Buying a property in Mexico?

Leveraging, renting vs owning, making an investment or buying a home?
gbill2004
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Buying a property in Mexico?

Post by gbill2004 »

Thoughts on buying a condo in Mexico? I'm looking at some condos in Playa del Carmen. Some studios and 1 BR as low as $70,000 brand new. I know beach front property for foreigners needs to go through a bank estate.
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Re: Buying a property in Mexico?

Post by randomwalker »

Where there is risk there is opportunity. I should hope that real estate in Mexico is dirt cheap to reflect the risk involved in such a purchase. I for one would only purchase such illiquid physical assets in Mexico today with money I could afford to lose. I don't think many would argue with the fact that Mexico is a Narco-Republic not unlike Colombia twenty years ago. Mexico is at risk of becoming a "failed state" according to the Pentagon. I don't see the government as currently running the country so one must worry about such things such as the rule of law and property rights. But therein lies the opportunity. Could things get worse? Maybe. But the upside is greater than the downside. Heads you win, tails you don't lose too much. If as Baron Rothschild said one should "buy when there is blood in the streets" then Mexico is certainly worth a look today.
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Re: Buying a property in Mexico?

Post by kcowan »

The property values have declined along with US resale values. Most property companies have adjusted to this new reality by now (25% to 35% reduction). So if you can negotiate what you consider to be a bargain, then there is limited risk. Never buy preconstruction because you have no rights and are considered a speculator. I know of many people who have lost all their money on preconstruction. (To some extent, this is also true NOTB but it depends on the success of the project and the reputation of the vendor.)

But remember that it is a foreign country so many of the oversight and protective measures you expect NOTB just do not exist here. If you think of it as an extension of the US sunbelt, you will be disappointed.
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Re: Buying a property in Mexico?

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I am in the process of buying a property in Mexico (Lake Chapala area) and there is not the degree of protection as in Canada. There is for example, no escrow account. Any advice by those members who have been throuigh the process would be appreciated. It is a condominium property in a gated community and the seller is an American.
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Re: Buying a property in Mexico?

Post by kcowan »

Get yourself a good notario. Do not use one supplied by the realtor unless they check out independently. Escrow is allowed. I used American Title. Stewart Title also operates there. The notary is a lawyer who checks out the legalities but does not verify the business deal like a lawyer up here might. Realtors are not licensed so don't believe anything they say.

Is the condo complete and occupied? Does it have an independent HOA? Both are essential. Get the HOA minutes.
(Many developers continue to control the HOA after completion. That is always bad.) Good luck.
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Re: Buying a property in Mexico?

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The condo is at present used as a rental. I have attended an HOA meeting and talked with both the treasurer and the chairperson and have a full financial statement.

Thanks Keith, this is the second time over a period of 6 years that you have given me good advice, I owe you one. So far everything seems to be going according to plan. I have contacted a Notario and he will be undertaking the necessary examination and transfer of title. His fee seems a bit pricey though, at $9 k on a property selling for $120k but his fee seems to include all unpaid government duties and all other fees.
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Re: Buying a property in Mexico?

Post by kcowan »

vince2 wrote:I have contacted a Notario and he will be undertaking the necessary examination and transfer of title. His fee seems a bit pricey though, at $9 k on a property selling for $120k but his fee seems to include all unpaid government duties and all other fees.
Yes notarios seem to leverage their monopoly position but then there is no alternative. In PV in 2007, all fees were just over $16k on $250k. I suppose there is some economy of scale at work. And our respective condos are probably pretty comparable given the difference in costs between the two places.
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Re: Buying a property in Mexico?

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I wouldn't be in the market for Mexican property, unless it was 'mad money' or money that can can be flushed down the toilet without worrying. Even then, I'd prefer a 911 Porsche safely tucked away in my garage. A person would have to be a bit mad or courageous to convert $120,000 looneys into Mexican Pesos. Since the Mexican police are crooks, whoever is guarding the gated community can't be trusted. Sort of like buying a condo in Egypt, wait 5 years and you've got Syria. Condo's could go up in price (a long shot), but the Peso drops in value.
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Re: Buying a property in Mexico?

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dusty2 wrote:Condo's could go up in price (a long shot), but the Peso drops in value.
The peso has gained on the Loonie during the last couple of years. Stratfor and others predict better times for Mexico than many other economies. Gated communities are rare in the tourist zones except for newer beachfront condos but even then, access from the beach is fully open. Mexico has free trade agreements with 48 countries, a record. Many jobs are being repatriated from China and India owing to slightly higher costs and much more reliable quality.

But aside from the bright economic outlooks, buying property in Mexico and elswhere represent a lifestyle expense. And owning a property for rental income represents a real crapshoot and a tax and fee nightmare. Tax evaders are discovering that the Hacienda is using TripAdvisor and VRBO to track down tax cheats.
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Re: Buying a property in Mexico?

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kcowan wrote:Yes notarios seem to leverage their monopoly position but then there is no alternative. In PV in 2007, all fees were just over $16k on $250k. I suppose there is some economy of scale at work. And our respective condos are probably pretty comparable given the difference in costs between the two places.
Thanks Keith
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Re: Buying a property in Mexico?

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dusty2 wrote:I wouldn't be in the market for Mexican property, unless it was 'mad money' or money that can can be flushed down the toilet without worrying. Even then, I'd prefer a 911 Porsche safely tucked away in my garage. A person would have to be a bit mad or courageous to convert $120,000 looneys into Mexican Pesos. Since the Mexican police are crooks, whoever is guarding the gated community can't be trusted. Sort of like buying a condo in Egypt, wait 5 years and you've got Syria. Condo's could go up in price (a long shot), but the Peso drops in value.
Adds a bit of spice to your life, and having spent a large part of my life in South Africa, Mexico seems tame :lol:
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Re: Buying a property in Mexico?

Post by Okanagan »

Presently considering the purchase of condo on the outskirts of Puerto Vallarta. We are dealing with a sale price in mexican pesos as has been indicated could get better deal in pesos.

Does anyone have any suggestions on the best place to convert Canadian $$ to Mexican pesos in Canada. I currently deal with TD bank but have a feeling that maybe one could do better dealing with a Foreign Currency Exchange. I will have to wire the funds from Canada to the Notarios bank account in pesos. Any suggestions welcomed.
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Re: Buying a property in Mexico?

Post by kcowan »

Not in Canada, but check with Bancomer. Their PCS unit offers great exchange rates for large sums of C$. And they speak English. We use the one at Plaza Caracol. There is also one at Peninsula Plaza but no bank branch.

(I think large means over $10000. You just need your passport and some bill showing the address of the condo, not necessarily in your name. Our condo was USD with American Title escrow but we needed the account for renovations and discounts for cash purchases. We also pay all utilities automatically from that account.)

(PS condos are selling for 80% of list on average in February according to local MLS. Down from 85% in January.)
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Re: Buying a property in Mexico?

Post by SQRT »

@Vince. good luck on your purchase. Sounds like you have done your homework. Second/third homes are a huge lifestyle decision but can be really fun. After all, in the end that's what it's all about.
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Re: Buying a property in Mexico?

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I hope that those people buying condos came up with a low-ball counter offer before signing on the bottom line. Like the $120,000 price - offer $90,000- see if he bites. A couple of things I didn't like about Mexico. For a lot of the time during the day, it's too hot to go outside. Basically getting sunburnt after 10-15 minutes. Any trip outside is a zig-zag from one bit of shade to the next. So there is a lot of time spent indoors. Trouble is, the only thing on TV is Mexican soap-operas and other things in Spanish. Not too good. I'd take Florida any day.
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Re: Buying a property in Mexico?

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dusty2 wrote:I hope that those people buying condos came up with a low-ball counter offer before signing on the bottom line. Like the $120,000 price - offer $90,000- see if he bites. A couple of things I didn't like about Mexico. For a lot of the time during the day, it's too hot to go outside. Basically getting sunburnt after 10-15 minutes. Any trip outside is a zig-zag from one bit of shade to the next. So there is a lot of time spent indoors. Trouble is, the only thing on TV is Mexican soap-operas and other things in Spanish. Not too good. I'd take Florida any day.
We have been coming down here to Bucerias for the past 13 years and thoroughly enjoy it. In our area, which is about 15 K north of Puerto Vallarta, we find the weather quite pleasant and certainly while warm in the afternoons, is virtually guaranteed to be 99% blue sky and sunny throughout our stay which is normally Nov. - March. Beats the heck out of the snow. We have Shaw Direct down here so there is all the conveniences of home as far as TV is concerned - not that we spend large amounts of time on it.
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Re: Buying a property in Mexico?

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We have been coming down here to Bucerias for the past 13 years
My favorite Mexican resort is the Royal Decamaron complex in Bucerias. My sister just returned from her first visit and also enjoyed it.
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Re: Buying a property in Mexico?

Post by kcowan »

We tried Florida after retiring for two successive years, one month on the east coast and one month on the west coast. We find Mexico to be a vibrant culture unlike anyplace else. The only place close is New Orleans. But the advice about condo prices is a good one.

Here is a recent article I posted in the Vallarta Scene forum on current resale prices from their MLS (AMPI) records. Another thing to beware is the price they put in the sales transaction because capital gains are taxed at 30%. And the buyer has to pay tax on any capital losses incurred by the seller. It IS a different world.

PS Anyone that does not like the weather in PV between November and April is nuts!
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Re: Buying a property in Mexico?

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kcowan wrote:We tried Florida after retiring for two successive years, one month on the east coast and one month on the west coast. We find Mexico to be a vibrant culture unlike anyplace else. The only place close is New Orleans. But the advice about condo prices is a good one.

Here is a recent article I posted in the Vallarta Scene forum on current resale prices from their MLS (AMPI) records. Another thing to beware is the price they put in the sales transaction because capital gains are taxed at 30%. And the buyer has to pay tax on any capital losses incurred by the seller. It IS a different world.

PS Anyone that does not like the weather in PV between November and April is nuts!
What??? Am I understanding this correctly? Are you saying that if a condo owner originally bought the condo for say $150k and sells it to you for $100k, the buyer must pay the purchase price plus $50k to the seller because they took a loss?
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Re: Buying a property in Mexico?

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No the $50k is a tax on the buyer by SAT (like IRS or CRA) for the "gain" they made by buying the property below "market". You would owe tax on that amount, typically 30%. They do this to prevent leakage by artificially declaring low values of property to avoid taxes. The real irony is that, if you turn around and sell the place for $150k, you owe them the tax again.

But if you deposit more than 15000 pesos in your bank account in a month, you pay 3% on the amount over 15000. These kinds of tax rules are aimed at preventing tax avoidance which is rampant in Mexico.
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Re: Buying a property in Mexico?

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kcowan wrote:No the $50k is a tax on the buyer by SAT (like IRS or CRA) for the "gain" they made by buying the property below "market". You would owe tax on that amount, typically 30%. They do this to prevent leakage by artificially declaring low values of property to avoid taxes. The real irony is that, if you turn around and sell the place for $150k, you owe them the tax again.

But if you deposit more than 15000 pesos in your bank account in a month, you pay 3% on the amount over 15000. These kinds of tax rules are aimed at preventing tax avoidance which is rampant in Mexico.
So before buying Mexican property, the buyer needs to know what the seller paid for it, correct? In my example, as the buyer, I'd be paying 30% tax on $50,000, correct? If the seller paid $200,000 on a property I'm buying for $100,000 I'm paying an extra $30,000 in taxes. That is very significant and a little shocking.
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Re: Buying a property in Mexico?

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gbill2004 wrote:So before buying Mexican property, the buyer needs to know what the seller paid for it, correct? In my example, as the buyer, I'd be paying 30% tax on $50,000, correct? If the seller paid $200,000 on a property I'm buying for $100,000 I'm paying an extra $30,000 in taxes. That is very significant and a little shocking.
So if you really want to be out of pocket $100k you'll offer $57k (plus $42.9k for the tax) ? Kind of a negative spiral downwards...
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Re: Buying a property in Mexico?

Post by Okanagan »

Is it really the seller's purchase price you need to know or is it the tax value that is recorded in the purchase agreement (i.e. del avaluo catastral) .....or is this value only for tax purposes?

I just bought a property earlier this year and this is one of the questions I need to clarify with the Notario when we return to PV next week
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Re: Buying a property in Mexico?

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It is the price recorded by the notario in the title document. For new construction, this is often much less than the selling price. This is to control the taxes that the seller pays. But for resales, it is the selling price.

There are lots of ways around this if both parties are motivated. Places are sold here with furnishings. But they can be taken out of the selling price. The realtor commission is a service and those can be removed from the selling price.

(In our case, we purchased in 2007 for $250k. The place had a value of $140k from when it was built in 1992. The Italian who sold it to us had a POA from his brother who owned it. But the brother did not want to pay the CG of $110k. So the brother sold it to his Mexican wife who them sold it to us. She claimed it as her principal residence and so avoided taxes. All this took 6 months. But we got the keys as soon as the purchase dollars were deposited with American Tile in Jacksonville Florida. The escrow account was interest-bearing, so after getting my ITIN and filling out a W8BEN, I got over $2000 in interest, as well as use of the place during the 2007 season.)
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Re: Buying a property in Mexico?

Post by gbill2004 »

The Mexican real estate agent I'm dealing with says the seller pays this tax, not the buyer.
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