FAQ

Index

Can foreigners own land in Mexico? How?

In 1917, the Constitution was drafted and passed into law. In the Constitution, there was a provision that created what is called the Restricted Zone. The Zone is 100 km (62 miles) from the borders and 50 km (or 31 miles) from the coasts. In this Restricted Zone, only Mexicans could own the land. This was done for their own protection, and at the time, it made sense.

However, in the 70s they realized that there was a lot more money outside of Mexico than inside Mexico. Therefore, in 1970, a Bill was passed into law, which created a legal loophole. This Bill stated that a trust, called a ’Fideicomiso’ could be set up, with the foreigner as the sole and exclusive beneficiary. Since a Mexican bank holds the title and must administer this trust, it satisfies the requirements to purchase land in the restricted zone. The beneficiary (foreigner) could control the land (rent it, improve it, sell it, whatever...). Cancun is 30 years old. Because of the 1970 Bill, major foreign investment flowed into Mexico and we saw not only Cancun, but also Cozumel, Acapulco, Puerto Vallarta, Ixtapa, etc. take off.

There were, however, limitations to the Trust system. For each property you owned, you needed a separate trust. The cost for each trust or Fideicomiso (the Spanish word for Trust) is about 1% to 1.5% to set up (that percentage based on the purchase price of the land). In addition, there is an annual "administration" fee to the Bank of $600-700, for doing nothing more than holding the deed on your behalf.

In 1993 the newest Bill was passed, pertaining to the Restricted Zone. In this one, the government said that a Mexican Corporation, wholly owned by foreigners, could be the Mexican entity required by the Constitution to be legal. Now, you own the corporation and hold all the papers to it. Your corporation holds the deed, which means you get to personally (physically) possess the deed. You no longer need to go to the bank to make requests. Of further benefit with the corporation system, there are no annual fees to the bank and your corporation can own more than one property (you do not need to form one corporation for each property).

When you go to sell your property you can either sell the corporation or sell just a property from it. In addition, after you buy land via the corporation system, you are permitted to file a dormancy election, which means your company is "asleep" until you activate it. Back to the Index

Which is better the corporation or the trust system?

The Trust System is more expensive and less friendly or less flexible. When you own a corporation, you call the shots. With a Trust, the bank owns the property. You must ask the bank for written authorization, to sell, transfer, build on, or subdivide your land. Remember, technically they hold the title in the name of the bank (for your benefit).

In addition, you can only have one property held per trust. (Unless all properties are purchased and put into the trust at the same time.) With a Corporation you may add as many properties as you would like. You can sell properties after you buy them or subdivide them. You can sell the corporation, or just sell part of the shares of the corporation. Further, there are no annual fees with a corporation. You may even file a ‘dormancy’ election each year, which means you do not have to file a tax return.

The Trust System is OLD law. The Corporation is NEW law. Both are available but the new one was made to best the old one. It is cheaper and more user friendly. Back to the Index

Do I actually own the land?

You own it in the name of your corporation and you own 100% of the corporation. You do NOT need a Mexican as a shareholder.
It’s really no different from the US. Back to the Index

Why the sellers won’t negotiate?

Some will and some won’t. Mostly because they do not have to. When you choose not to pay their asking price that is your decision and yours alone. You do not have to pay it. However, with all of the (already funded) government infrastructure going in, the values are only rising and you are opting to allow the seller to continue to receive the benefit of the appreciation, instead of you. They normally will just wait and adjust their price higher as more and more infrastructure goes in. Back to the Index

What is the price per square foot?

There is no price per square foot. That is NOT the way to value beachfront property. Beachfront property is most often valued by the amount of linear feet of beach frontage you have. Depth is not an issue and therefore, square footage just is not an accurate way to value beachfront property. (Maybe farm land.) Back to the Index

Can squatters steal my land?

Yes, they can. But it is actually easier in some states in the US to have a squatter steal your land than it is in Mexico. You see, in Mexico, in order to be granted title to land you do not own but are living on or ‘squatting on’, you must prove to the government that you have been residing on the property for 5 years in a notorious manner, which means you must make it known to everyone that you reside there. (Paying a tax bill, receiving mail, having utility services placed in your name at the address of the property or something.) You cannot simply hide out on the land for 5 years and then petition the government for the title.

If you do not notice this use of your property, then the squatter can, after 5 years, petition the government for your deed. However, the government must make every attempt to notify you of this, either by mail, by phone or by placing an ad in the most circulated local newspaper at the time. If they do get you, they will ask you if you are willing to consent to having your deed transferred to the squatter. Most people say no.

If they do not hear from you then the government will permit the squatter to remain on your land for up to another 5 years. At which time, (now we are at 10 years of notorious use of your property) the squatter can petition again for the deed to your land and again, the government must make every attempt to contact you. If they fail again, or rather if you fail again (to respond), then the government will authorize the transfer of your land and deed to the squatter. Back to the Index

Ejido Lands?

Ejido Lands are nothing more than a land “use” grant from the government to a cooperative of families for the purpose of using and living off of the land. The government still owns the land but has granted the use of it to the families of the Ejido.

Ejido lands are not something to get involved with. Ejido members do not own anything. They simply have rights to the ‘use’ of the land. It is owned by the government.

Ejido lands are for Mexicans. It is granted by the government to create affordable living for Mexicans, similar to government run housing in the US. As a foreigner in Mexico, you have NO RIGHTS to use, lease or purchase Ejido land. Back to the Index

What happened in Baja California?

In Baja California the property in question was owned by the government and was at the time in the Ejido system. The Ejido members decided that they would lease the land to foreigners. In effect, the foreigners threw their money away. Back to the Index

Explain capital gains?

Capital gains are computed based on the difference between two stated values that are assigned to the property by an appraiser appointed by a Notario. The government does not ask for, nor does anyone tell them, what the transaction price is. The government does not depend on the revenue of real estate taxes nearly as much as other governments we are used too living under. It is very nominal.

If you purchased $100,000 worth of property, the government will issue you a stated value for the purposes of computing capital gains at about 10% of your transaction price. Therefore, the value of your lot, for the purposes of taxes is $10,000.

Now, let’s say you go to sell it tomorrow or 10 years from now and you sell it for $200,000. For the purposes of taxes, you would have a stated value of $20,000. The difference between the $10,000 and $20,000 is, again, for the purposes of taxes, your capital gain. The tax rate for that capital gain is 30% (just like income tax). In this example, it would be 30% of $10,000 ($20,000 - $10,000), or $3,000.

Your effective and actual capital gain is $100,000 and you paid $3,000 in taxes, which is 3.0% of your real capital gain. Back to the Index

Is it a conflict of interest for Transcaribbean Trust Company to represent the seller and the buyer?

Not really. The sellers are familiar with Mexican procedures. If the sellers wish to hire an attorney, they can. We do list their property and must respect their asking price for the land. However, they understand that we have an obligation to represent the people who buy the property. We advise them, prior to listing their property, that once the price is agreed upon, our interests lie with you, the buyer, and not the seller and we have the best real estate lawyers to represent you. Back to the Index

I’ve heard that I need a cistern. Can you explain this to me?

A cistern is a water tank that is used to store water from your well. Water from a cistern can be pumped into a pressure tank and then to your faucets. Back to the Index

How much does it cost to build here?

This question is hard to answer. It’s much like asking how much does a car cost per pound? But let’s figure it this way. Concrete walls, footed into the bedrock under the sand, concrete ceiling, marble floors (Mexican marble, which is what you would see in any hotel in Mexico), marble kitchens and baths, and standard fixtures, would run you about $45 to $55 per square foot.

The reason it is so low is that the average labor cost is 82 cents per hour not $25 per hour like in the US with a labor union. Back to the Index

Closing costs, what is included?

Closing costs include EVERYTHING needed to place you in legal ownership of the property. This includes the formation of the Mexican corporation, registration with the Ministry of Foreign Investment, transfer taxes, Notario fees, and legal fees for your attorney, anything, and everything. Basically, the costs to close have been agreed to be paid by the sellers. Back to the Index

Who owns the land?

The beachfront land we are selling is owned by private parties whom have owned the properties for long periods of time. Most have inherited them. Back to the Index

Can I have references?

Of course you can. We pride ourselves on our references and hope that you would be one as well. Back to the Index

How do I finance the land? Is there financing available?

Why doesn’t Transcaribbean Trust Company provide financing?

Transcaribbean Trust Company does not finance the property because we do not own it. The Mexican beachfront is being purchased without financing. Closings vary by sellers but range between 30 and 60 days. With the market moving up almost every 5 weeks, the sellers feel, and rightfully so, that any closing beyond 60 days is like taking back or carrying financing.

You may be able to get financing through a Mexican bank but their rates are VERY undesirable. Mexican banks pay about 15% or more for CDs. So they lend at rates in excess of 35%. This is not something that people find affordable.

Your best bet is to take money out of the tumultuous stock market or finance a home or other asset in your home country. Often you can even find tax advantages to this like a second mortgage on your primary residence in the US. Back to the Index