Buying Off Plan Investment Property in Mexico

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Buying Off Plan & Investment Property in Mexico

Buying an off plan property in Mexico is one of the most popular and cost effective ways of investing in the Mexico real estate market for both home buyers and investors, local or international. When you travel to Mexico you will see a vast amount of off plan developments in construction, many of which are in coastal areas where there is a high demand for quality properties that can be rented out.

These may be in the for of off plan apartments by the stunning beaches or villas in resort communities often with golf courses and other amenities that required and expected by second home owners and the wealthy local market. There are also many off plan projects in Mexico away from the coasts, near major cities where wealthy locals are ready to invest in secure resort style developments with an array of facilities.

New property developments in Mexico are being modelled on successful developments in other countries, and by doing this, the developer receives the full benefit of developing the project from start to finish, from initial purchasing of the land through to the final sale to the end owner/investor.

Many of these new residential and tourist based off plan developments offer a range of properties, a choice of floor plans and a range of prices all constructed within a chosen architectural style or theme which has been created to meet approval by the local authorities and the buying public. The new lease of life for 'Village/Town' style of development is hugely popular as owners will have all the necessary amenities and facilities available within the resort itself. This makes the property developments 'stand alone' and self-sufficient, to the point that supermarkets, medical facilities and even schools can be found on-site.

New off plan projects and resort developments can be found in many areas of Mexico and typically offer an incentive such as including a golf course, great sporting facilities, being located by the beach etc. Lifestyle resorts like these are of great interest to international investors and second home buyers, but also to the increasing number of wealthy Mexican families who want to own something to be proud of.

Property Developers in Mexico

In recent years Mexico has seen real estate developers investing huge amounts of money into the country not millions, but billions of dollars have been invested. National and international investors have performed their due diligence, chosen their areas and began work on new projects throughout the country. Although many of these new off plan developments are aimed at different markets in various areas, they have one thing in common these are not just new homes that are being built and sold but lifestyle resorts specifically designed and created so that new owners can experience a new and better lifestyle in a great new home. Interactivity with natural surroundings, homes that blend seamlessly into the landscape, many of which also include eco-initiatives such as rain water recycling technology, solar and thermal heating.

Sustainability and sustainable building methods are not just the in thing in Europe or the USA!

The principle areas for developments are along the Caribbean and Pacific coastlines, where tourists are prevalent throughout the year, drawn by the inviting climate and the opportunities that prevail in busy areas. These coastal areas are attractive destinations for those looking to escape the harsh winters in the north. One of the appeals for coastal regions by these new developers is that the infrastructure is already in place as it has been carefully planned and developed for decades. This means that new projects will not have to deal with unnecessary red tape, as the land has already been set side by the authorities for development. Transport links tend to be well functioning as do the medical facilities and utility sectors things that new home owners require and are aware of.

Areas in new locations may be more desirable from a purchase price point of view, but that is normally because the infrastructure is not yet completed. Inland areas such as Campeche are generating huge amounts of investment, which in turn are paying for new roads and transport links, better utility and medical services. Developments in these colonial cities are being targeted at international buyers who wish to experience the 'True Mexico' as well as the national market of wealthy families who are either relocating, buying property for the future or buying for the family.

In the north west of Mexico just over the border from San Diego, small fishing villages have been turned into bustling towns, purely on the fact that property in Mexico 20-30 miles over the border is far cheaper than in California. As more interested investors have crossed the borders, the search for great property has also expanded, heading south down the coast and spreading out throughout Mexico. Basic economics have done the rest. As more people invest in an area the wealthier it gets, this in turn allows the local market to take a step or two up the property ladder. Foreign investment and government funding has done the rest and now you will find off plan developments being built in most parts of Mexico

Property Investment locations in Mexico

The coastal region of north west Mexico known as Baja was one of the original destinations for overseas buyers to invest. This trend continues today with popular areas being San Felipe. Los Cabos and Loreto

Central Pacific coast of Mexico has long been admired by tourists and sports enthusiasts with names such as Acapulco and Puerto Vallarta at the head. But now you can also add Mazatlan, Manzanillo, Ixtapa and Huatulco to the list. Many great opportunities are available in these areas and if the Mexican Pacific area is for you then you need to consider the aforementioned regions

The Yucatan Peninsula is home to Cancun and the Riviera Maya nestled alongside the crystal blue waters of the Gulf of Mexico on the west of the country. This part of Mexico is still the pricnciple market of European investors given the established tourist market Merida and Playa del Carmen are worth considering should you feel that Cancun and Cozumel is not for you

Further north on the Gulf of Mexico you can discover the beautiful beaches and inland areas of Veracruz and Campeche. These areas are currently receiving large amounts of investment from Spanish development companies who envisage a huge growth in the region. Improved infrastructure, regular flights and lower prices will no doubt help this stunning part of Mexico to establish itself very quickly as a destination for discerning investors.

Why should you consider buying an off plan property in Mexico?

Buying an off plan property in Mexico is much the same as buying one elsewhere in the world. You can invest in the early stage of a development and see considerable capital gain during the course of the build. If you are a responsible investor you will perform your due diligence, check on the builder, ensure that all licenses are in place and read between the lines of any sales pitch that you may hear.

Double check on rental prices in the area for equivalent properties, don't just buy a rental property because it s cheap, but it because it is the right property in the right area at the right price.

Developers offer properties at low prices at the start of a new project so that they can justify to banks that the development is a viable entity and so that they can borrow money in short it assists their cash flow. Once a certain amount of units have been sold, the price will rise and will continue until the development s sold out. Buying in the initial stages of a development means that you the investor can see very positive equity gain, normally with only a 20-30% deposit, which as a leveraged purchase can generate profits of 30-50 or even 100% profit.

It sounds too good to be true doesn't it? You will need to make your own judgements based on the due diligence that you and your lawyer perform. Yes large profits can be made, but dealing with inexperienced developers with no track record, buying without a lawyer and buying the wrong property in the wrong location are investments begging for problems in the future.

Before you jump into the off plan real estate market, sit back and make a few decisions:

Are you comfortable with the property and the area?

Is the property sensibly priced?

Will you be able to rent out the property?

Dow you wish to sell it before or at completion?

Will the property be suitable for the local market when the time comes to sell?

Is there a rental guarantee in place?

Will the resort have on-site management?

What will be your exit strategy?

Has your lawyer investigated the development to your satisfaction?

Can you afford it?

Buying an off plan property in Mexico

Once you have found your property you will need to reserve it and make a deposit which shows good will so that the developer removes it from the market.

Many national developers in Mexico work on a stage payment scheme, with multiple payments being paid by the investor at key stages in the construction process. International developers are more likely to ask for a 20-30% deposit minus the initial reservation fee with the remainder due at completions when the title deeds will be exchanged once the property has its occupancy licenses authorised and when utilities are connected.

Up until recently, most property purchase transactions have taken place for cash due to the mortgage market in Mexico being very basic. Nowadays there are various mortgage options available and more competitive rates, however raising the funds in your own country should still remain a principle option until the mortgage market in Mexico becomes more established.

Once you have paid you reservation, you need to have your lawyer diligently check AGAIN on the developer. Find out what projects they have completed previously and if possible find out if the owners were happy with the end product. Does the developer have a good track record or are they renowned for late delivery or poor craftsmanship. Have your lawyer check on the financial health of the company, whether they have bank guarantees in place and that the building permissions been correctly authorised by the local government?

A Convenio de Compra - Venta which is the sales agreement that you will sign, will show the costs of the purchase, the details of the purchase including the full address, deadlines, inclusions and exclusions along with a payment schedule. At his time you will be asked to pay approximately 10% to the buyer paid through your lawyer and cancellation penalties are stipulated should either party withdraw from the sale

If you are buying an off plan property from a developer, your Notario along with your lawyer will ensure that all of the necessary building permits are in order. Have your lawyer attain a copy of the Land or Property Deeds 'Escritura' to check that the land is not 'Ejido' Agricultural land which brings various legal issues with it.

An Avaluo will be required which is an official appraisal of the land

You will need to be able to provide your Notario with a copy of your passport and a tourist permit. Birth Certificates and Marriage Certificates are sometimes also asked for

The vendor will provide original deeds, up to date tax receipts, paid utility bills and details of any land service fees.

In Mexico the Capital Gains Tax is typically paid by the vendor at the point of signing or within a specified period of time. Notary fees, lawyers fees, stamp duties etc are paid at this point in the Notaries offices

Any funds exceeding $10,000 must be declared when entering Mexico you will be asked to complete a special form. Funds can freely be moved in and out of the country as long as they are declared.

All contractual signings should be done in front of a Notario - a Public Notary - it is the legal function of the Notario to witness and certify that all paperwork is in order and legal. According to Mexican law - in fact under most laws in Spanish speaking countries 'the Escritura' (Title Deeds) must be written by the offices of the Notario. These Title Deeds are normally set out in a predetermined manner by the Notario according to local and national legislation in order to remain impartial to the parties involved. Once the Notario has checked that all of the documentation and permits are in order you and the vendor will be asked to sign the paperwork.

Your lawyer and the Notario should have checked that the Title is clean of debts and liens at this point which is very important as according to Mexican law, a lien remains with the property regardless of whether it has been sold or not.

Title Insurance is readily available in Mexico and should be a consideration if you are buying and older property or if you have doubts about a developers finances at the time of closing

The Notary will also check paperwork provided by your lawyer and the vendor to ascertain that all land taxes have been paid during the last five years and that utilities have been paid for the last two years. After these periods you are not liable for any debts previously incurred.

A Notario holds a position of authority in Mexico and will not risk his reputation by hiding problems from you. As the purchaser it up to you and your lawyer to choose the Notary and the will adhere to the letter of the law on your behalf

Poder - this is a power of attorney that could be issued to your lawyer, enabling him/her to act on your behalf when signing contracts. This is a good solution for overseas investors who are unable to be present for the actual completion.

The cost and taxes incurred when buying a property in Mexico

• Acquisition Tax - this is a tax that is paid based on the sale value and equates to approximately 2% - state dependant.
• Appraisal Tax- The Mexican Tax Authorities can choose to perform a commercial appraisal after you have purchased the property. If they value the property at greater than 10% more than the amount you paid, you will be asked to pay 20%tax on the difference between the two figures.
• Foreign Office Permit - this will cost approximately $150 and can be obtained from the Mexican Foreign Office
• Lawyers Fees- Your lawyer will typically charge a percentage of the total sales price of the property â€" you should negotiate this fee well in advance.
• Land and Building Surveys - These fees are separate from the purchase transaction and should be paid when utilised
• Notary Fees - You will be asked to pay the notary Fees at the point of signing and will typically equate to 1.5% of the purchase price plus the price of the official appraisal
• Registration Fees - These Registro taxes are paid so that the Public Records are upto date. Based on 1.3% of the sale value
• Service Fees- these could be community costs or HOA fee equivalents are typically due of you have purchased in a resort community or an apartment. Fees vary depending on the facilities and amenities â€" you should check on these before buying â€" fees range from $100 a year to $100 a month on exclusive resorts.
• Title Insurance - this is an optional service which acts as a guarantee against any liens that may not have been observed during the due diligence process.
• VAT - Sales Tax is NOT payable on residential properties in Mexico.
• Capital Gains Tax - if the property has not been your principle residence for the last two years you will be obliged to pay EITHER 20% on the gross sales price or 40% of the equity gain.
• Inheritance Tax - There are no inheritance taxes in Mexico but nonresident beneficiaries inheriting Mexican property are taxed at a fixed rate of 20% on the gross value of the property.
• Estate Agents Fees - " Real estate agents in Mexico typically charge between 3% and 6% plus VAT

Some of the most popular areas in which to invest in off plan properties in Mexico are:

Cancun - Campeche - San Felipe - Los Cabos -Acapulco - Puerto Vallarta - Playa del Carmen - Veracruz