How do I buy vacation property in Mexico?
Did you know that North Americans make up for 52.4% of the people searching for Mexico Real Estate? The past few years have seen a dramatic rise in the number of people buying second homes in Mexico.
This is partially because of the increase in remote work and people embracing the digital nomad lifestyle. Additionally, Canadians are moving to Mexico to escape cold winters, a faltering democracy, and a skyrocketing cost of living.
Why buy a vacation home in Mexico?
A vacation home is an investment
In fashionable areas near Mexican beaches, you can likely sell your vacation home for more than what was initially paid for it.
Not only will you have a place to stay when you travel to Mexico, but by renting it out when you're not using it, you can actually make some money. So if you don't plan on living in the home full-time, why not open it up as a vacation rental?
Save on vacations to Mexico
You can save money on vacations to Mexico if you plan ahead. For example, if the vacation home is in Cancun, you’ll have to fly down. But otherwise, you’ll already have a place to stay. This can help you save a lot of money on your trip!
Longer vacations in Mexico
Mexico is the perfect place to own a vacation home because you can enjoy longer vacations. When you're staying in a hotel, you might have to cut your trip short after only five or six nights due to the expense of hotel fees. But if it's your vacation home, there's no need to worry about that! And if you work remotely, as many people do these days, then you can work from your vacation rental even while on vacation.
Invest in your quality of life
A second home in Mexico could improve the day-to-day lives of you and your family. It's not all about the cost. You'll have a space to stay where you can feel relaxed and recharged, and you may be able to bring extended family or close friends on vacation with you.
Before you purchase a vacation home in Mexico, it's important to have a comprehensive plan.
There are several factors you'll need to take into account, keep the following tips in mind:
14-step checklist for buying a vacation home in Mexico
1. Create a budget for buying a home in Mexico
Don't forget to factor in additional costs that might not be immediately obvious when buying a Mexican vacation home, such as condo fees and closing costs. Choose a real estate agent who is up-front about all the potential costs involved in purchasing property in Mexico.
A great option for balancing the budget is to hire a professional manager or buy a vacation home that’s already been managed to help bring in additional income. Nevertheless, it's important that you run the numbers by your real estate agent in Mexico first so everything is crystal clear before making any decisions.
2. Plan For Your Purchase
It's important to have your financing squared away before you start shopping for or making any offers on a home in Mexico. Mexican banks don’t easily offer credit to foreigners and Canadian banks don’t offer mortgages for homes in other countries.
That being said, homes in Mexico are so affordable, you may want to see if your line of credit or savings will cover the cost.
If you’re buying a property that’s already been built you’ll need to have the entire amount upfront. For a home that is under construction, the payments often are 30%/30%/30% throughout the life of the project. If you offer a higher downpayment you can often negotiate a lower price.
If you’re looking at buying land on the West Coast of Mexico, financing is available from our development partner there.
3. Consider your Location
Everyone wants an affordable vacation home in a location with perfect weather and lots of activities.
Mexico has so many popular destinations that are favorites with Canadians. Many opt for the convenience and ease of travel to the Caribbean coastal cities of Cancun, Playa Del Carmen, and Tulum, while others prefer the more laidback lifestyle of the West Coast of Mexico.
Choosing less popular holiday destinations may help you purchase a property at a lower price point with a higher return on investment.
4. Research for a better ROI (Return on investment)
By carefully considering the prices of comparable vacation homes, as well as the potential and prices for renting your new Mexican vacation home out as a holiday rental, you can calculate your return on investment and potential profit.
ROI can range from 8% - 35% a year depending on if you rent out your vacation home on a long-term basis or through Airbnb or other vacation rental websites that tend to charge per night instead of per month.
Chat with your preferred realty company to help you understand how to make the most of your investment.
5. Understand Rental Income Options in Mexico
Renting out your Mexican rental home is a great way to make some extra money. You don't have to do it for the whole year, but the more days you rent it, the more cash you bring in.
If you're renting out your vacation home primarily to make a profit, many of your business-related expenses can be deducted from your taxes. Seek professional advice, like from a real estate agent, to learn more about tax laws.
Any individual who plans to rent out their home in Mexico must file a tax return for the income generated. However, you can avoid paying taxes on it if you only rent it out for less than 15 days. If you use it for both renting and vacations, though, things become more complicated from a tax perspective.
But if your vacation home is effectively a side business, then you can deduct most of the costs associated with maintaining your rental property.
6. Property Management Team
The quality of your property management team can determine whether or not your vacation home is occupied. Online reviews play a big role in deciding which vacation homes people book, so it's important to pay attention to how you will manage your rental property, should you choose to do so. If you end up listing your place on Airbnb good reviews will bring more occupancy rate to your holiday vacation home while bad reviews can cause the opposite effect.
7. Look for desirable amenities
If you want to make more money, select a property that has in-demand amenities. By being aware of which room designs and features vacationers desire the most, you can produce higher occupancy rates and ROI.
Close proximity to the beach, good wifi, a rooftop pool, and remote check-in or built-in concierge are all amenities to look for.
Land Ownership
8. Consider if you want to buy Ejido Land or Freehold
Ejido land in Mexico is communal agricultural land that was granted to an indigenous community. Many prime beachfront properties are classified as Ejido land and due to this special classification are often far less expensive than other properties.
The reason being is that the usage rights, not ownership is what’s for sale. It’s similar, in Canada to a 100 year lease on Indigenous land except that in this case, there is no limit on the length of usage rights. This means Ejido land can be passed down to kids or others.
You can embark on the process of changing ejido land into private property, it is known to be difficult and challenging. However, there are many legal firms in Mexico that have experience with this type of transaction. Converting the rights from usage to ownership can 5x the value of the land.
Freehold land or property, on the other hand gives you ownership rights where you buy a deed to the property. This offers increased peace of mind for many, but comes at roughly double the price.
9. Familiarize yourself with the restrictions on foreign ownership
There are very few restrictions on foreign ownership.
In Mexico, there are no restrictions for the most part when it comes to owning residential property. You're able to hold the title in your own name if you'd like.
You have the option of holding the title in a trust—for asset protection or estate planning purposes—but it’s definitely not necessary. If the property is close to either the coast or an international border, though, special rules will apply that you'll need to follow (explained in the next point).
10. Learn about The Restricted Zone If you plan on being close to the beach
A little-known regulation in Mexico makes it impossible for non-citizens to buy property within 31 miles of the coast, or 100 kilometers (about 62 miles) of any international land border. This area is called the Zona Restringida (Restricted zone), and has been off-limits to foreigners since the early 1900s.
The Mexican government established a workaround in 1973 to attract foreign investment, which it set in stone in 1993. The policy allowed foreigners to buy property normally restricted to Mexicans through trusts, dubbed Fideicomiso trusts; these are similar to Land Trusts common in the United States.
11. Familiarize yourself with a fideicomiso (bank trust)
A fideicomiso is a bank trust that is sanctioned by the Mexican government and secured by Mexico's central bank. This setup allows foreign buyers to have the Bank of Mexico legally hold their property title. The property trusts are renewable on a 50-year basis, and the beneficiary (the foreign buyer) has all the rights commonly enjoyed by Mexican owners.
When you own property through a fideicomiso, the bank is not legally allowed to sell it without your written consent. You are also able to have multiple properties under this trust, pass them down to heirs, and sell the trust itself if needed. However, there is an initial setup cost as well as annual maintenance fees which amount to approximately $500-$700 USD.
12. Get yourself a Notary
The notary in Mexico is appointed by the state governor and must be an attorney who has at least five years of experience. A notary acts on your behalf during the buying process in Mexico. They cannot take sides and do not represent the seller.
A notary can help you with a title search, preparing paperwork, processing your real estate transaction, recording the new title, and collecting taxes and fees. For notarizing services in English, be sure to hire someone who is fluent unless you are a Spanish speaker yourself. In that case, they will serve as your translator and explain any documents written in Spanish.
Real estate agents cannot accurately translate complex legal documents, so don't rely on them as your only translator at the notary office. Make sure to use a Notary who speaks your language fluently in order to avoid any miscommunication. In a straightforward property sale, you do not need a second attorney anyway.
13. Review your Sales Contract
In Mexico, all legal documents are in Spanish. While many competent realtors will give you an English sales agreement, it is always best to have someone who can translate the terms of sale for both parties. This way there is no confusion about items like the sales price, what's included in the purchase, or any other conditions that could potentially arise.
Remember: if there's a discrepancy between the Spanish and English versions, the Spanish version is always law.
Make sure that any changes you and the seller make to the English version are carried over to the Spanish version during negotiations.
If necessary, you can commission a professional translation service for official documents.
14. Have fun
Now that you've taken the time to evaluate all of your options, it's finally time for the fun part - touring potential investment properties!
15. Ask for help
It’s always easier to buy a vacation home in Mexico when you’re working with people who have successfully been through the process!
At MexCan Realty, we will curate a tailored itinerary for when you arrive in order for you to explore what each property has to offer.
We will connect you with lawyers, notaries, banks, home inspectors and other professionals to help make your experience easier.
We’ll also provide suggestions on sightseeing spots and restaurants so that your visit is enjoyable from start to finish!
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