages or death due to a fire or incident like falling off a balcony. Are the damages limited solely to that property value or can the tenant come after the owner for other assets?

We don´t have the civil responsibility laws that other countries have, there is nothing you will be able to do if you get hurt in a house for whatever reason, so the fideicomiso offers no protection. Even if there were laws that allow the tenant to sue, the property is under the fideicomiso´s name so it is untouchable. Home and renters insurance will cover those aspects and will cover any accident and all the expenses.

7. Do both Americans and Mexicans pay the same amount in property taxes (also known as the predial)?

Yes, the property is the one generating the tax so they both pay the same. This tax in Mexico is a small amount when compared to US property taxes.

8. I recently saw a boutique hotel with a restaurant listed for sale with 2 fideicomisos (1 for the hotel and 1 for the restaurant). If you bought a business like this, does it make more sense just to turn that into a corporation or are there advantages to having it set up as fideicomisos?

Yes, a corporation will make a lot more sense because you will pay a lot less taxes generated by both the hotel and the restaurant. It is also cheaper to form. A fideicomiso in this case doesn´t make much sense.

9. What are the differences in costs associated with setting up a fideicomiso vs a corporation?

The cost is pretty much the same, the fideicomiso will be about $200 USD more expensive to form than a corporation, maybe a bit less. The time frame is also pretty similar. The difference is that you have to form a fideicomiso EVERY time you buy a property BUT you only have to form the corporation once to buy endless amount of properties.

10. Based on the information above it makes way more sense to set up an llc if you have multiple rental properties you will be owning in Mexico. So if you have 2 properties set up under a fideicomiso and want to move them to a corporation, is it expensive?

Yes, because it is like if you are selling the properties to the corporation. You have to pay the closing costs and you will trigger capital gains taxes.

11. If I set up a Mexican corporation for owning Mexican rental properties in Cabo San Lucas, does it really matter where I incorporate my company? Does it make sense to set up a corporation with you guys in Merida if most of my property will be in Baja California or the West Coast like Puerto Vallarta or Mazatlán?

It makes no difference. The corporation can operate in any State of the Mexican Republic. It does not matter where it was set up.

12. As a foreigner, If I buy a property somewhere NOT within the restricted zone like Mexico City or San Miguel de Allende, do I need to set up a fideicomiso to legally own the property?

No, you do not need to set up a fideicomiso. You can buy it directly in to your own name as a foreigner.

13. Can you explain the allure of Merida and why the Yucatan is a great place to live?

The security is the first reason for the growth. We are the safest city in Mexico, we have zero kidnappings, cartel shootings or drug related crimes. The culture plays a big role too, we have a historic center full of music, theater, good food and everything is in walking distance. We are just 30 min from the beach and have in the north the "modern" flavor of the city. Finally, we have a sense of community as there is a good size American and Canadian community already living here. They know the area and help each other and share their experiences.