In this beginners guide, we will walk you through How to Start Investing in Mexico Real Estate easily and safely.
Many clients have taken the leap and invested in a vacation home or a rental property here in Riviera Maya. Demand for vacation and long-term rentals has increased over the years. There is no sign of things slowing down.
In fact, the opposite. There is no reason why you can’t benefit from making a small investment in rental property.
Can Canadians & Americans Own Property in Mexico?
3 Misconception about Mexico Property Ownership
1. Foreigners cannot purchase property in Mexico
This is completely incorrect. Foreigners can own property in Mexico and it’s completely legal too. Foreigners can have the same rights as Mexicans with owning their property.
Through a bank trust agreement called the fideicomiso, foreigners can have ownership of land in the restricted zone.
This is safe, legal and owner can easier transfer ownership when ready to sell.
The restricted zone is 50 kilometers (about 31 miles) from shorelines and 100 kilometers (about 62 miles) from international borders.
Alternatively, foreigners can buy their property through a Mexican corporation. This is the less common of both options.
2. You should Hold Your Property Title in Your Own Name
In 1973 the Mexican government allowed foreigner ownership of property in the restricted zone via bank trust.
Since these changes were made, many foreigners have purchased their home in Mexico using the bank trust (fideicomiso).
The bank trust grants the title of property to the bank (the trustee) and you as the trust’s beneficiary.
6 Simple Steps to Buying your Mexico Property
1.Choose your Area
First things first. Where do you want your vacation rental to be located?
The Riviera Maya has many places to choose from. Perhaps you’re not even considering the south eastern tip of Mexico and would rather go to Cabo San Lucas, Puerto Vallarta or San Miguel de Allende.
It’s up to you, but you need to settle on investing in real estate in one place first.
Ask yourself the following question:
– When you use your vacation rental, what is one place you’ll never tire of visiting?
– Or are you investing and never planning on using the property yourself?
These questions help you choose the destination that best suits your needs.
Another thing to help you choose where to invest is looking out for tourism indicators.
– Which destinations are popular amongst vacationers?
– How is the future of tourism looking in a certain area?
For starters, we can tell you that Quintana Roo is the fastest growing state in Mexico, and it’s increasing tourism numbers are record-breaking.
2. Ask a Local Realtor to help you (English speaking)
Especially when you’re purchasing in a foreign country and in a popular destination (which most likely means you’re entering the restricted zone), you need to work with a local realtor.
It may sound biased, but the fact is, a real estate agent will know their way around the system and help you in completing a smooth purchase.
Moreover, they will be able to hand-pick perfect vacation rental properties for you, depending on your individual desires.
Working with a real estate agent will also give you access to important historic return on investment figures and growth indicators.
They will show you the best areas for rental opportunities. Investing in real estate in Mexico is quite a low-risk affair, however, to minimize any possible risk at all, a realtor is your best option.
3. Calculate the Rental Potential
There are ways to figure out how much rental potential your desired property has. Whatever you purchase is, it needs to make sense financially.
That means you (and your realtor) need to be able to find a property that you can afford even when it’s not being occupied. While hotel occupancy and vacation rentals in the Riviera Maya are often over 80% throughout the year, there are low seasons and not all properties are being rented week after week.
You need to make sure that when there is no income, you can still afford to maintain your property.
Find out what your operating costs will be. How much money will you invest (besides the purchasing process) on a monthly basis?
If you’re working with a property manager (which we highly recommend), then you need to factor that expense into your calculations. Most likely, you will be covering the costs for electricity, water, gas and cleaning.
At the end of the day you need to balance out your expenses with your incomes and make sure the latter is profitable.
However, you cannot overprice your nightly rental price, otherwise vacationers will choose the competition. If your income is not greater than your expenses, it is not a smart investment.
Oh, and don’t forget about your taxes, as well. Another thing you need to take into account if you’re doing your own property management, is advertising.
Usually when you hire a property manager to take care of everything with your home, they will also cover advertising within the cost.
If you choose to venture on your own, you will need to be able to keep your calendar in order and cover the costs of advertising on AirBnB, VRBO, and others.
4. Find a Way to Finance your Vacation Rental
Once you’re set on where you want to invest, what type of property you want and the use you will give it, it’s time to start checking your financing options.
It’s up to you whether you do an all-cash transaction or finance your property via a loan or mortgage.
We highly recommend using a mortgage, as it is one of the most common means to finance a home in Mexico and will make it much easier.
However, you need to shop around to find the best fit.
5. Mortgage Application
There are other ways to raise finance for your home if a mortgage isn’t your first choice. You can use an existing property as a foundation.
That means either refinancing your existing property or furthering a loan from that same property. You may also decide to use a combination of different financial instruments.
At the end of the day, it’s your choice how to finance your home in Mexico and you can rely on your trusty real estate agent to help you figure out the best choice.
6. Investing in Real Estate is a Trend
Real estate investments are a trend that has continued to grow and will not stop any time soon. It’s not too late to start investing.
In fact, the more experienced you are, the better you will be able to manage the market. Purchasing a vacation rental in Mexico is a fantastic way to start investing in real estate.
When you start seeing your positive cash flow, you’ll want to invest in more. It also serves as a perfect vacation home for those long winters up north you might want to escape.