Real estate investing in Mexico is generally considered safe and lucrative, especially in tourist-driven locations such as Riviera Maya Mexico. Investing in vacation rental property in Mexico can be a great way to build up your knowledge and experience as an investor.

The benefits of owning a vacation rental in Mexico as an American

There are many advantages to owning investment properties. It’s why platforms like Airbnb and VRBO have gained exponential popularity over the last decade. It’s probably why you’re reading this article in the first place.

Let’s review the benefits of investing in vacation real estate in Mexico.

Buy in Mexico, but first understand these important facts. 

Prime, Oceanfront Ejido Land in Mexico

Ejido land is communal agricultural land, which was granted to a community… often an indigenous community. Much of this land, while not worth that much at the time, is now prime, sought-after beachfront property.

In order to this type of property, you would need the approval of 100% of the community members, separation of your parcel from the ejido, and conversion of that parcel to a freehold title. 

Converting ejido land to private ownership is a complicated but possible.  

There are, reputable legal firms in Mexico who specialize in converting ejido land into land that can be sold via a freehold title.  Have a professional Realtor verify that the property is recorded in the property registry as a freehold title before your purchase (don’t convert it concurrently with your purchase).

Have an independent, third-party attorney review the title’s history and assess the legality of the ejido land’s conversion to freehold title.

Purchase title insurance to guard against future legal claims, which may be valid or frivolous.

No Restrictions On Foreign Ownership… Almost

Generally speaking, there are no restrictions on the ownership of residential property in Mexico, and you can hold the title in your own name. You can choose to hold it in a trust—for asset protection or estate planning purposes—but it’s not required.

If the property is near the coast or an international border however, special rules will apply. 

Special Rules Apply When Buying Near The Coast Or Land Border

Mexico has a restricted zone—called the Zona Restringida—that occupies a band within 50 kilometers (31 miles) off the coast or 100 kilometers of an international land border. Since the early 20th century, non-citizens have not been able to hold property in their own name within this zone.

But in order to encourage foreign investment, the government created a workaround in 1973, formalized in its current version in 1993. In short, it authorized the use of a trust to purchase property within the restricted zone. This trust is called a fideicomiso (fee-dey-com-EES-oh) and it’s similar to a Land Trust in the United States.

In U.S. trust parlance, you (the property buyer) are the Grantor of the trust, and the Beneficiary… so you fully control the purchase, sale, and management of the property. A bank of your choosing acts as the Trustee.

Fideicomisos must be renewed after 50 years.

The Notary: Not Like The United States

The role of the notary in Mexico is different from their role in most of Latin America, Europe, or the United States. The notary is appointed by the state governor and must be an attorney with at least five years of experience. As a buyer in Mexico, the notary is your representative in the process. Having a trusted Realtor that is a member of A.M.P.I. (Asociación Mexicana de Profesionales Inmobiliarios) is also crucial.  

The notary will perform a title search, prepare all the paperwork, process the real estate transaction, record the new title with the municipality, and collect the taxes and fees.

Always retain a notary who is fluent in English unless you’re a fluent Spanish-speaker. The notary will serve as your translator and explain what all the Spanish-language documents.

Our Realtors will guide you through the purchase – Step by Step

Make An Offer And Come To Terms On A Price

This is usually done verbally, either with the seller or through your real estate agent.

Sign The Sales Contract

This can be called a promesa de compraventa, convenio de compraventa, or contrato de compraventa, depending on local custom. Here is where you document the price and specify the terms and conditions of the sale, including any special payment arrangements and penalties for default.

Pay A Deposit

Normally, this will be 5% to 10% of the sales price.

Initiate Creation Of The Fideicomiso If The Property Is Within The Restricted Zone

Alternatively, you can transfer the previous owner’s fideicomiso into your name. This can save you time and money, but a transfer does not reset the 50-year clock… the fideicomiso will need to be renewed 50 years from the time it was originally created.

Obtain Permission To Complete The Purchase From The Foreign Secretary’s Office

You will be asked to sign a statement indicating that you will not seek foreign legal jurisdiction in dealings with your property transaction… in other words, Mexican property law will govern.

Conduct The Title Review And Get The Official Valuation (Called Avalúo)

Once again, the notary will perform or arrange these activities. The valuation will be used to establish the home’s value for tax purposes… so the age-old practice of underreporting the sales price will not work here.

Sign The Escritura 

Sign the escritura at the notary office and make the closing payment. When signed and recorded, this escritura will be your title to the property.

Pay Taxes, Collect Fees, And Initiate The Property Registration

All of this is done by the notary. You’ll just need to hand over the money.

Final Registration

Final registration in the property registry will be completed and recorded within three months.

Closing Costs

Closing costs should be about 6% of the purchase price. This includes a 1.5% notary fee, a 2% transfer tax, and a few other miscellaneous expenses and/or fees including the fideicomiso setup fees. This will be higher if you get a mortgage.