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Mexican Real Estate: What You Need to Know Part 1

Portrait Andrew Schulhof

#303-1338 West Broadway
Vancouver
British Columbia
V6H 1H2

Mexican Sunset
There are Many Important Advantages and Disadvantages to know when Buying Preconstruction Properties in Mexico.

I am excited to share with you critical information for buying Lifestyle Real Estate in Mexico!  For your info, I am providing you with materials and links from a specific region in Mexico, however much of the info would generally apply to most regions. But don’t assume, ASK to ensure the facts and clarity!

This blog is focused on my preconstruction research in the Puerto Vallarta/Nuevo Vallarta/ Bucerias region as this is the area I am personally interested in. It was voted best destination in 2019, won four Travvy awards in 2021, voted the top Mexican vacation destination for Canadians in 2022. This area is one of the fastest growing regions in Mexico for Canadian and US citizens to vacation and buy.

The real estate market is definitely in a solid recovery from the past eight quiet years where there was a lack of new product. Now the market is stronger, and this economic environment is resulting in new construction which provides opportunities for developers and buyers. There are so many new projects popping up throughout the Bahia de Banderas region.

Investing in a foreign country can feel risky to some buyers, so it is important to consider risk management as a part of the buying decision. Investing in preconstruction real estate can add a further element of risk.

How to Win in a Preconstruction Purchase

Buying preconstruction is not the same as buying a property that already exists and is just being sold to a new owner. You are choosing to buy a property that does not exist yet and there are advantages and disadvantages. I personally like new product as it allows for the latest design and construction elements and time to create the necessary funding.

In Puerto Vallarta developers are required to have a one year warranty on the properties they deliver. The developer is required to run the HOA/condo association until they can finish the project and get the required condo regime and bylaws recorded. The municipality issues catastral (legal title description) numbers to enable the city to register your property as private.

Thousands of condos have been successfully purchased by foreigners under the preconstruction formula. However, as in all preconstruction even here in Canada, there have been a few cases where the buyer has ended up unsatisfied for a number of different reasons. And that is a fact of life.

So how do you maximize your opportunity to win in a preconstruction purchase and lower the risk to a minimum?  You have to ask the right question of the right people and assess the answers you receive to ensure that they meet with your desired outcome.

Advantages to Look For

 

Latest Construction Finishes

One of the advantages is you are buying new, which means that you are generally getting the latest in construction finishes and fashion. Some other advantages are, like in Canada or the US, when buying preconstruction in Mexico, you usually get the best prices (or discounts) before the developer starts increasing prices (usually after a certain number of properties sell), and also you get the best selection of available units, parking stalls and or lockers as applicable in multi-family properties.

Discounts

Depending on the developer, there may be discounts as incentives for people to buy early, and depending on how early you get in, there may also be payment options to choose from. The reason is that the costs are usually less than when the project is finished. It is a win-win for both the developer because of proof and momentum, and the purchaser because of value and price. The combination of discounts for early purchase and increasing construction costs means that you could be building equity value by getting in earlier rather than later. Usually the more you put down early, the greater the discount off the purchase price the developer will offer, but you need to still understand the entire purchase process and requirements.

Customizing Options

With some developers you may have the option to customize the property you’re purchasing. Sometimes there are different finishes or upgrade packages available in these preconstruction developments.

Developer Financing

Depending on the developer, sometimes you are able to get developer financing for a number of years after the actual purchase and closing maybe 1 – 5 years, but not for the life of the ownership of the property.  As a non-permanent resident, mortgage financing for any preconstruction or existing property is not something you want to attempt as it is at best extremely expensive and difficult, if not impossible.

Important Disadvantages to be Aware of

 

Money in Advance

One of the concerns for purchasers of preconstruction is that you are putting money in advance for a home that you will have to wait for to be built one to three years later. For some people that really can become an issue.

Delays

The key disadvantage of preconstruction in Mexico, just like in Canada, is that there can be delays in completion despite best efforts and there are clauses in the contract that will address this very point and what action and or penalties, if any, are available.

Escrow & Completion

As the purchaser, you are taking a risk that the developer will deliver the finish and completion as promised in the contract. One thing that you can do to offset this concern, is request the developer to agree to have all your monies for the purchase placed in escrow.  Escrow in its simplest terms is a third party (bank, Escrow Company, or trusted entity) that holds the funds in trust until the condition that were set out are satisfied and then the funds are wired to the developer. But bear in mind, as the developer may need the funds from your purchase to pay out any construction financing that they have in relation to your property. If the developer has borrowed funds to construct the project, ideally your purchase contract should note that the developer will pay the loan off to the amount needed to release your condo to be transferred to you, with no mortgage lien against it.

Substitutions

A disadvantage of preconstruction is that of finishes that may be substituted to what was originally presented and may have been that were laid out in the purchase contract. In preconstruction, there is a specification list that addresses the finishes, elements and equipment included, available upgrades or options for you with your purchase contract. This information is very important to review with your attorney/notario and the developer to understand how and when exactly substitution “of like or better quality” elements or material will be used and when will you be notified of such substitutions.

Finishing Common Areas

Another potential disadvantage of multi-family preconstruction is that maybe the homes/condos are completed but the common area amenities such as landscaping, pools, gyms, clubhouses etc. may not be finished for some time, which obviously causes disruption, dirt and so on which is not pleasant for the new owner if they have to take possession. Again, this type of issue hopefully is addressed in the purchase contract and should be reviewed with your attorney/notario.

Do your Homework

There is no question that purchasing preconstruction properties in a foreign country carries risk. However, if you do your homework you can mitigate the majority of the risk. This is done by researching the market, the area, most importantly, conducting your due diligence on the developer and development, and having the right professional team supporting you from research to possession and closing, and beyond.

New Real Estate Opportunities 

I am getting notifications of newer project opportunities in Mexico almost every week, and have actually invested in a preconstruction property for myself. If you are interested in real estate in the Greater Puerto Vallarta and Cabo San Lucas locations, I have relationships with key contacts there for those interested in pursuing real estate there. In addition I have made excellent connections with agents in other areas of Mexico and other international markets through my CIPS designation so please feel free to email me at [email protected], and I am happy to help you find the ideal Lifestyle Investment property for you. Let’s chat!

Get in Touch

If your are interested in investing in real estate, or looking to list your current home, I can help you form the appropriate strategy and answer any questions you may have. 

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