Grab a cup of coffee and enjoy because this blog is a bit longer than usual! This is because there are important steps to be taken before investing in Mexico. As I always say, ‘Look before you Leap’ (read this article!), ‘but Leap’ (because Lifestyle Investing is how you create a great lifestyle!) With housing prices reaching all-time highs, many of you are looking for real estate alternatives in warmer climates.
Following my discovery trip to Mexico, many of you have shown great interest owning in Mexico for investment and personal use. I will continue to post on the many aspects of Buying a Lifestyle Investment Property in Mexico, but here are the basics to get started.
The blog will give you a high-level guide on the 5 Essential Steps to Buying a Lifestyle Investment Property in Mexico. If this is something that you have been considering, this blog will provide you with a solid starting point to take action.
Good reasons to invest in Mexico are the significantly lower cost of living there, its excellent access and close proximity to Canada and the US, the weather there is generally great all year around, and it has a reasonable healthcare system. Before we dive in you may want to have a look at my recent blog Top 5 Lifestyle Investing Considerations as a basic starting point to consider foreign real estate investment.
Here are the 5 Essential Steps to Buying a Lifestyle Investment Property in Mexico
1) Deciding (location, use of, and type of property you wish to buy)
As this is your first step in the process, don’t take it lightly as it is in many ways is the most important step. Everything that follows is dependent in this decision.
Mexico is quickly becoming an even more attractive destination, so many of us are now considering living there for part of the year. When you get into the decision process, there are so many wonderful places in Mexico to live that you really need to do your research based upon your criteria. Much of the leg work can be done online as a first step. You may find that there are a few locations that would work.
Unfortunately, Mexico does not have an organized countrywide multiple listing service for real estate, nor is buying and owning real estate straightforward, like in Canada or USA. Also you don’t have to be a licensed agent to sell real estate. Despite its popularity, these are some of the reasons why many foreigners haven’t purchased there.
There is also some good news for investors. There are licensed real estate agents in most Mexican destinations and cities. Like me, some have completed their Certified International Property Specialist (CIPS) designation through the National Association of Realtors (NAR) which is the US based Real Estate Association. This is very important as there is a network of us who work together to assist our clients with their global real estate needs. We also have a code of professional ethics and conduct that must be maintained and adhered to. If you are interested in connecting with a fellow CIPS member in a certain Mexican community, email me at [email protected].
Also, realtor.com does carry some listings in certain communities and there is a limited MLS system called the Flexmls, which many of the CIPS agents in Mexico subscribe and contribute to, but it is not broadly used. You will need to connect with a specific agent or agency in your target community to gain access to that Flexmls system if it is available.
The key to all the research is to first determine your ideal destination location in Mexico. For that you need to look at whether you want mountain destination communities or beach towns which could be Caribbean destination communities, Pacific destination communities, or Sea of Cortez destination communities. You will also need to determine ease of travel access, what type of environment you want – hustle and bustle or quiet – what type of property you ultimately desire such as a condo, townhouse, hacienda, etc. Some of the key parameters you need to determine are: the budget you have in mind for purchasing and furnishing the property? If you are planning to stay there short term or long term, what is the time of year that you plan to be there? What is your time frame of the rentals in your home and who would be your intended guests (Nationals, North American, or international guests or a combination)? Answering these questions will also help you narrow your location.
2) Viewing the Properties in Mexico
Once your online research is complete, you will need to go there, as seeing it in real life is crucial. Since you are planning to spend time there on a regular basis, even if it is only once or twice a year, go there to get your boots (or flip flops!) on the ground. Walk around to get a real sense of those destination cities, towns, areas that are most appealing to you, as well as getting a feel for the surrounding area. Yes, you can save money sometimes, by going directly to the selling party, but unless you know what you are doing, it can actually cost you more.
Book in advance to meet with licensed agents to view various existing listings and developments. You want to see the quality, what is included in the property, and how the surrounding area look and feel to you. Also put yourself in your guests’ shoes, so that you consider it from the future potential guests’ perspective. In my next blog, I will be providing you with a checklist to bring with you to view every property properly.
3) Conducting your Due Diligence on the Real Estate
When considering owning a property anywhere, it is imperative to conduct your due diligence. Owning in another country adds a further element of risk, which requires greater due diligence to ensure a successful outcome. It is one thing to conduct due diligence on the property, but because many aspects may be beyond your normal understanding. It is prudent to conduct extra due diligence with the many considerations specific to buying in Mexico.
For instance, be willing to meet and speak with several real estate agents over the phone in advance to discuss your needs and expectations. It is important to know how fluent they are in English as you don’t want to have any communication issues. You also will want to work with agents that are experienced and knowledgeable about the market and the properties in the area. Have them send you some listings that match your desired property parameters. Ask if they have references from other foreign buyers that you can speak with.
In terms of doing your due diligence on the property, you need to understand the strengths and weaknesses of the property. Most likely if you are looking at a property where you plan to live part-time and rent out, you will be looking in a location where there are other expats or snowbirds living there. It’s good thing to ask if there are any expat neighbours and if possible check with them about their thoughts of living in the complex if it is a condo or townhouse.
It is always good to physically look for yourself at things like the exterior walls for cracks, discolouration, bulging, and notice anything that seems strange. Look at the roofs for anything strange, look at the windows and doors and try them out to ensure that they open, close, and lock properly. Try everything out, run every tap and tub faucet, look for leaks under sinks, is there any issues with smells, flush the toilets, and turn on every light. If you can, test all the electrical plugs. Note any deficiencies or any that seems strange for future reference. One of the best ways to conduct your due diligence is to hire a reputable inspector or a professional contractor. Get a title search done to ensure you are dealing with the actual person on title.
If you are looking at preconstruction, it is very important to understand who is the developer, their level of experience and track record, what are the deposits, where are they held and how do they work, what in the property would be included in the purchase price what is an option or upgrade and the associated costs, and lastly, what is the expected timeline for completion.
Whether it is an existing property or preconstruction, it is imperative to understand the workings of the condo regime and who is the actual registered owner of the property that is for sale, and what is involved and included in the HOA (condo/strata) fees that you would be paying, so that you know what you are responsible for in addition to the fees. What are the property taxes due, when and how are they paid? Unlike in Canada or USA, in Mexico you need to ask ALL the questions you can think of as the devil is in the details and you need to be thorough. Even if you think it is dumb or going too far, believe me if you ask nicely, you will get the answers.
4) Making the Right Connections with Professionals
Like in most situations, the power of the relationship can make the difference between failure and success. It is imperative when you are considering purchasing a property, that you research the culture so that you can get a better understanding of how to best do business there. When buying in Mexico, it is even more important because in their culture is strongly based upon relationships first, then transactions.
Some of the key relationships you need to build are with or for the following:
- Licensed buyer’s representative real estate agent
- Inspector/Professional contractor
- Appraiser
- Notario (these are the professional people that deal with the actual contract and title)
- Property Manager (they are there to take care of the maintenance of your property and your guests)
- Property Insurance underwriter
- Banking relationships
- Accountant to navigate the various aspects of owning a Mexican property
5) Take Action and Write the Deal
This is the last step to buying in Mexico. This is where the rubber hits the road and you get to lock in the fruits of your efforts. As a foreigner, you can own a property outright in your own name but there are some restrictions you need to understand. If the property is within 50 kilometers of the coastline or 100 kilometers of a border, you will need to purchase in a fideicomiso. In short, it is a bank trust for which you would be the beneficiary, and it is required to be properly set up and maintained. Here is a link to FAQ’s about fideicomiso worth reading. It is well worth understanding the FAQ’s so that you find yourself on the right side at all times to ensure no issues in the future.
One of the biggest questions that most foreigners ask is can you get mortgage financing from banks/lenders for your properties. The answer is yes, you can get mortgage financing, but it is not simple and for most foreign buyers it is far simpler to obtain financing back home, where it is simpler, and the interest rates are far more competitive. If you are buying preconstruction, many developers will offer some form of financing options, but read and understand all the documentation to ensure that it fits with your circumstances.
In conclusion, this is a high-level overview of 5 steps for buying a lifestyle investment property in Mexico, but by no means is this conclusive. It is intended to be a primer and thought provoker. I am actively investigating opportunities for myself and clients, and have made several great connections on the West coast of Mexico. If you managed to read to the end of this longer-than-usual blog, then you must be interested in Mexico! Please feel free to contact me to learn more details at [email protected], or call 604-889-1760. Adios.
