MAY 2018
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Enter the Dragon: Managing Risk When Chinese Buyers Call
This month in VantagePoints, our ongoing series regarding international business operations continues, with the second of a two-part installment about buying property in Mexico. Specifically presented is a discussion of limitations imposed on foreign buyers.  
Buying a home or condo in Mexico can be a solid and enjoyable investment - if you understand your limitations, exercise the proper diligence, and find the right place and the right people to guide you.  
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To Buy, or Not to Buy? Risks of purchasing property in Mexico
Part Two: Foreign Ownership Limitations

Mexican coastal resort destinations can provide unique opportunities to profitably invest in single-family residences. Properly executed, such an investment can yield a nice return while simultaneously providing a scenic vacation retreat. The decision to invest in Mexican real estate, however, should come only after a diligent study of the locale, the particular property, and a thorough understanding of the mechanics of the sale and the limitations imposed on foreigners.

The Mexican constitution once prohibited foreign ownership of real property; however, in 1973 an amendment opened the country to outside ownership of land, except for territory inside an exclusion zone within 100 kilometers of the border or 50 kilometers of the coastline. In 1993 the constitution was further amended to allow foreign ownership within the exclusion zone, through a bank trust known as a fideicomiso. A Mexican corporation owned by a foreign national can also own property within the exclusion zone but is prohibited from owning a single-family residence.

The fideicomiso is a trust administered by a Mexican bank, which serves as trustee and holds the trust deed for the purchaser/beneficiary. Whereas the trustee is the owner of record of the real estate, the beneficiary retains all ownership rights and responsibilities and may mortgage, lease, sell, or bequeath the property. The fideicomiso is authorized by the Mexican Ministry of Foreign Affairs for an initial period of fifty years, and on expiration can be extended for an additional fifty years. So, it is important to bear in mind that the beneficiary's right assigned to heirs will extend for a maximum of 100 years from the time of establishment of the fideicomiso.

Title insurance is not required in Mexico, mainly due to the diligent title work performed by the bank and the Mexican Notario Público, or notary public, who in Mexico is a specialized and highly skilled attorney. Although most buyers decline coverage, it is available through the Mexican subsidiaries of some major U.S. insurers. Since a foreign buyer must agree to Mexican legal jurisdiction over any disputes arising from the property transaction, title insurance is a smart investment. Hiring an independent Mexican real estate attorney to review the documents and contracts is also money well spent.

Before selecting the property, the first thing to consider is whether or not to rent the property. Rental income, especially in areas with attractive beaches and appealing entertainment districts, can be substantial, but there are tax and management implications. This is where a seasoned realtor experienced in helping foreign investors can be your best friend. Employ such a professional early on in the process to guide you to the best property - one that has a proven rental history and is ready for renters. The realtor can also help you gauge the tax implications and steer you to a competent management company.

If your resort property is intended strictly as an investment for your exclusive use, once again a realtor can serve an indispensable role. He or she can help you to select a location where historical value appreciation is highest. Also, the realtor can assess the areas that have the lowest crime rates and best security personnel. Realtors also know the most capable and trustworthy companies to watch over and maintain your asset in your absence.

Due diligence prior to property investment is essential in Mexico. If you are considering investing in Mexican real estate, let the experienced team of ResultQuest help. Our extensive network, developed over more than thirty years of working in Mexico, can assure you have the right professionals for the task.