Buying Real Estate in Puerto Vallarta
ocean's wonderful sights and smells and
the peace of living or vacationing along Mexico's
6,000 miles of coastline is a powerful attraction
for foreigners. But before purchasing vacation
property or a retirement home on or near the
beach, there are a few important legal and technical
matters to keep in mind.
Foreigners are welcome to invest in property
along the coast, but there are restrictions.
The most important restriction is contained
in Article 27 of the constitution which states
"that foreigners cannot own property within
100 kilometers (60 miles) of the border and
50 kilometers (30 miles) of the coastline."
The government, however, provides two ways to
get around this restriction:
How Does the Trust Work?
- A Trust (called Fideicomiso) or
- A Corporation
Three parties are involved in the trust:
The Trust, which in Mexico is called a Fideicomiso,
does not give direct ownership to the foreign
beneficiary. Instead, it establishes the legal
basis by which the bank holds legal title to
the property in order to act on the foreigners
behalf. This trust deed assures the foreign
buyer of all rights and privileges of ownership.
The Foreign Investment Law, a Constitutional
amendment created in 1973 and amended again
in 1994, allows the trust to be established
for a term of 50 years and is renewable any
time during its existence, forever.
- The trustor (the owner of the original
- The trustee (which is the bank)
- The beneficiary (the person who will receive
the benefits of the trust.)
The Bank (trustee) holds the trust deed for
the person who purchases the property (beneficiary).
The property is not part of the bank's assets
and cannot be liened or attached for any other
obligations. YOU the purchaser are the beneficiary
and have all rights of enjoyment of the property
including the ability to remodel, lease, mortgage,
pass to their heirs or sell the property at
The Mexican government established the trust
system as a protection for foreigners interested
in owning property in Mexico. By making ownership
pass through the trust process, the bank is
required to check ownership, insurance, and
liens against the property. There would be an
automatic review of the transaction, thus ensuring:
Bank Trusts may be granted and extended in 50
year periods. If you purchase property, the
existing trust deed may be assigned or a new
50 year trust created. Trusts are renewable
at any time by simple application. The costs
to establish a fideicomiso trust vary from bank
to bank. However, the range is approximately
$1,000 to $1,500 U.S. dollars for the trust
set up and about $300 to $500 U.S. dollars for
each year's maintenance of the trust. These
fees are paid directly to the bank that has
- Valid Ownership
- No outstanding indebtedness of the Property
Bank trusts are established by a Mexican Notario
(Notary), following the receipt of a permit
by the Minister of Foreign Affairs. This procedure
is routine due to the large number of foreign
property owners. The forms are standardized
and the entire process is usually completed
by the notary as part of the closing procedures.
What does the Bank Do?
It is an important link between the foreigner
and the government. The bank accepts full technical,
legal and administrative responsibilities and
protects the beneficiary's interests. While
the bank is the technical owner of the property,
they have a statutory responsibility to follow
the beneficiary's (YOUR) instructions concerning
the property. Therefore, the control of the
property is in your hands - not the bank's.
What can the Foreigner Beneficiary Expect
from the Trust Agreement?
Beneficiaries are allowed to modify their property.
Construction, in accordance to local zoning
regulations, is permitted at the owner's expense.
- The beneficiary can occupy the property
for the life of the trust.
- Title to the property can be transferred
to the foreign beneficiary in the event
that he acquires legal capacity to hold
such property, or to any legally qualified
person he/she may designate.
- The trust can also be heired to your family
by naming them as substitute beneficiaries
in the event of your death. The property
can also be sold to a person legally authorized
to own land or to a foreigner via a trust.
- The property may be rented with prior
approval from the ministry of foreign affairs.
Once your offer of purchase and sale has been
accepted, the closing process begins. To validate
the Offer of Purchase and Sale, a deposit (normally
10% of the purchase price) is required. The
money is held either by your attorney, notario,
real estate agent, or placed in an escrow account.
These funds are held during the time needed
to close. The balance is payable upon the signing
of the trust deed at the office of the Notario.
Most real estate agents have one or two notarios
with whom they usually deal.
In order to obtain the trust deed, the notario
When the above has been completed, the notario
will present your representative with a statement
of remaining funds due and, once paid, will
present the legal transfer papers to be signed
by the seller.
- Ensure the property is free and clear
by checking the Land Registry Office. This
is guaranteed by obtaining a non-lien certificate
and tax statement from the treasury. Additional
checks are made for outstanding utility
bills and municipal taxes.
- Obtain a permit from the Minister of Foreign
Affairs to establish the trust deed.
- Prepare all documents for both buyer and
The entire closing process takes between 30
and 60 days.
Closing costs are paid by the Buyer and depend
on the value of the property purchased. They
include a transfer tax (ISAI) of 2% which goes
to the Mexican government, an average of 2%
for legal Notary fees, a registration fee of
.05% of the assessed value of the property,
fees for the tax certificate, title search fees
and property appraisal, as well as miscellaneous
The Seller pays all capital gains taxes and
real estate fees. Capital gains taxes are 35%
of the difference between assessed values at
the time of purchase and sale, with adjustments
made for inflation and capital improvements.
Capital Gains Taxes
As noted above, the seller pays all capital
gains taxes. As a buyer you are eligible for
a one time exemption from capital gains tax
if you establish residency for 2 years after
your purchase prior to selling.
To establish residency, you must have an FM3
(Resident Tourist Visa), and all the utility
and phone bills in your name for 2 years. FM3
Visas are issued from Mexican Immigration. You
can request the forms from Immigration which
tells you everything you need to apply for the
visa. They usually take 30 to 45 days to obtain,
The Mexican Notary
In Mexico, certain attorneys are designated
by the government as a Notary, and their services
are required for the legal transfer of real
estate. They are an unbiased, official representative
of the government and have a fiduciary responsibility
to both parties and sanctions the contract from
a tax and legal point of view.
Property taxes are very low here. The property
tax, known as "predial" is a rate of .08% of
the assessed value, paid every bimester. The
assessed value is determined at the time of
the sale. Historically, property taxes have
always been low because they have never been
perceived as a source of revenue for the government.
Tropicasa Realty has arrangements with several
banks and notaries who will assist in setting
up the trust. English-speaking personnel, as
well as publications, are usually available
to answer questions about trusts.
How does the Corporation Work?
Ownership of property through a mexican
corporation is an interesting and potentially
lucrative alternative. First of all, as long
as there are two or more parties to the corporation,
a Mexican corporation can be wholly owned by
foreigners -- a Mexican citizen no longer need
be part of a Mexican corporation to be valid.
Secondly, a mexican corporation can own property
outright, eliminating the need for a fideicomiso
trust and their respective fees. This means
that you, as sole owners of the corporation,
own the property essentially in "fee simple,"
similar to the U.S.
Finally, by establishing the property in a corporation,
you can then legally rent out the property,
thereby generating attractive income if you
are in a prime vacation destination such as
Puerto Vallarta. Mexican corporations are set-up
similarly to those in the U.S., with by-laws,
articles of incorporation and the issuance of
stock. You should discuss the pros and cons
of forming a Mexican corporation with an attorney
in Mexico who is familiar with the process.
Establishing a Mexican corporation for the purpose
of purchasing real estate is relatively simple
and can be accomplished within 1-2 weeks and
generally costs from $1,500 to $2,500 USD, depending
on the complexity and number of partners involved.
YOUR SITE HERE