Wonders of Mexico Players and their roles steP-by

R eal E state
Yo u r s t e p - b y- s t e p g u i d e t o m a k i n g y o u r d r e a m y o u r h o m e
w w w. i n s i d e m e x . c o m / r e a l e s t a t e
fa l l - w i n t e r 2 0 0 7- 0 8
1
st
Wh at’s Inside
Wonders of Mexico
The vacation doesn’t have to end.
Make paradise your home. 4
is su e
Players and their roles
Who’s involved in the deal. 8
Step-by-step Buyer’s Guide
The most comprehensive guide you’ll find.
Rip this page out and keep it with you. 10
Financing
Your dreams are within reach. Practical solutions
in making a wise investment. 14
Trust Purchasing
Don’t believe the rumors. You can buy
on the beach! 16
Pueblo Bonito Sunset Beach, Cabo San Lucas, Baja California Sur, 2007
Photo by Alejandro Zárate
F rom the edito r
Dear Inside México, my wife and I live in Ohio
and want to retire to Mexico in the next three
to four years. We are not sure where we want
to move, but we want to be near water – either
the ocean or a lake. What can you tell me about
real estate in Mexico?
In the year that we have been publishing
Inside México, we’ve received lots of letters
from readers writing to ask us about real
estate in Mexico. We were flattered by the
trust and high regard of our readers, but
not being real estate experts, we’d forward
these queries to friends in the industry, and
research what we could.
One thing we’ve known all along: is that
Americans and Canadians are moving to
Mexico in droves. Some studies show that
this population, measured at 1.5 million
in 2006, will grow to 10 million in the next
15 years. Retiring Baby Boomers and second-home buyers are increasingly drawn to
Mexico’s incredible climate, cultural wealth
and lower cost of living.
With such a large and growing market,
there is surprisingly little reliable information on how to do it. We know that the
search for comprehensive and quality information on Mexican real estate in English
can be exasperating, so we decided to produce it ourselves.
This issue of Inside México Real Estate
is just the first, with many to come. Here,
we’ve mapped out the principles of Mexican
real estate to make you feel more comfortable with the process of buying a home.
Although it’s “just over the border” and
home to many of us, Mexico is still a foreign
country with its own laws and procedures,
and of course a different language. We
asked Los Cabos attorney Pedro Perichart
to explain the roles of the professionals who
participate in a real estate transaction and
NUMBER 1 • Fall/Winter 2007/08 •
to tell us what we should expect from each.
We are proud to have real estate expert
and author Tom Kelly collaborating on this
project. Touring through colonial gems,
beach escapes, and lush jungles, Tom explores the abundant options Mexico offers
prospective buyers.
Timing is hot for buying in Mexico; the
market is strong and return on investment
is stronger. Financial institutions are offering new and better options for buyers. Business writer and consultant, Melissa Kellogg
lays down practical financing solutions so
that you can find the best match for you.
If you’re daydreaming of hammocks and
sea breezes, don’t lose heart! Real estate
guru Mitch Creekmore dispels the myth
that foreigners can’t purchase beach property and gives you the information you need to
start watching sunsets instead of sitcoms.
To top it off, we’ve put together a comprehensive step-by-step guide that takes
you from dream to property purchase. You’ll
want to rip out this page and keep it handy
as a quick reference.
We hope that this guide will help you
feel confident enough to begin your home
search. But this isn’t the end! We’ll bring
you more informative and entertaining issues of Inside México Real Estate in 2008.
In the meantime, we invite you to write us
with your real estate questions. We’ll do our
best to answer them in our next edition.
Maya Harris, Inside México Real Estate
realestate@insidemex.com
CEO
editor@insidemex.com
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M apping Your D re am
The wonders of Mexico:
Where do you start?
Mexico has it all. From lush, tropical
municipalities perched on mountainsides
overlooking brilliant bays to miles of
white sand beaches giving to iridescent
azure water. From quaint European-style
houses lining cobblestone streets in picturesque villages, to modern apartments
in big-city urban high rises. Mexico is
abundantly rich in geographic, natural
and cultural diversity.
B y : T o m K e l ly
Pyramids, volcanoes, caves, mountains, ancient ruins, water falls
and underground springs provide a spectacular playground for
those wishing to explore and experience Mexico’s beauty.
The rising cost of United States real estate, the desire for a
slower pace and warmer climate and the Internet information bonanza have all contributed to the growing interest Americans have
in Mexican property. Stories of hospitable local people, improved
air travel and the inexpensive cost of living have awakened dreams
of finding a rambling hacienda and enjoying long, leisurely days
under the shade of an old tree. These dreams are becomings realities; over the past five years, the residential real estate market in
Mexico has been robust especially for properties within one hour’s
drive of a major airport.
Forty-three percent of Mexico’s land area fronts on the water.
These coastlines along the Pacific, the Sea of Cortez, the Bay of
Banderas, the Mexican Caribbean and the Gulf of Mexico vary
dramatically in their topography and geography. Until the advent
of paved roads and air travel, Mexico was really a loose federation
of different regions isolated from one another by rugged geography. In some areas, the mountain ranges were so impenetrable
that neighboring towns were practically ignorant of each other’s
existence. Today modern communication systems leap mountains
to find remote villages.
Though U.S. citizens living in Mexico are not covered by Medicare for doctors’ visits and medical services (unless they travel
back to the U.S.), the national insurance program is available to
foreigners and costs about $300 a year. There is private insurance
as well, at prices considerably cheaper than in the U.S., though
costs have been rising.
Let’s consider of few spots that are drawing the interest of diverse
groups of North Americans:
Lake Chapala, State of Jalisco - Probably the most popular spot
for North American expats is Lake Chapala, just a short drive from
Guadalajara, the country’s second-largest city that boasts several
excellent medical facilities, including Hospital San Javier (which
has a branch in Puerto Vallarta), Hospital del Carmen, and Americas Hospital. The retirement zone commonly known as “Lakeside”
[
] InsideMéxico Real Estate Fall-Winter 2007-08
is made up of two communities that are a few miles apart along the
lake: the funky, more Mexican village of Chapala, where gringos
and locals live side by side, and Ajijic where many Americans and
Canadians natives own more expensive homes.
Manzanillo, State of Colima - The airport has been remodeled, the downtown refurbished, the roads improved and new
equipment has just arrived to clean the beaches. Compared to
the more popular Mexican Pacific Coast destinations of Los
Cabos, Ixtapa, Puerto Vallarta and Mazatlan, Manzanillo has
been under the second-home radar. But it is on the move. You
can still buy a $165,000 three-bedroom, two-bath condominium
two blocks away from the same beach where Bo Derek made her
debut in the movie “10’’.
Mario Chacon, who holds a degree in industrial engineering
from the University of Costa Rica, was stationed in various parts
of the world as an executive officer for Jose Cuervo and British
American Tobacco. After six years in Guadalajara (a 3.5-hour
drive from Manzanillo) he and his wife, a physician, chose to
live in Manzanillo with their two children rather than return
to his native Costa Rica. Chacon is now director of operations
for Cascadas de Manzanillo (www.vivacascadas.com) a 530-acre,
waterfront community aimed at U.S. second home buyers and
developed by a Minnesota group.
“I love Costa Rica and much of my family is there, but the real
estate here is less expensive and the fishing is probably better,’’
Chacon said. “Also of importance is safety – Manzanillo is the
safest city in Mexico. You can go anywhere in this area night or
day and for a family person, that’s important.’’
San Miguel de Allende, State of Guanajuato - Juan de San
Miguel, a Franciscan monk, founded San Miguel de Allende in
1542. San Miguel de Allende was declared a National Monument by the Mexican government in 1926. This delightful municipality of 90,000 inhabitants retains a rich colonial charm
with its cobblestone streets and beautiful Spanish colonial
mansions, many of which have been restored to their former
splendor. No neon here, no steel and glass eyesores. All new
construction must conform to stringent colonial architectural
controls.
Today, San Miguel de Allende is a center for the arts; there
are two major art institutes, numerous galleries and too many
artists-in-residence to count. Attracted by the ambiance and
the gentle year-round weather (average temperature is 75
degrees), there is a sizable foreign community that makes San
Miguel a cosmopolitan town. Despite all this, it’s still quiet and
tranquil.
Huatulco, State of Oaxaca - This small municipality (only
20,000 in population) boasts a pristine coastline and near virgin
spots along the nine Bays of Huatulco. Many years ago, the Bays
of Huatulco were a refuge for pirates and voyagers, as well as a
rest stop for exhausted galleon crews coming from the Far East.
Today, the beaches that edge the bays are virtually deserted and
many are only accessible by water. There’s snorkeling or diving
in the bays’ underwater parks.
The National Trust Fund for Tourism Development (FONATUR), the main promoter of tourism investment in Mexico,
has created a master plan concept for the development of
Huatulco and its system of bays that eventually will offer several thousand new hotel rooms, golf courses, restaurant and
retail services, residential infrastructure and subdivisions for
condominiums, townhouses, single family residences and timeshare operations.
With all these wonderful places to choose from, where do you
start? Spend a few moments to consider the ideal environment
for your leisure activities. Kayaking in the Sea of Cortes? Fishing off of the Pacific Baja? Exploring the wonders of historic
Tulum? The menu of Mexican possibility is nearly endless.
F
Tom Kelly is an author, syndicated
columnist and talk-show host.
He specializes in the second home market.
www.insidemex.com/realestate [ ]
TRAVEL RESIDENCES
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The folks at the golf club are crazy about San Miguel de Allende, and your sister-in-law has been raving about Puerto
Vallarta for years. But it’s doubtful that you’ll buy or build your
retirement or vacation dream house home in a place you’ve
never visited. Countryside or colonial city? Mountains or the
beach? The rhythms of the community, the proximity to home,
even the temperature at sunset—these are all things that matter
when choosing your special place in Mexico.
Casa de la Concordia, Valle de Bravo
One option to aid your search is travelresidences, a new concept in vacationing, located in Mexico and throughout Latin America. Owned by Group RCI, the pioneers
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condos, beach houses and villas, located right where you’re thinking of moving.
Here’s how it works. Let’s say you’ve decided to sample the charms of Puerto
Escondido, Oaxaca over the Thanksgiving holiday. Go to www.travelresidences.
com, and initiate your search. Either search by type of location (colonial city, lake,
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results will show you exactly what’s available for your dates, from 1 bedroom condos
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The benefits are privacy, flexibility and prices that are better than what you’d
find at a hotel. With travelresidences you’re able to get a taste of what it’s like
to live in Mexico, and because there is a variety of a properties in locations around
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Casa Arimatea, Acapulco, Guerrero
If you already own in Mexico, travelresidences can offer you a way to maximize
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Casa Descalza, Puerto Escondido, Oaxaca
[
] InsideMéxico Real Estate Fall-Winter 2007-08
Casa El Milagro de San Antonio, Tepeji del Río, Querétaro
M eet th e P l ayer s
The Real Estate Symphony
The players in a Mexican
real estate closing
A real estate closing is like musical symphony. As in a symphony, multiple players work
together to achieve harmony or, more specifically in this case, the purchase of a home or
a piece of land. The attorney/closing agent
plays the role of the conductor, reconciling
the needs of all the parties involved.
B y : P e d ro P e r i c h a rt
If you have decided to buy a home or land in Baja or somewhere else
in Mexico, you will work with the following participants:
1. The Buyer. Buyers in Los Cabos and surrounding areas
are mainly Americans, Canadians, Mexicans and, increasingly,
Italians and Spaniards. Buyers might be retired (or will be soon),
young couples or young, single individuals, each with a different
set of interests and concerns. In Mexico, all closing costs (except
for the capital gains tax and agents’ commissions) are typically
paid by the buyer, unless otherwise agreed in the private purchase/sale agreement.
2. Real Estate Agent. A foreign buyer is usually introduced
to the local real estate market by a local agent who offers him/her
a variety of options. The goal of the real estate agent is to have the
buyer sign an Offer to Purchase, put down a deposit (usually around
$5,000 USD - $10,000 USD, depending on the purchase price) and
commit to the sale. Commissions for agents fluctuate between five
-ten percent, usually split between the listing agent (seller’s agent)
and the sales agent (buyer’s agent).
3. Developer / Seller. Once the Offer to Purchase is signed,
it must be submitted to the Developer for acceptance or refusal.
Developers are usually Mexican companies owned and operated
by a combination of national and foreign parent companies and
individuals. Since the piece of real estate is in Mexico and the closing will – obviously – occur in Mexico, a Mexican top level manager
and administrative team will work on the sale.
4. Trustee / Bank. Article 27 of the Mexican Constitution provides that foreign entities or individuals are not allowed directly to
acquire real estate located within 50km of the beaches and 100km of
the border. Foreign buyers must create a real estate trust (fideicomiso
is the legal term in Spanish) with a Mexican authorized bank. Most
commercial banks (e.g. Bancomer, Banamex, HSBC, Scotiabank,
etc.) have a fiduciary division that deals with all types of fideicomisos, including real estate fideicomisos. The bank holds the fiduciary
ownership of the piece of real estate, while granting full possession
of the property to the buyer as well as the freedom to lease, sell, or
mortgage the property. Banks charge approximately $500 USD to
open the trust, and a $500 annual fee for its administration.
[
] InsideMéxico Real Estate Fall-Winter 2007-08
5. Public Notary. Notary Publics play an important role in
Mexico. As in the US and Canada, they exist to attest to a particular
legal act or fact. Mexican law requires that a Notary Public located
in the same jursidiction as the piece of real estate attest that the
seller has transferred the ownership and possession of the property
(or the beneficial rights, in the case of foreign buyers acquiring
through a fideicomiso), and that the buyer has paid the purchase
price. The Notary Public prepares the final purchase/sale contract
in the form of a public deed, including the immediate antecedent of
the title, the purchase price and other standard clauses. All parties
(developer, buyer and bank) will visit the Notary Public’s office to
execute the deed. Important: A public deed is the only vehicle for
transferring ownership of real estate in Mexico. Private agreements
do not grant rights in favor of the buyer against third parties. Buyers should register their public deed with the Public Registry of the
Municipality in which the property is located.
There are other players that may appear in a real estate closing when there is financing involved:
a) Financing Institutions. These institutions grant loans
to foreign buyers for acquiring real estate, taking the piece of
real estate to be purchased in Mexico as guaranty. The ones with
the most presence in Los Cabos and the surrounding areas are
GMAC (they will finance up to 80 percent), GE Money (up to 75
percent) and Laredo National Bank (up to 75 percent).
b) Mortgage Broker. These companies advise buyers on
the best rates, terms and conditions offered by different financing institutions. Those most active in Los Cabos are Innovative
Lending Solutions, Conficasa, Platinum Capital and Finance
North America; all have a presence in the US as well.
Finally, there are bit players that are normally part of a real
estate closing in Los Cabos as well as in many other parts of
Mexico. These include the Escrow Agent and the Title Insurance
Company. Foreign purchasers often require at least a title commitment before completing a sale, and they often feel more comfortable when the form of payment involves a US-based escrow
agent. The leading title insurance and escrow agent companies
in Mexico are First American, Stewart Title and Fidelity.
Once you have set up a purchase/sale transaction, you will
need a coordinator. This is when the attorney or closing agent
pops up. All the parties have different interests, but they all want
to close the deal on time. A real estate closing in Los Cabos typically takes longer and costs more than a closing in the US and
Canada. However, with a good attorney or closing agent, a non-financed real estate closing may be completed in 30-45 days, while
a financed real estate closing can take up to 60-90 days. Real
estate agents, Notary Publics and/or title insurance companies
should not act as closing agents for a transaction in which they
are participating; their anticipated commissions and fees make
them want to close quickly, regardless of whether the conditions
for a clean closing have been met. We strongly recommend choosing a closing agent with knowledge of Mexican laws.
There are so many players and steps involved in a real estate
closing that the smallest mistakes can bring the deal crashing to the
ground. But, if you are working with good players and a capable closing agent, your purchase experience will end on a high note. F
Pedro Perichart is an associate in Solcargo Real Estate and
Corporate Law Practice Group in Los Cabos, B.C.S. He specializes in real estate cross-border transactions, closing services, international contracting, corporate compliance and joint ventures.
www.solcargo.com.mx
S tep - by- step :
By
Check this list before you buy
R
Pick your team. Identify a real estate
professional and a lawyer you feel comfortable
working with. Real estate professionals in
Mexico are not bound by the same strenuous licensing regimen as in the United
States, so it is important to interview the professionals who will help you find and secure
your property.
Get proof of ownership. Confirm
R
that the seller has the right to sell by doing a
title search for the property and asking the
seller for the public deed (escritura pública).
Ensure there are no liens and that the property
is not an ejido (government-granted communal land) by requesting the lien certificate
(certificado de libertad de gravamen). If the
land was at one time ejido land, you must get
a certificate from the Agrarian Registry with
the exact date that the property was released
from the agrarian (ejido) regime.
R
Be mindful of Mexico’s restrictR
ed zone. If you are not a Mexican citizen, your
local closing agent or lawyer needs to set up a
trust (fideicomiso) to buy property in Mexico’s
restricted zone, which falls within 50 km of
the coast and 100 km from an international
border, and includes all of Baja California. For
more on this, please see “Trust Purchasing Residences in Mexico” on page 16.
Register at the Ministry of ForR
eign Affairs. If you are not a Mexican citi-
zen, your local closing agent or lawyer should
register you at the Ministry of Foreign Affairs
(Secretaría de Relaciones Exteriores). It’s a
formality, but all foreign nationals who are
going to purchase real estate have to sign
the “Calvo Clause” agreeing not to seek foreign intervention in any property dispute.
R
Paper = Reality. It is important to
make sure that the meters and boundaries appearing on the property title recorded with the
Public Registry correspond to the real physical
meters and boundaries of the home or land you
wish to acquire. Ask the seller for a recent
topographical blueprint; if not available,
you might want to hire a surveyor to prepare
the blueprint.
Get your appraisals done on
time. It is your responsibility to perform a municipal appraisal of the property (avalúo
pericial) with an authorized appraiser.
Ask your Notary if he/she can coordinate processing this appraisal for an extra fee. If you
are financing, coordinate with your bank to
obtain a commercial appraisal of the property
(avalúo commercial).
Agree on a price verbally. Now
R
you’re ready to talk turkey! Keep in mind that
R
work .
business in Mexico is based on relationships, so it is important to start with small talk
and develop a rapport before diving in.
Put it in writing. Real estate transR
actions in Mexico are performed with two contracts:
8
Preliminary agreements. Preliminary agreements contain basic transactional
information without transferring the title
to the buyer. They are known as formal offers (oferta) and/or promissory agreements
(contrato de promesa).
8
Purchase/sale agreement. The convenio de compra/venta is a binding contract that formally transfers the title of the
property and must be certified by a Public
Notary (Notario Público). This contract can
also come in the form of a real estate trust
agreement (contrato de fideicomiso) when
buying in a restricted zone.
[
(5-10 percent) and establish cancellation penalties if either party pulls out. Contract with a
U.S. escrow company to protect your deposit
and final payment. DO NOT deposit any monies related to the purchase price to members
of your team.
10 ] InsideMéxico Real Estate Fall-Winter 2007-08
P ut your P ublic N otary to
In Mexico any formal exchange of
property is administered by Public Notaries
(Notarios Públicos). As legal representatives
of the state with lifetime appointments, Public Notaries in Mexico are responsible
for more than simply witnessing signatures. Your notary should:
8 do a search for the title and determine any liens. Although it is not a
requirement for the closing, you should still
consider hiring a U.S. or Mexican title insurance company;
8
obtain and review developer permits (if purchasing from a developer);
8 review the municipal appraisal and
the commercial appraisal (if applicable).
This is especially important for capital gains
tax considerations. If the seller is an individual, the Notary is directly responsible for
calculating and paying the capital gains tax
derived from the transaction;
your legal tenure in Mexico. This might
include: passport, birth certificate, marriage certificate, Mexican visa (FM2, FM3
or tourist visa);
8 provide power of attorney (duly no-
tarized and registered in the US), if you are
not going to sign the public deed personally.
This needs to be prepared by your local closing agent or lawyer. If you are going to sign
personally, be sure to keep your migratory
form and bring it with you to the closing;
8
order seller’s information, such
as the original property deed, up-to-date
tax receipts for the property, public utility
bills (shown as paid), plus up-to-date details
of land-service fees (shown as paid). It is
very important to ensure that all taxes and
bills are paid to date.You definitely don’t
want to incur unknowingly the previous
owner’s debt. It is a good idea to request a
certificate of no tax liability (certificado de
no aduedo).
Lay down the bucks. Full payment
R
is made when the deed is signed over to you at
the Notary Public’s office. For more information on the financing options available, please
see ”Paradise Found” on page 14.
Taxes, fees and other fun conR
siderations. Perhaps not the most agreeable
part of your property purchase, it is important
to account for taxes, fees, and professional
payments incurred in your property purchase.
These extras can significantly inflate the
cost of your home and it is important to keep
that in mind when evaluating the total cost of
your transaction. Take into account attorney,
real estate agent and notary fees, as well as insurance costs and taxes. The seller should pay
capital gains tax unless you have contractually
agreed to pay it.
Follow up. After the closing date
R
you are the legitimate property owner in the
eyes of the seller, but not the rest of the world!
Be sure that your local closing agent or
lawyer follows up manifestation (Cadastre
Office) and recordation (Public Registry) of
your new title.
Sit back, take a sip of your limonada
R
and enjoy your new life in Mexico!
F
&
ocean, while others may need the cultural and
artistic attractions of a city or colonial town.
Visit the area during different times of the year
and don’t rush your research.
8 order personal documents to prove
Cut and Keep
Find it! What’s your definition of
Flash the cash. When the contracts
R
R
paradise? For some it might mean a view of the
are drawn up, you’ll have to make a deposit
&
Cut and Keep
propert y purcha se
GE M oney
S p e ci a l A dv e r t i s i ng S e c t ion
Interview with Edwin Vega, Director General
GE Money: Global Brand,
Local Expertise
After studying Systems Engineering and then receiving an MBA from
the prestigious Arizona-based Thunderbird School of Global Management, Edwin Vega embarked upon a career that eventually led him
to the top post at GE Money Mexico, General Electric’s Mexico-based
financial services division. As Director General, Vega is constantly
looking to develop products that meet the particular needs of GE Money
customers. Today, he talks with Inside México Real Estate about the
evolution of the mortgage market for Baby Boomers looking to buy real
estate in Mexico.
Inside México Real Estate: Inside México Real Estate: In recent
years, Americans and Canadians have been flocking to buy real estate
in Mexico. What’s behind the boom?
Edwin Vega: To understand the boom we need to look at the macroeconomic factors driving it. First of all, the Baby Boomers—78 million
people—are now retiring. They started saving for retirement 30 or 35
years ago, and at this point they’ve acquired a significant amount of
wealth. They’re also retiring younger than previous generations; many
of them are in their 50s when they retire.
Secondly, real estate prices in traditional retirement enclaves—California, Florida, Arizona, Nevada—have gone through the roof, forcing
many retirees out of the market. When people compare the price of a
property in the US with the equivalent in Mexico—California versus
Baja California, for example—they find it two, three, even five times
more advantageous to buy in Mexico.
In addition, Mexican developers Mexico now offer very appealing
properties, with all the amenities that Americans demand—airy, open
kitchens, large bathrooms, spectacular views, security—all the topnotch services they’re looking for.
Finally, 9/11 had a tremendous impact on our market. After 9/11,
many Americans decided that if they were going to travel, they wanted
to go someplace safe and close by, in case they needed to get back home
in an emergency.
All of these factors have created a significant flow of buyers looking
for properties in Mexico.
IMR: What is the difference between getting a mortgage in the US and
getting a mortgage in Mexico?
EV: In the past, there were three financing options for foreigners in
Mexico. You could buy your property with cash. You might be able to
get financing from your property developer, but for very short terms,
such as a year or 18 months. Finally, you could take out a home equity
loan on your property back home and use the money to pay for your
Mexican property.
1n 2005, GE Money launched a pilot mortgage program, specifically
targeting those Baby Boomers looking to buy in Mexico. We started
with just 20 clients, and created a 20 year adjustable rate loan for them.
We set up a fideicomiso, allowing them to buy along the coasts and in
the restricted zones on the border. The pilot program was such a success
that in 2006 we launched what we call the Mexican Dream Mortgage,
and we were even awarded the Premio Nacional de Vivenda (national
housing prize) from President Vicente Fox, for helping the Mexican
economy by bringing foreign exchange into the country. We issued $80
million USD of loans in 2006; this year we’ll do double that, and that’s
just the beginning of the opportunity for this market.
[
12 ] InsideMéxico Real Estate Fall-Winter 2007-08
The Mexican Dream Mortgage isn’t just an American-style loan, it is an American
loan, sourced and processed at our GE Capital mortgage offices in Burbank, California.
All the options you get back home—ARMs, fixed rate, floating rate, different maturities—you can now get for your Mexican property. The application form is the standard
Fannie Mae 1003 [Uniform Residential Loan Application] form. The interest rates are
close to what you’d get back home. Even the loan qualification process and documentation—FICO scores, W2 forms, verification of assets—is the same as the US, because it
originates in the US. And it’s based on your property here in Mexico, so you don’t have
to mortgage or sell your house back home.
However, the process of closing on a home in Mexico is different than it is in the US.
The notary, the fideicomiso, the SAR and predial [closing taxes]…they’re all particular to
the Mexican market. The closing is 100% Mexican, and that’s where our local expertise
comes into play. GE in Mexico isn’t just an outpost of General Electric; it’s the company’s
most important division outside of the US, with 109 years of operations. So in every
aspect of the buying process, we offer our clients certainty, security and transparency.
IMR: Do you have plans to expand into other Latin American markets?
EV: Next year we’ll launch GE Money Latin America to provide financing in Panama,
Costa Rica and other countries attracting Baby Boomer retirees. GE has operated in
many markets around the world. We financed French retirees who bought on the French
Riviera. We helped British retirees move to the coast of Spain. We call it “Best Practice
Sharing”—take the best of what we’ve learned around the world, and adapt it for the
local market.
We do whatever we can to help our clients settle in, down to the little things. We offer
a 25 percent discount on GE brand Energy Star appliances, a 10 percent discount on
kitchen appliances, free telephones and coupons from the phone companies, and a welcome kit with energy saving light bulbs. We want to add value for our customers; we
remember that you’re not buying a loan, you’re buying a home. F
1. Tijuana, Rosarito, Ensenada, 2.
Puerto Peñasco (Rocky Point), 3. San
Felipe, 4. Loreto, 5. Los Cabos, La Paz,
6. Mazatlán, 7. Puerto Vallarta, 8. Ajijic,
Chapala, 9. San Miguel de Allende, 10.
Ixtapa, 11. Acapulco, 12. Mayan Rivera
(Cancún, Playa del Carmen Corridor).
F inancing
More and more U.S. citizens are moving to Mexico. And some financial experts believe it’s a smart move; they see
Mexico as one of the greatest real estate
investment opportunities available to
Americans in decades.
B y : M e l i s s a M. K e l lo g g
Bruce D. Greenberg, a real estate consultant, has been appraising
own a home in Mexico can now tap into their equity with cash-out
properties in Mexico for more than ten years and says that investrefinancing, which is offered by most banks.
ments in residential real estate in Mexico’s resort areas have seen
Tapping home equity - Many buyers who have mortgages on their
healthy appreciation. He notes that, over the past five years, the
primary residences finance vacation homes with the equity built
average annual appreciation in the resort areas is fifteen percent
up in their home. They can do this with either cash-out refinancing
– he sees ten percent at the low end and twenty-five percent in the
or by taking out a home equity credit line to buy a vacation home.
more desirable areas.
If buyers choose this option, it is important that they compare the
Real estate experts all agree that the trend of Americans moving
interest rates to those of a traditional mortgage and make sure they
to and retiring in Mexico is skyrocketing as more mortgage financing
understand how the rate can adjust on the home equity credit.
becomes available and the Baby Boomer generation begins to retire.
Seller or builder financing – Receiving financing from the builder
Part of the reason for the recent upsurge in Americans’ investing
or seller is common in Mexico, but risky. The rates on a seller-financed
in Mexican real estate is that it has become easier for foreign nationdeal are often ten to fifteen percent per year, which could wipe out
als to buy. However, Greenberg cautions, “Don’t leave your brains at
any gains in appreciation. Seller-financed deals tend to have loan
the border.” Buyers must be familiar with property ownership laws
terms of only three to five years and ownership is unlikely to transfer
in Mexico as well as tax laws in both Mexico and the U.S.
until the loan is paid in full. Although these are usually the easiest
In 1994, the property ownership laws for foreign nationals
financing deals to qualify for and obtain, buyers can get into trouble
changed in Mexico. Americans can now own property in Mexico’s
if there is a dispute with the seller before the loan is paid off. If this
restricted zone - that is, any land that lies within 50 kilometers of the
occurs, the buyer could arrive at their new home in Mexico to find
coast and 100 kilometers of any Mexican border - through a Mexican
the locks changed. Situations like this are rare, but the rule of caveat
bank trust called a fideicomiso. In addition to more liberal owneremptor applies.
ship rights for foreigners, American lending institutions have begun
Reverse mortgage – A lesser-known strategy, the reverse mortoffering mortgages to Americans buying homes in Mexico. The
gage, is an option for buyers who own their home in the U.S. outadvent of more mortgage financing is revoright. A reverse mortgage enables the holutionizing the real estate market, making
meowner to access their equity through an
the purchase of a vacation home in Mexico
Five terms you should know:
annuity-like vehicle called a reverse mortaffordable for almost any middle class famFideicomiso – The fideicomiso allows foreigners to
gage, where the bank makes payments to
ily with a good credit rating and money for
purchase property in the Restricted Zone of Mexico.
the homeowner. The buyer can use the
a down payment.
The bank holds the title to the property in trust for the
proceeds from the reverse mortgage to buy
There are a few different ways that Amerbeneficiary, who has the right to the
a home in Mexico.
icans can finance a home in Mexico:
use and control of the property.
As financial planner Bill Carter of Carter
Mortgage financing – Over the last few
Notario – The Notario is an appointed government
Financial Management in Dallas, Texas
years, U.S. banks have begun to offer tradiofficial and a lawyer. He or she acts as a Title Agent
says, “With an excellent climate, many rectional mortgage financing to clients purchaswould in the U.S. and is responsible for collecting and
reational opportunities and the ability to
ing vacation homes in Mexico’s resort areas.
disbursing government fees. Notario’s fees are generally
buy beach homes at reasonable prices, I
Many American buyers prefer the familiar1 percent to 1.5 percent of a real estate transaction.
believe we’ll see much buying there (in Mexity of working with a U.S. bank, and the
Regimen de Condominio – Specifically for an
ico).” In Mexico the opportunities abound
rates are generally much more competitive
apartment or condominium complex, this lays out the
to not only live the good life, but to make a
than those offered by Mexican banks. Buyers
specifications of the units and common areas of the
profitable real estate investment. F
now can finance these purchases with tradidevelopment and must be completed before title
tional 30-year, fixed-rate mortgages or, for
documents can be prepared.
Melissa M. Kellogg is a freelance
those planning to keep the property awhile,
Convenio de Compra/Venta – Known as “compra/
business writer and marketing
ten-year, adjustable-rate mortgages. There
venta,” this is the sales contract.
consultant specializing in the mortgage,
are also three- and five-year adjustable rate
Escritura – Property deed prepared.
finance and real estate industries.
mortgages available. People who already
www.melissamkellogg.com
[
14 ] InsideMéxico Real Estate Fall-Winter 2007-08
jesús salcedo
Paradise Found:
Options for financing your
dream home in Mexico
BBVA B ancomer
S p e ci a l A dv e r t i s i ng S e c t ion
Interview with Mónica Balbontín,
General Manager Preferred Customers’ Unit
BBVA Bancomer: A Bank
of One’s Own
A native of San Luis Potosí, Mónica Balbontín Aguirre studied computer systems then earned a Masters in Finance from the Instituto
Tecnológico y de Estudios Superiores de Monterrey. For more than a
decade she specialized in marketing financial products to Hispanic
consumers. Now she’s turning her cross-cultural expertise to building
Bancomer’s Preferred Customers’ Unit, the first bank in Mexico especially designed to meet the needs of foreigners. She gives Inside México
Real Estate insights into the needs of the foreigners who have decided
to make Mexico their home.
Inside México Real Estate: What is it that foreigners find so
attractive about living in Mexico?
Mónica Balbontín: There are many reasons that foreigners,
particularly Baby Boomers, are drawn to Mexico. For one, Mexico’s
wonderful climate and great natural beauty make it an excellent
alternative, especially during the winter months when it’s cold in
the US and Canada. It also offers a very high quality of life, and at
much lower cost. These Baby Boomers come to Mexico from all over,
and can be found in several enclaves around the country.
Many of them are looking for a different lifestyle. Mexico is culturally very rich. It’s an excellent combination of exotic and safe.
The food, the weather, the people -- all of these factors make Mexico
very appealing to foreigners.
IMR: How many foreigners currently live in Mexico?
MB: We did a very thorough analysis of INEGI [Instituto Nacional de Estadística Geografía e Informática, the Mexican statistics
agency] data from the 2000 census. Based on our analysis, we believe that there are now a million foreigners living here in Mexico.
Over 600,000 of them live here permanently, and the rest live in
Mexico part-time during the winter.
ferred Customers’ Unit have access to faster service. You have your own personal
banker, and with your PCU card, you can go and get service in any branch, without having to wait in line. It’s like flying first class. We know what is important to
our clients, and take that into consideration in all of the products we develop and
services we deliver.
Three products in our PCU are especially created for foreigners: mortgage loans
in dollars, issued through our American affiliate, The Laredo National Bank; Fideicomisos, a trust that allows foreigners to buy on the beach and in the restricted
zone along the border; and bank accounts and debit cards. Most foreigners do their
banking here through ATMs connected to their banks back home, which is very
expensive.
People who relocate to Mexico are building a new life, and we want to help them
every step of the way. If they’re buying a house, one of our notaries will work on
their transactions, and we’ll coordinate directly with the title insurance company.
We can offer mutual funds, checking accounts, debit cards, auto loans, and insurance. In 2008 we’re going to launch a special service in which our clients will be
able to get recommendations on travel, health, even food—it’ll be like being in a
club. What we’re doing is more than just banking services; it’s more complete. We
want to do everything we can to make our clients’ lives here in Mexico comfortable
and successful.
IMR: Do these foreigners live in Mexico part-time, or all year
IMR: What impact is this migration having on Mexico?
mb: The places that attract foreigners are going to grow, and that means more
IMR: What are some of the special needs that foreigners here have
IMR: What’s the most interesting part of your job?
mb: It has been amazing to create something from scratch, to implement ideas
round?
mb: About 50 percent of them are full-time retirees, and 50 percent of them have second homes here. In places like Chapala and
Ajijic, they’re mostly retirees, many of whom are snowbirds that
come every year from November through March. However, in Los
Cabos, for example, we’re seeing many people who come looking
for business opportunities, including lots of American real estate
brokers.
in terms of financial services?
mb: Obviously, one of the most important issues is language.
We want our customers to be as comfortable as possible, and we
only hire bilingual professionals who understand their needs
and communicate with them effectively. Everyone in the PCU
branches is required to know English, from the managers to the
tellers. All of the employees take English courses. In our Playa
del Carmen branch, where there are lots of Europeans, we also
speak French.
We are very respectful of the clients’ time. Customers in our Pre-
businesses and more jobs for the people living there. And the people who migrate
here get very involved with charities and volunteer in their communities. They’re
not just here to take, they want to give back as well.
There’s also the opportunity for us to learn from each other. For example, (last
September) when I was at the Los Cabos branch, 70 percent of the staff was foreign,
but we all celebrated Mexican Independence Day together. Many places in Mexico
are becoming bilingual, but we also manage to preserve our Mexican traditions.
There’s something positive in it for everyone.
and see them become reality. We were the very first ones to launch a bank just for
foreigners. This market is very important to the BBVA Bancomer Group, and they
have given me all the resources and support I need to make this a success for our
clients.
Also, I personally love meeting people from other cultures. This job is really fun!
Excellence requires passion. I’m completely passionate about what I do.
To be the first ones to do something new is at the same time an opportunity and
also a responsibility. We are aware of our responsibility and are working very hard
to be the bank of reference for foreigners living in Mexico.
www.insidemex.com/realestate [ 15 ]
M exico ’ s R estricted Z one
“Trust” Purchasing
Residences in Mexico
B y : M i tc h C r e e k m o r e
All of the above (and common) suppositions are incorrect. To clear up
any confusion a purchaser might have regarding the acquisition of
Mexican residential property, it’s helpful to look at Mexico’s Constitution and the Foreign Investment Law of Mexico mandates regarding
foreign (non-Mexican) buyers of real estate.
Most purchasers contemplating buying a house in Mexico are
aware that Mexico has a “restricted zone” (50 kilometers along
Mexico’s entire coastline, 100 kilometers along all of Mexico’s natural
borders) per Article 27 of the Mexican Constitution. What many purchasers are not aware of is the Foreign Investment Law of Mexico
(“FIL”), originally established in 1971, amended to the “New FIL”
in December, 1993, and amended again in October, 1998. This FIL
is known as the “Reglamento de la Ley Inversion Extranjera y del
Registro Nacional de Inversiones Extranjeras.” Relative to properties
within this prohibited area, the amended Foreign Investment Law’s
intent is to clearly and narrowly define what is residential property,
what properties must be in a “fideicomiso” (Mexican bank trust), and
what properties are considered non-residential and therefore can be
purchased by foreigners in a Mexican corporation.
According to Article 5, Title Two of the Law, real estate used for
“residential purposes” shall mean any real estate destined “exclusively for residential use of the owner or third parties.” The following
activities, without limitation, shall be deemed real estate held for
non-residential purposes: (I) those destined for time-share use; (II)
those destined for any industrial, commercial or tourism activity
that may simultaneously contain a residential component; (III) real
estate acquired by credit institutions, financial intermediaries, and
auxiliary credit organizations to recover debts owed to them and in
the ordinary course of business; (IV) real estate used by entities in
the course of their business consistent with the sale, development,
construction, sub-division and other activities included in the development of real estate projects, until these are sold to third parties; and (V) generally, real estate destined for use in commercial,
industrial, agricultural, cattle, fishing, forestry, or service-related
activities.
When there’s doubt about how to categorize a real estate property’s use, the Ministry of Foreign relations will resolve the matter in
ten business days. If at the end of ten business days, the Ministry
fails to respond, the use in question shall be deemed for non-residential purposes. When it’s unclear whether property is located within
or outside the restricted zone, the Ministry of Foreign Relations, on
consultation with the National Institute of Statistics, Geography
[
16 ] InsideMéxico Real Estate Fall-Winter 2007-08
jesús salcedo
“If I buy a house in Mexico, don’t I get
a 99-year lease from the government?”
“I understand that I can buy a residence in Mexico if the title is vested in
a Mexican corporation.”
“I didn’t think Americans could own
Mexican beach front properties.”
and Data Processing, will decide as appropriate. Finally, Article 7
of Title Two provides the notification procedure that all interested
parties must give to the Ministry of Foreign Relations. That is, (I)
the location and description of the real estate; (II) a clear and accurate description of the uses for which the real estate in question is
destined; and (III) an ordinary copy, in annex, of the public instrument, known as an “escritura,” that records the formalization of the
acquisition.
When one “boils down” all this language and law, what does a foreign purchaser really need to know? Simply that Mexico’s Constitution and Foreign Investment Law are very specific regarding foreign
acquisition of real estate, particularly in the restricted zone. Most
importantly, we as foreign buyers of Mexican properties must realize
that title to real estate in the prohibited zone can only be vested one
of two ways for our benefit: either in a 50-year renewable Mexican
bank trust (fideicomiso); or, in a Mexican corporation that can solely
and exclusively be owned by one or more foreign stockholders with
no Mexican ownership participation.
Make no mistake, buying public. There is no gray area concerning
Mexico’s constitutional or foreign investment law. The title to houses
on the beach, villas, condominiums, townhouses or single family lots
within Mexico’s restricted zone must be held in a fideicomiso. The
assertion by some purchasers that title to residential real estate can
be vested in a Mexican corporation for foreign ownership purposes
simply is not correct. However, titles for non-residential real estate
can be held in Mexican corporations that are exclusively owned by
foreigners.
And one final, salient point, whether title is vested in a fideicomiso or a Mexican corporation, in either case, all of these properties can be insured by a U.S. contract of indemnity more commonly
known as a title policy. There are a few U.S. title companies that
can provide owner and lender policies for guaranteeing ownership
rights in these Mexican entities.
Mitch Creekmore, Senior Vice President,
Business Development, Stewart International.
Stewart provides title insurance and related information services required for settlement by the real
estate and mortgage industries through more than
9,500 policy-issuing offices and agencies in the United
States and international markets.
More information at http://www.stewart.com
SETTLING IN
Reader’s Stories of Life in Mexico
A Thankful Gringo
By Kevin Pickolick
After living in La Paz, Baja Sur, for
over a year, I rode my motorcycle
north to explore small fishing villages
and wide-open beaches.
It was getting late in the day and
I didn’t want to be out after dark. I
was leaving Highway 1, headed for
Gonzaga Bay, and the sign said 100
kilometers. “No problem,” I thought.
“Sixty miles, two hours of sunlight
left…”
The road got worse fast. The Baja
1000 race had torn through a couple
of weeks before, leaving nothing but
ruts, rocks and sand; two hours turned
into four.
When I pulled into Gonzaga Bay
it was dark, my bike was running on
fumes, and I was tired, dusty, hungry,
and thirsty.
The gas station would be closed
“until the truck arrived.”
“When will that be?” I asked.
“Soon.”
I got the last room at the inn,
humble but with an astounding view.
It was Thanksgiving Day and I felt
homesick.
As I sat glumly in the hotel dining room, a crowd of locals came in,
carrying bags of food. What’s this, I
wondered? It turns out that the locals have appropriated this American
holiday, hold a potluck every year, and
tell tales of thanks. They invited me
to join in.
Food was served. Beer, wine and
tequila were poured. Stories of family
and good fortune were told. Everyone
was happy and I felt welcome like a
long lost friend.
As I fell asleep my belly was full,
the homesickness went away, and the
promise of gas in the morning left me
feeling grateful, even thankful.
Another magic night in Mexico:
everything goes wrong and ends up
perfect.
The Voice from Beyond
By Rupal Dalal
Excerpted from the author’s blog:
http://dalals-in-mexico.blogspot.com
Two mornings a week, I hear a loud
voice. It starts out in the distance and
draws closer to our Mexico City apartment. The voice is male, and squawks
the same thing over and over.
What it is saying is a mystery, but it
sounds something like: “BHAAAACHHHOMIIIIAAA.” I have determined
that the yelling is not the result of torture or murder in the streets, since it
returns each week. My guess is that
it belongs to a street vendor with an
incredibly strong pair of lungs, but
I can’t decipher what he’s selling. No
one understands him, not even my
Spanish-speaking maid. Maybe one
day my curiosity will trump my laziness, forcing me out of my building
to follow the screams until I solve the
mystery.
Cashing In on a Second
Home
in
Mexico
How to Buy, Rent and Profit from Property
South of the Border
Recenetldy!
Revis
Red means “Go”
By Shelton Brigsby
I grew up in New York City, and considered myself an expert in the art of
urban driving. But nothing prepared
me for the chaotic traffic in Mexico
City. My wife was born and raised
here – at ease with the Distrito Federal’s baffling street signs, well-versed in
the city’s secret short-cuts and blessed
with eerily accurate peripheral vision.
I left the driving to her, but my inner
New Yorker eventually surfaced, and
one evening, with my wife in the passenger seat, I hit the road to match
wits with Team Chilango.
There was I was…moving through
traffic, weaving and bobbing, anticipating every renegade taxi, avoiding
canyon-sized potholes and over-eager
windshield washers. Ha! I thought,
slowing for an upcoming stoplight, the
DF ain’t so bad.
“Ayyyyyyh, step on it!” shouted
my wife. Panicked, I plowed through
the intersection. “What happened!?”
I asked.
“The red light!” she said. “Don’t stop
or even slow down – you’ll surprise the
person behind you, they’ll run into you
and the accident will be your fault!”
Paint Job
By Eli and Miranda Nadel
More than 10 years ago, San Miguel
de Allende was being spiffed up for a
celebration. The city government sent
out trucks of painters and paint. For
the price of a refresco, the painters
would paint the front of any house.
They came to our home, and after
finishing the job they rang the bell
and asked us to inspect their work. It
looked wonderful.
Then, one of the painters pointed
out that the sides of our house were
not painted, offering to paint them.
When the job was done, the painters
asked us to come and see. We followed
them to the west side of the house and
exclaimed that it was beautiful.
I noticed they had not painted the
east side of the house, though, and
mentioned this. They said, “Your
house is on a one-way street. No one
will see the other side.”
Cashing In on a Second Home
in Mexico (Original Paperback,
$19.95, ISBN 0-9770920-0-3) is
a straightforward, informative
guide that helps potential second
home buyers, investors and
renters easily understand the
nuances of Mexican property,
mortgage history and closing
process, plus:
vDiscover how to safely hold property within Mexico’s “restricted
zone”
vExplore dynamic new locations South of the Border
vCollect strategies on researching a Mexican property for purchase
vHow the fidecomiso, or Mexican trust, provides new ownership
opportunities
vExplore creative avenues of financing your dream retreat
vFind innovative ways of attracting desirable, qualified renters
vUnderstand tax benefits, ramifications of a Second Home in Mexico
Written by Tom Kelly, a nationally syndicated real estate columnist and talk
show host, and Mitch Creekmore, senior vice president of Stewart International and one of the world’s foremost authorities on Mexican transactions,
Cashing In on a Second Home in Mexico leads all consumers who are now
working for a safe and profitable getaway property through the maze of options and possibilities of obtaining Mexican property. This useful book especially targets the Baby Boom generation - the largest, healthiest and wealthiest to enter its senior years in history – plus those in the real estate industry
who assist them.
Al Heavens, longtime Philadelphia Inquirer real estate writer whose stories
appear in newspapers and websites around the country, wrote “this book is
as important to the first-time American second-home buyer as the Boy Scout
Manual is to the tenderfoot.’’
Heavens, past president of the National Association of Real Estate Editors,
went on to write “it’s true that much of this information can be found on the
Internet. The difference is, of course, that Kelly and Creekmore have the kind
of expertise that will help you sift through all of that information and make
the kind of informed decision that will allow you to make a safe and sane
investment in Mexican real estate.”
Cashing In on a Second Home in Mexico also contains real stories of how
real people attained their dream of owning Mexican property. It includes
helpful maps of some of the most popular areas, preparation checklists,
capsule outlines of specific regions plus helpful websites and English-Spanish
language tips and terms. Ask for the book at your favorite bookstore. Available at all online outlets.
www.insidemex.com/realestate [ 19 ]
Now you can own the sun, the beauty and…
the home of your dreams in Mexico
Imagine owning a home in beautiful Mexico.
Home ownership in Mexico for U.S. Residents is easier than ever with GE Money.
Financing options are similar to a U.S. mortgage.
Already own a home in Mexico? Pull out your equity with our Cash-Out Refi product!
• Secure investments
• Low rates from 8.25%
• 30 year terms
• From GE, a name you know & trust
Call us now!
Toll Free from Mexico: 01 800 284 2844
Toll Free from USA:
1 800 693 4598
www.MexicanDreamMortgage.com
Subject to credit approval, available in major resort destinations.
[
20 ] InsideMéxico Real Estate Fall-Winter 2007-08